New guidelines to improve allocation of govt capital, boost autonomy of State firms

The establishment of special-purpose companies tasked with State asset investment and operation will improve the allocation efficiency of State capital while giving substantial autonomy to State-owned enterprises.

The State Council released a series of guidelines on Monday on promoting the pilot reform of State capital investment and operation companies, aiming to inject more vitality and anti-risk capacity into SOEs.

According to the guidelines, the companies will be solely State-owned and can be set up either via restructuring or new registration. State capital investment companies will make investments that are in line with national strategies and increase industrial competitiveness while State capital operation firms will be mainly be tasked with enhancing returns and operational efficiency, it said.

Wang Shifeng, an SOE researcher from the Yicai Research Institute, said the restructuring gives SOEs more rights to self-management and greater decision-making power, which will in turn optimize State capital.

The guidelines allow SOEs more freedom in effectively allocating the assets, bringing in the modernized enterprise system through focusing on financial benefits and capital returns, said Wang.

"Under the guidelines, State capital investment companies will focus on serving the national strategy and helping State capital increase its industrial competitiveness, especially in sectors regarding national security and key aspects of the national economy," he said.

"The mechanism also allows private capital to play a bigger role," he added.

Li Jin, chief researcher at the China Enterprise Research Institute, said State capital investment and operation companies will carry out some of the responsibilities of the State-owned Assets Supervision and Administration Commission, including SOE restructuring and equity swaps.

What's more important is that the companies undertake the important tasks of structural adjustment optimization and restructuring of some industrial sectors, and the State-owned companies can be more market-oriented, a new chapter in State-owned capital management, he said.

The focus of SOE reform in the second half of 2018 will focus on authorized operation mechanism reform as well as mixed ownership reform, he said.

According to the State Council, the program will run on a pilot basis, and good practices are expected to be expanded.

China has been injecting vitality into thousands of SOEs in recent years through a series of reforms, including mixed ownership and market-oriented management reform.

China has pledged to step up reform of State-owned enterprises in the second half of this year, as the SOE regulator plans to carry out the diversification of equity at headquarters or group level, at two to three central SOEs within the year and push forward the strategic restructuring of central SOEs in key industries including further stepping up mixed-ownership reforms, according to the State-owned Assets Supervision and Administration Commission.

The commission on Monday also released a document aimed at avoiding State asset losses with an accountability mechanism to punish illegal business operations and investments by centrally administered SOEs.

The document detailed 72 responsibility-tracking scenarios in 11 areas, including risk control, fixed asset investment, mergers, restructuring and overseas investment.