Chinese President Xi Jinping is putting more of the “state” in “state-owned enterprise.”
Carmaker FAW Car Co., fiber producer Sinoma Science & Technology Co. and miner Tibet Mineral Development Co. have recently modified their bylaws to give Xi’s Communist Party more oversight of management decisions. For example, company boards will now have an obligation to listen to internal party committees before making major decisions.
“Communist Party officials are stepping up intervention in day-to-day operations of state-owned corporations,” said Xu Baoli, a senior researcher with the State-owned Assets Supervision and Administration Commission, the government’s main SOE regulator. “There were cases in the past where the board would reject a proposal that had gone through the party. I doubt whether that will happen in the future.”
While tightening the Party’s grip on China’s $18 trillion state sector with one hand, Xi and Premier Li Keqiang are carrying out pledges for more market-oriented reforms with the other. Such “conflicting objectives” may be at odds with increasing efficiency, according to Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd.
The “national interest is still being prioritized over business efficiency,” Shen wrote in a report this week. “The board of directors of SOEs may not be able to make personnel or business decisions under the party’s leadership hierarchy.”
Recent steps to merge SOEs suggest an emphasis on strengthening and expanding the companies and may not sustainably boost their profitability, he wrote.
FAW Car and Tianjin FAW Xiali Automobile Co. have added a new section of “party-building” to their articles of association that give in-house party committees a “central role,” according to recent company filings to the Shenzhen Stock Exchange. The committees will oversee work “related to the production and management of the company,” and the board of directors should listen to their advice before making “decisions on major issues.”
Both companies are listed units of China FAW Group Corp., which makes cars with Volkswagen AG and Toyota Motor Corp.
Other listed SOEs including Sinoma Science & Technology and Zhonghang Electronic Measuring Instruments Co. have also recently filed modified versions of their articles of association to reflect the party’s leading role. The companies didn’t immediately reply to faxes or calls seeking comment on Thursday.
The push comes as Xi calls for stronger and improved leadership of the party over state-owned enterprises. “SOEs are the major force to boost the comprehensive strength of the country and to protect the common interests of the people. We should make them bigger, better, and stronger with full confidence,” the president told a gathering on SOE reform Monday in Beijing.
Standard & Poor’s and the International Monetary Fund have been among those warning that a slower reform pace clouds China’s longer-term outlook as debt continues to pile up. What remains to be seen is whether the latest tightening of party control is used to force change through reluctant management, or whether the newly empowered party committees impede measures to cut capacity and boost efficiency.
At the SOE symposium Monday, Xi called for deeper SOE reforms, and linked the effort to another policy priority — “supply-side reform,” which aims to better match output with demand across the $10 trillion-plus economy.