Beijing looks at Temasek model in privatisation drive

A pumpjack at a PetroChina oil field in Panjin, Liaoning province. Reform guidelines dictate that the Chinese Communist Party will strengthen its "leadership role" over state companies, which include oil giants PetroChina and Sinopec Group.
A pumpjack at a PetroChina oil field in Panjin, Liaoning province. Reform guidelines dictate that the Chinese Communist Party will strengthen its "leadership role" over state companies, which include oil giants PetroChina and Sinopec Group. PHOTO: REUTERS

It has developed an 'exchange mechanism' to learn from S'pore company, says official

BEIJING • China's latest plan to shake up the nation's bloated state- owned enterprises has drawn inspiration from a familiar role model: Singapore.

The Beijing-based State-owned Assets Supervision and Administration Commission (Sasac) has maintained "close contacts" with Singapore's Temasek Holdings and developed an "exchange mechanism" to learn from the investment company, Mr Chu Xuping, the head of SASAC's research centre, said in a written interview with Bloomberg.

Singapore's model is alluring to President Xi Jinping's government, which wants to increase private ownership while avoiding the kind of mass privatisation rapidly rolled out by former Russian president Boris Yeltsin. The Russian sell-off in the 1990s saw state- owned enterprises end up in the hands of a small group of oligarchs.

"China views the Russian experience as a case study of how not to do SOE reform," said Australian National University's Mr Paul Hubbard, who studies Chinese state firms. "China's leaders want the market to make SOEs a bigger, better and stronger foundation of China's socialist market economy."

China said last month it aims to categorise state-owned enterprises into commercial and public interest organisations, strengthen management and take a more hands- off approach to operations. The plan calls for selling shares of some assets and consolidating others, reforming unproductive "zombie enterprises" and encouraging a "blending" between state-owned capital and private investments.

At the same time, the reform guidelines dictate that the Communist Party of China will strengthen its "leadership role" over state companies, which range from oil giants PetroChina and Sinopec Group to nuclear power plants and the maker of Great Wall Wine.

"The party's organ has an irreplaceable role in corporate governance," wrote Mr Chu, who heads a research group of about 40 people to give policy advice to Sasac's leadership. "This is the key advantage of our state-owned enterprises that distinguish them from other types of enterprises."

Even as some state companies will introduce private capital, there's no contradiction between Communist Party leadership and "mixed ownership", Mr Chu said.

China has been reforming its inefficient state sector for more than three decades. In the late 1990s, then premier Zhu Rongji fired millions of state employees in a strategy known as "grabbing the big ones and letting go the small".

As part of that process, Sasac was created in 2003 to look after the biggest state-owned conglomerates. Bloomberg economist Fielding Chen estimates that if SOEs - with assets of 109 trillion yuan (S$24.5 trillion) - had expanded at the same pace as private firms in the first half, industrial production growth would have been 8.5 per cent year-on-year rather than 6.3 per cent, taking GDP growth to 8.2 per cent from 7 per cent.

Temasek, with assets of S$266 billion as of March 31, has Singa- pore's Finance Ministry as sole shareholder. It originally owned shares in former state- owned companies and began buying foreign equities in 2002. It is the biggest shareholder in about a third of the 30 members in the Straits Times Index, including Singapore Telecommunications, DBS Group Holdings and Singapore Airlines.

While Temasek offers China a useful model, it remains to be seen whether officials in Beijing will fully embrace it, said Mr Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington.

"Sasac has a penchant for intervention in firm decision making that is the opposite of the Temasek model," said Mr Lardy.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 03, 2015, with the headline 'Beijing looks at Temasek model in privatisation drive'. Print Edition | Subscribe