SOE subsidiary plans more measures to boost corporate governance, innovation

The Second Construction Co Ltd of China Construction First Group has made considerable progress in deepening mixed ownership reform, equity diversification, market-oriented operations and employee incentives as part of the overall efforts to optimize corporate governance, boost innovation and enhance competence.

As a key subsidiary of China Construction First Group Co Ltd, a central State-owned construction enterprise, the company has been adjusting its business layout proactively in the past few years to meet new development demands, and has made real estate and infrastructure the two cores of its business, supported by overseas business, and investment and financing.

In 2018, it was selected to take part in the "double-hundred action", a campaign led by the Leading Group for State-Owned Enterprises Reform of the State Council to select more than a hundred subsidiaries of the central SOEs, and more than a hundred local SOEs to implement reforms between 2018 to 2020.

The campaign constitutes part of Chinese authorities' efforts to deepen SOE reforms to boost productivity and make the enterprises more marketized.

Statistics from the State-owned Assets Supervision and Administration Commission showed that revenue of the enterprises monitored by it reached 46.7 trillion yuan ($6.67 trillion) during the first 10 months of this year, with total profit of 2.8 trillion yuan, up 7 percent and 6 percent year-on-year respectively.

From 2013 to 2018, the total assets of the enterprises under the supervision of the SASAC surged from 85.4 trillion yuan to 180.7 trillion yuan, with an annual growth rate of 16.2 percent, Xinhua News Agency reported.

During the period, their combined profits jumped from 2.2 trillion yuan to 3.4 trillion yuan, an average annual growth of 9.3 percent.

As for the Second Construction Co Ltd of China Construction First Group, its construction value in 2018 soared to 28 billion yuan from 20.5 billion yuan in 2016, with revenue increasing to 10.52 billion yuan from 7.72 billion yuan, while profits more than doubled over the period, from 145 million yuan to 362 million yuan.

The company estimated its contract value and revenue would reach 32 billion yuan and 12.5 billion yuan respectively for this year, with its competence, innovation, market influence, and risk resistance capability growing continuously.

"We hope to provide referable experiences to other SOEs by making reform breakthroughs in the Second Construction Co Ltd of China Construction First Group, to help deepen SOE reforms nationwide," said Luo Shiwei, chairman and Party secretary of China Construction First Group.

Thanks to the central government policy that encourages market-oriented debt-to-equity swaps for quality enterprises to boost their capital strength, reduce debt risks, and improve risk tolerance, the company has been attracting strategic investors through debt-to-equity swaps, and such strategic investment it obtained have totaled 300 million yuan.

Such moves have helped strengthen the company's financial capability to support the development of its main business, improve its corporate financial structure and corporate governance, and eventually helped preserve and increase the value of State-owned assets, the company said.

The company has also been implementing reforms in the corporate structure, to spur innovation and vitality of its affiliates and business units, in order to make breakthroughs in enhancing market-oriented corporate operations.

Rather than taking direct control, the company has been pushing forward classification-based authorization for subsidiaries to have different levels of autonomy in financing, personnel, and operations, so that the subsidiaries become independently accounting entities with self-governance in operation and development, and with sole responsibility on profits and loss, and risk management.

The company has accomplished such authorization reforms in four subsidiaries in Jiangxi, Guangdong, Jiangsu and Sichuan provinces, and two business units－the mechanical and electrical engineering business unit and the infrastructure business unit.

Together, these subsidiaries and business units account for 67 percent of the company's contract value.

The company has been exploring steps to cooperate with private enterprises across the entire length of the industrial chain through capital bonding. It also has decided to undertake market-oriented reforms in personnel management and recruitment.

Luo said the company will continue its efforts to advance related reforms and make the subsidiary a role model for the parent company in SOE reforms.