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China releases guidelines on SOE ownership and salary reform

The Chinese government has released guidelines "to invigorate torpid" state-owned enterprises (SOEs). SOEs will be divided into two categories, for-profit entities and those dedicated to public welfare, state-owned news agency Xinhua said.16 Sep 2015

The guidelines encourage mixed ownership models in for-profit SOEs, bringing in "multiple types of investors". The reforms should be both "government-led and market-based" with an emphasis on improving management of state assets, the country's state council said.

Non-state firms will be encouraged to buy stakes and convertible bonds from SOEs, or to conduct share swaps, the state council said.

Lian Weiliang, deputy head of the National Development and Reform Commission (NDRC), said the reforms would promote new technology, management and business models for SOEs. according to the state council.

A market-based salary system will also be encouraged, with employee salaries in line with market levels and decided by company performance, Xinhua said.

The government will promote mergers among SOEs: China's two major bullet train makers completed consolidation in the first half of the year, Xinhua said, while China Railway Corporation has announced "an asset reorganisation plan" with one of its subsidiaries.

Large SOEs run by the state-owned Assets Supervision and Administration Commission (SASAC) are also expected to merge, Xinhua said.  

SASAC currently runs 110 SOEs, while many more are owned by local governments, the news agency said.

The new guidelines aim to create more robust SOEs, with greater ability to avoid risks, Xinhua said. SOEs need to be more creative and able to face international rivals, it said.

SOE boards of directors will have greater decision-making powers and executives will be more tightly supervised, the news agency said.

No specific timetable has been set, but the government will promote the change gradually, Xinhua said.

Last month the South China Morning Post reported that the SOE reforms were expected to create 'Temasek-style' businesses, named after an investment company owned by the Singaporean government, which operates as a sovereign wealth fund.

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