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Print Edition> Business
UPDATED: July 28, 2014 NO. 31 JULY 31, 2014
Testing the Waters
State-owned enterprises are set to undergo an array of adjustments
By Deng Yaqing
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Corporate responses

"Once the SASAC releases guidance documents, the CECEP will make detailed reform plans," Zhu Min, President Secretary of the CECEP, told Economic Information Daily, noting that the company is making active attempts in executive recruitment and the introduction of a salary incentive mechanism.

Under the prerequisite of complying with laws and regulations and ensuring no losses in state-owned assets, the SASAC will green-light more new ideas and approaches, said Peng.

According to Sinopharm spokesman Shi Shengyi, the company will unveil its reform scheme targeted at innovating the system of executive recruitment and payment, improving and elaborating performance assessment methods and indicators by taking into consideration the features of the medical industry.

"In sectors where the market plays a decisive role, enterprises should be more independent in making decisions, which means administrative intervention should be reduced," said Li Jin, Vice President of China Enterprise Reform and Development Society. He stressed the pilot reforms will further strengthen the functions of the board of directors and reduce the role of investors in corporate management, straighten out the relations between the board of directors, board of supervisors, executives and Party group, and attempt to establish a modern corporate system.

Improving the system of executive selection and recruitment, performance evaluation and salary management has been somewhat a hot potato in the management of SOEs, Zhang noted. In the near future, the board of directors of CECEP and Sinopharm will be endowed with independent decision-making power to manage the enterprises and recruit senior executives, most of whom are professional managers. In this way, the pilot enterprises will gradually form a differentiated compensation management system linked to performances, risks and responsibilities.

President of CNBM Song Zhiping told The Enterprise Observer his company will introduce mixed ownership in the manufacturing of building materials, science and technology services and advanced material production. He used the case of China National Building Material Co. Ltd., the listed subsidiary of CNBM, to illustrate the reform idea. First of all, a listed company featuring diversified ownership will be set up. Then, financial investment organizations will be invited to participate in its business operation. Lastly, management shareholding will be promoted in three to five branch companies.

"An effective corporate mechanism will provide the best supervision and regulation for SOEs. How can the best corporate mechanism be established? The answer is putting mixed ownership in place," said Song.

COFCO is also making preparations to set up a state-owned asset investment company. In recent years, the food giant has undergone a series of acquisitions and internal reorganization and developed strong capital operating capacity. Next, it will push forward the implementation of mixed ownership by introducing social capital and strategic investors such as private equity.

If these attempts are feasible, they will be incorporated into the reform agenda, for there are no limits on how long the pilot reforms will last and how many enterprises can practice them.

SOE Pilot Reforms

Establishing state-owned asset investment companies

- State Development & Investment Corp.: Established in 1995, it is the country's largest state-owned investment holding company.

- China National Cereals, Oils and Foodstuffs Corp.: Founded in 1952, it is the country's largest food manufacturer and trader.

Promoting mixed ownership

- China National Pharmaceutical Group Corp.: Established in 1998, it is the country's largest pharmaceutical distributor, trader and manufacturer.

- China National Building Materials Group Corp.: Founded in 1984, it is the country's largest producer of cement, lightweight building materials, glass fiber and fiber-reinforced plastic products.

Setting up a more effective board of directors

- Xinxing Cathay International Group: Established in 1952, it is a company dealing with assets management, capital operation and production management. It has main business in metal smelting and processing, textile and garment, special equipment making and etc.

- China Energy Conservation and Environmental Protection Group: Founded in 2010, it is the country's largest technological and service-based enterprise in the field of energy conservation and environmental protection.

- China National Pharmaceutical Group

- China National Building Materials Group

(Compiled by Beijing Review)

Email us at: dengyaqing@bjreview.com

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