Beijing defends ‘new look’ SOEs

April 15, 2013 1:43 pm

Beijing defends ‘new look’ SOEs

By Simon Rabinovitch in Beijing

The voice of the Communist party has defended the role of the state in China’s corporate sector, saying that government-owned companies are competitive on the global stage and paying important dividends to the country.

In a front-page article about the “new look” of state-owned enterprises, the People’s Daily said they were the backbone of the Chinese economy and stronger than at any point in the past two decades.Highlighting the debate under way over how Chinamanages its companies, the article implicitly pushed back against Chinese officials and international institutions such as the World Bank that have called for market reforms to weaken government control of the energy, telecommunications and financial industries.

“In the past, we pursued pure socialism, the more state ownership, the better. Later on, we brought in more diverse forms of ownership (including the private sector). But the state-directed economy still plays the largest role,” Shao Ning, deputy director of Sasac, the government agency that manages the biggest of the state-owned companies, told the People’s Daily.

The World Bank last year published a report recommending that Beijing reduce the size and power of China’s state sector and force state-owned companies to operate in a more competitive environment.

That report was co-authored with the Development Research Center, a think-tank under the cabinet, and was signed off by Li Keqiang, the man who becameChina’s premier in March.

Observers believe Mr Li wants to relax the state’s grip on the corporate sector. In remarks over the weekend he said the government must pursue more market reforms to create an “upgrade version” of the economy.

China has also started to experiment with the introduction of private investment in energy and finance, which have long been dominated by the state. Blocks for shale-gas exploration were opened to private companies last year. The government also introduced a pilot project last year to allow private groups to form bank-like institutions in the city of Wenzhou in eastern China.

While many people still hold the idea that Chinese state-owned enterprises are ineffective and incompetent companies . . . they have quietly undergone a beautiful transformation

– People’s Daily

However, the front-page article in the People’s Daily is an indication of the conservative forces that oppose change.

“On the one hand we are counting on government officials to make the reforms plans. On the other hand government officials are the key obstacles,” said Gary Liu, deputy director of a Shanghai think-tank under the China Europe International Business School. “Premier Li says we can get a lot of dividends from reforms, but it is easier said than done. He is very clear-minded about the difficulty of getting the reforms done.”

The People’s Daily noted that 54 Chinese state-owned companies now ranked on the Fortune 500 list of the biggest companies around the world. It contrasted that with the mid-1990s, when the total sales of the top 500 Chinese companies were less than those of US automotive company GM.

The article also said that the 117 state-owned enterprises managed by the central government paid taxes last year of Rmb1.9tn ($307bn), their tax bills rising 20 per cent a year on average over the past decade.

“While many people still hold the idea that Chinese state-owned enterprises are ineffective and incompetent companies which do everything but do nothing well, in fact they have quietly undergone a beautiful transformation,” it said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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