A Shift in Role

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  The year 2015 is one in which China will accelerate the comprehensive deepening of the reform, and reform of the stateowned enterprises (SOEs) is a priority.
  The SOE reform in 2015 will focus on classification of SOEs and mixed ownership reform, said Zhang yi, Chairman of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council at a recent meeting with centrally administered companies.
  SOEs play a major part in the Chinese economy. As of 2014, two thirds of the top 500 Chinese companies on Fortune China’s list are SOEs, and three centrally administered SOEs have made it into the top 10 of the 2014 Fortune Global 500 list. However, for being government-backed, they are inadequately powered to make progress in technological research and development, cost control and industrial upgrading.
  At the Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) convened in November 2013, the central leadership decided to promote SOEs to improve their modern corporate governance system and deepen SOE reform.
  To make SOEs real market entities and boost their vitality and competitiveness, the government, being the owner, manager and supervisor of SOEs, should change its role.
  “Separating government administration and corporate management is a precondition for improving SOE performance. Only if the government refrains from what it should not do can SOEs become real independent market entities responsible for their own profits and losses,” said Peng Huagang, Director General of the SASAC’s Research Bureau.
  This round of SOE reform will determine the future operation model of SOEs and state-owned capital, and it must be based on the classification of SOEs by their functions, Gao Fuping, a professor of East China University of Political Science and Law told Oriental Daily News. “Classifying SOEs by functions will demarcate the boundary between the government and market, letting government do what it should do, and leaving the others to the market.”
  Companies in competitive industries should be evaluated according to market rules, whereas those in non-competitive industries should be evaluated through cost and benefit analysis, following the principle to maximize social benefit, he said.
  SOEs have been a major channel for the government to allocate sources. Such a mechanism weakens the market’s role and companies’ competitiveness. By categorizing SOEs, the government can reasonably define its positions and roles in various affairs and become service-oriented; meanwhile, the market can play a major role in allocating resources, Gao said.
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