China pilots plan for SOE employees to own stocks

China has decided to pilot an employee stock ownership plan (ESOP) in some state-holding enterprises this year to improve their competitiveness, the country's top state-owned enterprises (SOEs) watchdog announced Thursday.

Qualified employees in some SOEs in businesses that are fully open to competition can buy a certain amount of company stocks, according to guidelines released by the State-Owned Assets Supervision and Administration Commission of the State Council.

This initiative aims to incentivize employees, as equity-holders, to work harder to improve company competitiveness.

The state stakeholder of the pilot company should hold at least 34 percent of the company's total equity to ensure state-owned status, while stakes belonging to employees should be less than 30 percent, with each individual employee owning no more than one percent of the total, according to the guidelines.x The guideline also specifies the qualifications of pilot enterprises, requirements for stake-holding and stake transfers, as well as other details. If the pilot works well, it will be gradually promoted from the end of 2018 in an effort to invigorate the SOE sector.

An economic downturn has put pressure on China's SOEs, which are at the forefront of an official drive to reform the country's growth model and cut overcapacity.

SOE profits fell 8.5 percent year on year in the first six months of the year, narrowing from a 9.6 percent slump between January and May, according to official data. Endit