China unveiled details on Sunday of how it would restructure its mammoth state enterprise sector, including partial privatization, as data pointed to a cooling in the world’s second-largest economy.
The guidelines, jointly issued by the Communist Party’s Central Committee and the State Council, China’s cabinet, included plans to clean up and integrate some state firms, Xinhua news agency said.
Reform of underperforming state-owned enterprises is one of China’s most pressing needs. But if not handled well, the restructuring could lead to hundreds of thousands of people being laid off and social instability.
It said the plans included introducing “mixed ownership” by bringing in private investment, and “decisive results” were expected by 2020.
The government will not force “mixed ownership”, nor will it set a timetable, giving each firm the go-ahead only when conditions are mature, it said.
“This reform will be positive for improving the impetus of the economy and making growth more sustainable,” said Xu Hongcai, director of the economic research department at the China Center for International Economic Exchanges, a Beijing-based think-think.
Partial privatization, he added, would help establish “check-and-balance and incentive systems” at state firms.
China’s government manages 111 companies centrally under the State-owned Assets Supervision and Administration Commission, or SASAC. Local governments own and manage around 25,000 state-owned companies and the sector employs nearly 7.5 million people.
State firms will be allowed to bring in “various investors” to help diversify share ownership, and more state firms will be encouraged to restructure to pave the way for stock listings.
Private investors will be encouraged to buy stakes in state firms, buy convertible bonds issued by state firms, or swap shares with state firms, it said, adding steps will be taken to curb corruption during reforms.
However, Beijing will have to convince entrenched interests at local, provincial and national governments to relinquish some control over state enterprises. It would have to entice investors to buy shares after one of the worst stock market crashes in China’s history.
