China's State assets regulator announced Tuesday that six State-owned enterprises (SOEs) will join in a pilot program that will seek to reform their ownership and management by allowing injections of private capital in some, while moving to empower the boards of directors in others.
"The SOEs selected for the pilot reform are those who have made significant efforts to reform and have seen those efforts bear fruit in recent years," Peng Huagang, spokesman at the State-owned Assets Supervision and Administration Commission (SASAC), said at a press conference Tuesday.
Peng did not give a timetable as to when the pilot reform program will expand to more SOEs.
According to SASAC, two of the companies, China National Building Materials Group and China National Pharmaceutical Group Co (Sinopharm), will focus on piloting "mixed ownership" enterprise reform, whereby the companies will be injected with limited amounts of private capital.
Li Jin, chief researcher of the Chinese Enterprises Research Institute, told the Global Times that he thought the pilot program on mixed ownership is a "breakthrough" in the country's SOE reform, and "more enterprises will follow suit after they can learn from these companies' successful experiences."
China National Building Materials Group was chosen for the pilot in part on the strength of its previous experience with mixed ownership structures.
The company began diversifying its shareholding structure in 2003, since when the company has merged with around 1,000 private enterprises, according to a statement e-mailed by the company to the Global Times Tuesday.
China National Building Materials admits that there have been challenges in its push to reform the company's ownership structure.
"There are some conflicts between the SOEs and private enterprises, including different management styles," Song Zhiping, chairman of China National Building Materials said in a reply e-mailed to the Global Times Tuesday.
Song also noted some "deep-seated" issues including a lack of professional management systems in SOEs.
Although private companies have played increasing roles in the country's consumer products industries, SOEs still dominate key industries such as energy, chemical, telecom, transport and other "vital" areas.
There have been warnings about the potential of the growing power of the State sector to harm China's still-developing market economy.
Talk about reforming SOEs through mixed ownership started more than a decade ago, reaching a crescendo in the media during the Third Plenary Session of the 18th Communist Party of China (CPC) Central Committee in November last year.
After the session, the central government released a statement pledging to develop a mixed ownership economy featuring cross-shareholding of State and private capital.
Analysts have identified a number of obstacles faced by reforms in recent years.
"A lack of a strong board of directors for the SOEs is one of the issues," Zhang Zhengqun, CEO of Beijing-based King Parallel Consulting, a former researcher at the State Council's Development Research Center, told the Global Times Tuesday.
Reforms to board members' selection and salaries are on the docket for the other four SOEs announced under SASAC's pilot program, among which is COFCO Group, the country's largest manufacturer and processor of foodstuffs.
In China, nearly all SOE heads, especially heads of SOEs considered vital to national security, are chosen by the SASAC and government ministries, making these SOEs' boards of directors "more symbolic than real," according to Zhang.
Peng of SASAC stated that the one of the aims of the pilot reform is to strengthen both the obligations and power of the chosen companies' boards of directors, so that they can truly play the decision-making role for which they were designed.
Analysts have noted that the six enterprises are in sectors where full State control is not considered crucial. Li of the Chinese Enterprises Research Institute said it will take time for private capital to enter "vital sectors like oil and the power grid."
