New guidelines set to improve management, cut top wages
The State Council, China's cabinet, released guidelines for reforming China's State-owned asset management system on Wednesday.
The guidelines form a supporting document for a previous set of State Council guidelines on the reform of State-owned enterprises (SOEs) that came out on September 13.
Despite improvements in recent years, the current management system for State-owned assets still has a number of flaws, the new guidelines pointed out, adding that regulators should "accurately" understand where their responsibilities lie and where they should not intervene.
"The focus of their management should be on the capital layout and capital operation of State-owned assets," the guidelines said.
Sun Lijian, director of the Financial Research Center at Fudan University, said that the government should strictly separate ownership from managerial authority.
"That is to say, the government should only concern itself with a company's financial performance or return on assets, but should not intervene in its management methods, such as what kind of people it hires," Sun told the Global Times on Wednesday.
In terms of SOEs' assessment standards, the guidelines said that factors such as innovation, company upgrading and meeting social responsibilities would also be included in the assessment criteria in the future.
The guidelines also said that leaders at domestic SOEs would be assessed based on their job performance, and results of the assessment would affect their positions as well as remuneration.
According to a report by domestic news website chinanews.com on Tuesday, SOE leaders' remuneration plans have been rolled out in at least 11 provinces in China, including North China's Shanxi Province and Southwest China's Sichuan Province.
The remuneration plans have narrowed the gap between the income of SOE leaders and employees. In South China's Guangdong Province, the SOE leaders' remuneration has decreased by more than 20 percent, and is about 6.5 times the average employees' income, the chinanews.com report said.
Sun said that remuneration reform should only be conducted for administrative personnel in the SOEs, as they are the ones who have unreasonably high income regardless of their job performance, but the income cuts shouldn't be extended to the business departments in the enterprises, as the executives in those departments might be less motivated to work hard.
Besides supervision, the guidelines also pointed out that the government would promote restructuring of State-owned assets by increasing investment in important "strategic" industries, as well as in areas with high added value.
"The government will quicken its steps to eliminate overcapacity and backward production. This will cause a number of enterprises to withdraw from the market," the guidelines noted.
Give struggling firms a chance
According to Sun, whether or not a company has overcapacity should not be judged only by its recent financial records, as failure to make money could have been caused by shrinking demand in the international as well as domestic markets in recent years.
"The government should first help to expand the market through measures such as boosting overseas cooperation, instead of just eliminating enterprises. Otherwise, companies that have good products would be forced to withdraw from the market just because of a drop in demand," Sun said.
Ye Hang, a professor with the College of Economics at Zhejiang University, told the Global Times on Wednesday that SOEs that are small and inefficient should be shut down to give more room for private enterprises to develop.
The guidelines also said that SOEs will be urged to adopt more innovative measures in terms of technology, management and their business model.
In order for the SOE reforms to be properly executed, the government should also take measures to revise relevant laws for State-owned assets, the guidelines noted.
"Legislation would help prevent possible loss of State-owned property in the process of SOE reforms," Ye said.
A number of domestic SOEs have started these reforms already, such as domestic train industry leader CRRC Corporation and liquor industry leader Wuliangye Yibin Co.
