2nd LD: China issues guideline to deepen SOE reforms

China's central authorities on Sunday issued a guideline to deepen reforms of state-owned enterprises (SOEs), the latest move from the government to invigorate torpid SOEs.

China will modernize SOEs, enhance state assets management, promote mixed ownership and prevent the erosion of state assets, according to the guideline released by the Communist Party of China Central Committee and the State Council.

The government will improve the competence of SOEs and turn them into fully independent market entities.

It will be a key framework document to guide and boost SOE reforms.

The government plans to achieve major reforms in key areas by 2020, when SOEs are expected to be more robust and influential and have greater ability to avoid risks.

"The government should nurture a group of SOEs that are creative and can face international rivals by that time," the guideline said.

According to the guideline, China's SOEs will be divided into two categories, for-profit entities and those dedicated to public welfare.

The former will be market-based and stick to commercial operations and should aim to increase state-owned assets and boost the economy, while the latter will exist to improve people's quality of life and provide public goods and services.

In terms of mixed-ownership reforms, the government should introduce multiple types of investors so SOEs can achieve mixed ownership and encourage them to go public, the guideline said.

No specific agenda on mixed-ownership reform will be set, but the government will promote it gradually, the guideline said.

Non-state firms will be encouraged to join the process through various means, including buying stakes and convertible bonds from or conducting share rights swaps with SOEs. SOEs will also be allowed to experiment with selling shares to their employees.

SOE boards of directors will have greater decision-making powers, managers will be more tightly supervised, and intervention by government agencies will be forbidden under the new guideline.

A flexible and market-based salary system will be established. Salaries of SOE employees will be in line with market levels and decided by company performance. SOEs will also hire more professional managers, the guideline said.

China will improve the supervision over state-owned assets to ensure the security of assets and increase capital returns, the guideline said.

Supervision will be intensified both from inside and outside SOEs to prevent abuse of power and the erosion of state-owned assets, and a mechanism for accountability will be established to track violations, including corruption and embezzlement. Endi