China to turn all state enterprises into corporations | Business| Economy and finance news from a German perspective | DW | 26.07.2017
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China to turn all state enterprises into corporations

China aims to transform all of its state-owned companies into market-oriented corporations under efforts to make its unwieldy state sector more profitable. But calling this privatization would be an 'erroneous notion.'

State-owned enterprises managed by the central government should aim to become "limited companies or corporations" by the end of the year, China's cabinet, the State Council, announced on its website on Wednesday.

Noting that 90 percent of China's state enterprises had already changed their structure, the statement said that the effort would help "build a modern enterprise system and improve the market-oriented management mechanism."

State enterprises still dominate crucial industries ranging from power and steel to aviation. But vested interests have resisted the attempts to restructure the massive enterprises, which are among the country's largest employers and have created powerful fiefdoms for the bureaucrats that run them.

Bigger, stronger and more profitable

The restructuring aims to separate government administration from management of day-to-day business operations in hopes this will lead to greater efficiency.

A main focus will be on the formation of a board of directors at state-owned companies to bring structures in line with modern corporate governance practices. The board will have a say in major corporate decisions, hiring and salary distribution. Salary corridors linked to corporate profits and productivity will also be set up, according to the cabinet.

Currently, the Chinese central government owns and administers 101 enterprises, according to China's state asset regulator, which has demanded restructuring plans to be handed in by end-September. Xinhua reported that 69 of the enterprises, holding assets totaling 7.97 trillion yuan ($1.2 trillion or 1.01 trillion euros), had not yet registered themselves as either joint-stock companies or limited liability firms. The subsidiaries of the 69 enterprises hold 5.66 trillion yuan of assets, Xinhua said.

Privatization an 'erroneous notion'

Part of the restructuring are also plans to allow mixed ownership of the companies, meaning private capital can invest in the firms. But the asset regulator has already made it clear that the central government will remain in control of the new corporations.

"Erroneous notions such as privatization and de-nationalization should be avoided," regulators said.

The State Council on Wednesday also said efforts would be made to strengthen the Communist party's leadership at big state firms and to prevent the loss of state assets during restructuring. "The party's leadership will help protect employees' legal rights and ensure the stability of corporate reforms, the cabinet said.

uhe/tr (Reuters, AFP)