A major Chinese province has transferred equity stakes in three state-owned enterprises to its social security fund in a move seen as a model for nationwide reform of China’s inefficient state sector.
Shandong transferred 30 per cent stakes in Shandong Energy Group, Shandong Airport Ltd and Shandong Salt worth a combined Rmb3.3bn ($532m) to the social security fund. The provincial government has said it eventually plans similar stake transfers for all 471 of the companies it controls
The architect of the plan, Guo Shuqing, served as head of China’s securities regulator before taking over as governor of Shandong province, China's second largest by population, in 2013. Mr Guo, a former chairman of China Construction Bank, is considered a leading candidate to succeed Zhou Xiaochuan as China’s central bank governor.
Mr Guo has long advocated transferring stakes in state groups away from the State-owned Assets Supervision and Administration Commission (Sasac), which has been criticised for interfering in SOE management in order to advance political and policy goals.
The equity transfers will help shore up social security funds, which are facing huge future shortfalls because of China’s ageing population.
At the same time, analysts say equity transfers can help raise efficiency in the state sector, where companies’ returns on assets trail far behind their privately owned counterparts. Social security funds, which focus narrowly on maximising financial returns, are considered more likely to prioritise efficiency over political correctness.
“The social security fund will influence these enterprises’ governance structure and operations. It’s still a state shareholder but they have their own interests and their own voting rights to advance those interests,” said Ju Jinwen, a researcher focused on state-owned enterprise reform at the Institute of Economics at the Chinese Academy of Social Sciences, a think-tank that advises the government.
“Shandong will be used as a pilot. If it is successful, we could see the same thing around the country.”
Top Communist party leaders originally proposed injecting state-owned assets into social security funds in 2004 but the transfers announced by Shandong late on Monday mark the first implementation. Analysts say Sasac has resisted relinquishing its authority over SOEs.
A landmark economic reform blueprint that China’s top leaders endorsed in November 2013 pledged to raise efficiency at state groups while maintaining their role as the backbone of the economy. Local media has said an elite policy making body created to implement the blueprint will release a detailed plan for SOE reform later in the year.
Analysts expect that incremental reforms aimed at improving corporate governance will comprise the bulk of the plan. Stock market listings and minority stake sales will also play a role but full-scale privatisation is likely to be used sparingly.