Chinese President Xi Jinping is putting more of the ‘state’ in ‘state-owned enterprise.’
Carmaker FAW Car Co., fiber producer Sinoma Science & Technology Co. and miner Tibet Mineral Development Co. have recently modified their bylaws to give Xi’s Communist Party more oversight of management decisions. For example, company boards will now have an obligation to listen to internal party committees before making major decisions.
‘Communist Party officials are stepping up intervention in day-to-day operations of state-owned corporations,’ said Xu Baoli, a senior researcher with the State-owned Assets Supervision and Administration Commission, the government’s main SOE regulator. ‘There were cases in the past where the board would reject a proposal that had gone through the party. I doubt whether that will happen in the future.’
While tightening the Party’s grip on China’s $18 trillion state sector with one hand, Xi and Premier Li Keqiang are carrying out pledges for more market-oriented reforms with the other. Such ‘conflicting objectives’ may be at odds with increasing efficiency, according to Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. The ‘national interest is still being prioritized over business efficiency,’ Shen wrote in a report this week. ‘The board of directors of SOEs may not be able to make personnel or business decisions under the party’s leadership hierarchy.’
Recent steps to merge SOEs suggest an emphasis on strengthening and expanding the companies and may not sustainably boost their profitability, he wrote.
This post was published at David Stockmans Contra Corner by Bloomberg Business ‘ July 8, 2016.
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