China rolls back wide-ranging state-sector reforms

BEIJING — China’s Communist Party is moving to tighten its grip on state-owned enterprises (SOEs), reversing nearly two decades of attempts to remodel them along the lines of Western corporations.

The new push, outlined in recent state media articles and party documents, comes amid a tightening of controls over civil society, the military and media as President Xi Jinping seeks to consolidate power within the party.

By giving greater power to the party cells within every SOE, the new direction undermines efforts to establish boards of directors to push SOEs to make decisions based on market conditions, profitability and hard budget constraints.

It flies in the face of policies aired as recently as September to make SOEs more efficient and market-oriented. On Tuesday the International Monetary Fund recommended China create a task force that would help restructure debt-laden SOEs.

“All the major decisions of the company must be studied and suggested by the party committees,” according to an article by the state-owned Assets Supervision and Administration Commission in the influential party magazine Qiushi. “Major operational management arrangements involving macro-control, national strategy and national security must be studied and discussed by the party committees before any decision by the board of directors or company management.”

“It’s effectively returning to the pre-reform times,” said Hu Xingdou, economics professor at Beijing Institute of Technology, arguing that the move violates Chinese corporate law.

China’s state sector dates from the early 1950s, when private businesses as well as any infrastructure that survived the previous decades of war were nationalised by the Communist party under Soviet tutelage.

In the 1980s and 1990s local factories, steel mills, oil refineries and power plants were spun off from powerful ministries while most consumer-oriented state groups were privatised or went bankrupt.

After reforms in the late 1990s to purge the most inefficient and debt-laden state groups, the companies that remained in “pillar industries” were reassembled into national champions.

Those businesses tried to look and act like large multinational competitors, adopting corporate logos, shiny new headquarters in Beijing and listing on international and domestic stock exchanges.

Mr Xi’s more than three-year anti-corruption drive has decimated the management of those national SOEs, especially oil company PetroChina. Zhou Yongkang, the now-disgraced oil and security tsar who backed Mr Xi’s political rival Bo Xilai, had built a patronage network within the state oil and resources firms that drew on their financial and international clout.

China’s SOE sector officially makes money — but a 2012 study by the Unirule Institute of Economics estimated that the most powerful national, provincial and local SOEs lost money from 2001 to 2009, when their reported profits were offset by subsidies received. More recently, the SOEs binged on debt during a Beijing-backed stimulus programme in the wake of the global financial crisis.

Leftist critics argue the privatisation of Chinese business stripped assets from the state and deprived workers of the cradle-to-grave security known as the “iron rice bowl”.

“In the past few decades, the authorities have failed to constrain the capitalists and yet they dare not allow the masses the power of supervision,” said Zhang Hongliang, economics professor at the Central University for Nationalities in Beijing. FINANCIAL TIMES