Creating World-Class Companies
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Creating World-Class Companies
By LAN XINZHEN
UPDATED: March 6, 2011 (NO. 10 MARCH 10, 2011)
China sets the bar high for its central SOEs to become competitors with major global enterprises
POWER PROVIDER: A rotor is installed at the Three Gorges power plant. China Gezhouba (Group) Corp., a central SOE responsible for this project, is best known for building the largest hydropower hub on the Yangtze River (ZHENG JIAYU)
China's centrally administrated state-owned enterprises (SOEs), or central SOEs, have been playing an integral role in China's economic and social development. Major projects like the Qinghai-Tibet Railway, the Three Gorges Project and electricity transmission from west to east China, west-to-east electricity and gas transmission, and south-to-north water diversion have all been realized with the expertise and hard work of these enterprises.
"Over the course of the 12th Five-Year Plan (2011-15), we will use every resource at our disposal to create a batch of large enterprises and groups that will compete with multinationals in the international market," said Shao Ning, Vice Chairman of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council, at a press conference on February 22 in Beijing.
This target was proposed on the basis of central SOEs' role in China's development and the country's overall development strategy, said Shao.
Through decades of reform and development the vitality and competitiveness of central SOEs have been greatly boosted. Some of them are close reaching world advanced status while some have already become world leaders.
In 2010, 30 central SOEs have been ranked among the Fortune Global 500, 20 more than in 2005. Sinopec, State Grid and PetroChina even ranked among the top 10.
Economic backbones
The development quality and economic returns from central SOEs improved many-fold during the 11th Five-Year Plan (2006-10).
When SASAC, the investor, supervisor and manager of central SOEs, was established in 2003, China had 197 central SOEs. After years of reorganization and integration, the number of central SOEs has shrunk to 121.
SASAC's data show, from 2006 to 2010, total assets of central SOEs increased from 10.5 trillion yuan ($1.6 trillion) to 24.3 trillion yuan ($3.7 trillion), with an average annual growth rate of 18.2 percent. Their assets in 2010 accounted for more than 60 percent of the country's GDP. From 2006 to May 2010, taxes paid by central SOEs totaled 5 trillion yuan ($761 billion).
By the end of 2009, 156.13 billion yuan ($23.8 billion) of state-owned shares had been transferred to the country's Social Security Fund, accounting for 41 percent of the fiscal revenues of the fund.
Central SOEs in petroleum and petrochemical, electric power, food and transportation industries have actively followed the country's economic operating schedule and have done plenty of work to ensure steady and rapid economic development, said Shao.
Central SOEs' capability of sci-tech research and development and indigenous innovation has improved during the 11th Five-Year Plan. From 2006 to 2009, central SOEs' investment in technology, growing at an average annual 28.5 percent, accounted for 2.1 percent of their revenues.
By the end of 2009, the number of total patents held by central SOEs had reached 76,138, 21,266 of which were patents for inventions. Meanwhile, 46.2 percent of state key laboratories have been established in central SOEs. Central SOEs have also designed the world's fastest multiple unit trains and conducted the first trial project of ultra-high voltage and the first trial project of direct coal liquefaction in China.
Successful reform
Shao attributes the central SOEs' rapid progress to the SOE reform initiated more than two decades ago.
STRONG SOE: An auto frame hangs over the assembly line at Donfeng Motor Corp.'s heavy truck manufacturing base in Shiyan, central China's Hubei Province. Dongfeng is one of China's largest state-owned auto makers (HAO TONGQIAN)
China's SOEs were established as part of the country's planned economy in the past, and their internal structure, management system, social positioning and employees' spirit were totally different from companies facing market competitions.
"It takes time to reform such a huge state-owned economic sector to meet the standard of the market economy," said Shao.
Five major problems bottlenecking the development of SOEs have been tackled after the two-decade reform.
First, fundamental changes have taken place in the layout structure of the state-owned economy. Second, the relationship between SOEs and the government has been changed; government and banks are no longer financially responsible for SOEs, forcing them to become independent subjects in market competition. At present, 52.88 percent of the total assets, 68.05 percent of the net assets and 59.65 percent of the revenues of central SOEs have been held by their listed companies. Third, a system that enables the competitive SOEs to prosper and eliminates inefficient SOEs has been established. Fourth, the state-owned assets supervision and administration system has been established at all levels. Fifth, market-oriented recruitment and employment as well as remuneration and incentives have been established preliminarily.
If not for marketization reform SOEs could not survive, not to mention develop, said Shao.
The key to SOE reform in the future will be integration of the SOEs with the market economy. Better forms of integration include public corporate reform based on the capital market, diversification of enterprises and capitalization of state-owned assets, said Shao.
Five strategies
"Focusing on the target—to become world-class multinationals—central SOEs need to carry out five main strategies, namely the strategy of transforming and upgrading, the strategy of sci-tech innovation, the strategy of internationalized operation, the strategy of strengthening enterprises through talented personnel, and the strategy of harmonious development," said Shao.
Implementing the strategy of transformation and upgrading means the development model for central SOEs will more rely on sci-tech progress, quality improvement of the labor force and management innovation. State capital should be further concentrated and put into key areas, industrial layout further upgraded to the high end of the industrial chain and emerging strategic industries, and ownership structure further transformed by means of joint-stock reform, shareholder diversification and securitization.
The strategy of sci-tech innovation requires that central SOEs will further increase investment in research and development (R&D) and establish the mechanisms of R&D investment, R&D, transformation and application of scientific and technological innovations. Central SOEs should also build R&D platforms to develop advanced technologies, make technological breakthroughs, develop a batch of cutting-edge products and create world famous brands.
Central SOEs will be forced to think strategically and have a broad global vision, quicken their "going global" pace, expand their overseas business to improve their international market shares, optimize the industrial chain and value chain under the strategy of internationalized operation. At the same time, they must also master international competition rules, integrating themselves into the mainstream of the world economy.
Implementing the strategy of strengthening enterprises through talented personnel means that both domestic and overseas talent resources should be fully developed and utilized. Central SOEs should promote the balanced development of the representatives of investor, executives, scientific and technological talent and skilled technicians in order to constantly optimize the talent structure and greatly enhance their competence.
Implementing the strategy of harmonious development means that central SOEs need to realize harmonious development with society and environment in pursuing economic benefits. Central SOEs should establish and improve the mechanism of strategy making, governance optimization, integration, performance evaluation and communication for the fulfillment of corporate social responsibilities and serve as the role model in executing their social responsibilities.
"Meanwhile, we will further improve central SOEs' corporate governance structure, and perfect the state-owned assets supervision and administration system, and further marketize central SOEs' internal system," said Shao.
