China to carry out biggest overhaul of state-owned 'zombie enterprises' in 2 decades

BEIJING (BLOOMBERG) - China will seek to channel more private investment into its bloated state-owned enterprises, seeking to carry out the most sweeping overhaul of the companies that dominate the US$10 trillion (S$14 trillion) economy in two decades.

The plan aims to reform "zombie enterprises" while encouraging a "blending" between state and private capital, government agencies overseeing the plan said in statements on Monday (Sept 14).

"This is what we need to be focusing on," said Mr David Carbon, chief economist for DBS Group. "It's good to hear that they are doing it."

China's government branches will start to map out detailed plans that potentially affect tens of thousands of companies. Reform of state-owned enterprises could raise economic growth by at least 0.33 of a percentage point a year, according to researchers affiliated with State Council.

The plan was fleshed out after weekend data provided more evidence of slowing economic growth. Industrial output missed economists' forecasts in August, while investment in the first eight months increased at the slowest pace since 2000.

A quicker pace of reform may spur speculation over which companies will be reorganised, potentially fuelling further volatility for stocks in Shanghai and Hong Kong. The Shanghai Composite Index has slumped almost 40 per cent since its June peak.

The new guidelines for state companies include splitting them into two main groups - those that are profit-orientated and those that are not. The government will seek to lure private capital in industries ranging from energy to transportation and telecommunications.

The State-owned Assets Supervision and Administration Commission will be revamped under the plan. Sasac was created in 2003 under the State Council, China's Cabinet, and oversees more than 100 of the biggest SOEs.

The new plan is the most ambitious since former premier Zhu Rongji's overhaul in the 1990s.