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Mixed-Ownership Reform Of China's Local State-Owned Enterprises Set To Accelerate In 2018

Summary

Mixed-ownership reforms currently lie at the core of efforts to overhaul China's state-owned enterprise sector.

Policymakers hope that mixed-ownership will raise the efficiency of SOE's via the introduction of private sector capital and expertise.

Mixed-ownership reform of China's regional, province-level SOE's is expected to accelerate in 2018, following the suspension of over 32 listed government concerns from trading.

A total of 32 regional listed state-owned enterprises have been suspended from trading as the China makes preparations for accelerated mixed-ownership reforms of government concerns in 2018.

At the recent 19th National Chinese Communist Party Congress, President Xi Jinping reiterated the importance of reforms to the SOE sector as part of ongoing efforts to raise China's economic efficiency and deleverage.

Mixed-ownership reforms lie at the core of China's current efforts to overhaul the SOE sector. As of the end of 2016 68.9% of the subsidiaries of central SOE groups had mixed-ownership systems in place, while the figure for province-level SOE's was 47%.

Domestic media now reports that the mixed-ownership reforms are set to  further accelerate in 2018, particularly at the local government level. 

Provincial and municipal governments around China have unveiled their own guidance documents or convened relevant meetings for driving reform of SOE's within their own jurisdictions, including Guangdong, Shandong, Shanxi and Shenzhen.

All of these plans place heavy emphasis upon mixed-ownership reforms that aim to raise the efficiency of SOE's via the introduction of private sector capital and expertise.

The manufacturing hub of Shenzhen in southern China is currently working on its own SOE mixed ownership reform work plan, as well as selecting companies for next year's program.

The plan envisages the "fundamental completion of a commercial-enterprise mixed-ownership system by 2019, achieving reform wherever reform is possible, and mixed-onwership wherever mixed-ownership is possible."

In resource-rich inland province of Shanxi, the "Opinions Concerning Support for Shanxi Province's Further Deepening of Reforms and Expediting the Development Transition from a Resource-model Economy" points to the need to "advance mixed-ownership reforms to a greater extent and a greater scope."

Shanxi province has already selected around 30 SOE's for trial mixed-ownership reforms, as well as formulated reform work plan.

The northern coastal province of Shandong also released its "Ten Opinions on Accelerating the Promotion of State-owned Enterprise Reform" (关于加快推进国有企业改革的十条意见), which calls for the optimisation of state-owned capital and the acceleration of upgrades to the operating models of SOE's.

Its opinions propose the establishment of mechanisms to support asset securitisation work, and the full listing of at least three provincial SOE's by the end of the decade, as well as the securitisation of at least 60% of provincial SOE assets.

In the lead up to the acceleration of mixed-ownership reforms of regional SOE's next year, a number of listed government concerns have been suspended from trading as part of preparatory work.

Data from Wind Information indicates that there are currently 1004 SOE's listed on the Shanghai and Shenzhen Stock Exchanges, of which 352 are central SOE's and 652 are local government SOE's.

A total of 50 are currently suspended from trading, of which 32 are local government SOE's. The explicit reasons given for suspension have included "major asset restructuring, "proposed plans for major asset restructuring," and "major events."