China to transform all state-owned companies into corporations by end of 2017

People run during their morning exercises along the Huangpu River, seen against the skyline of the Lujiazui Financial District in Shanghai.
People run during their morning exercises along the Huangpu River, seen against the skyline of the Lujiazui Financial District in Shanghai. PHOTO: AFP

BEIJING (AFP) - China said on Wednesday (July 26) it would move to transform all state-owned companies into corporations by the end of this year, as part of efforts to reform the sclerotic industrial giants.

China has pledged for years that it would take steps to reform the centrally-run businesses, which dominate crucial industries ranging from power and steel to aviation.

But vested interests have resisted the attempts to restructure the massive enterprises, which are among the country's largest employers and have created powerful fiefdoms for the bureaucrats that run them.

State-owned enterprises (SOEs) managed by the central government should aim to become "limited companies or corporations" by the end of the year, according to a statement on the website of the State Council, China's Cabinet.

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The change will help "build a modern enterprise system and improve the market-oriented management mechanism", it said.

Ninety per cent of China's state enterprises have already been turned into corporations, according to the statement.

It did not say whether the companies will be opened to private investment or could be listed on the country's stock markets.

The announcement follows comments earlier in the month from President Xi Jinping calling for authorities to deepen SOE reform by "focusing on the establishment of a modern corporate governance system".

He described SOEs as an "important foundation for national development", but said overhauling them was important to enhance their "vitality, competitiveness and risk resistance", according to the official Xinhua news agency.

China's lumbering state-owned giants have long been a drag on the economy, saddled with massive debts and overcapacity far exceeding domestic demand.

While the government recognises the need for restructuring, it lacks the political will to make the necessary reforms, fearing that mass lay-offs at the under-performing firms could lead to social instability.

Last month, the International Monetary Fund urged Beijing to phase out support for under-performing state-owned enterprises and for so-called zombie companies - those firms that survive only on rolling credit from the banks.