BOFIT Viikkokatsaus / BOFIT Weekly 2017/31

China's leaders in December included partial privatisation of state-owned enterprises (SOEs) on their 2017 reform agenda. According to the official media sources, in the first half of the year about 50 SOEs had sold off stakes to private investors to raise a total equal to roughly 1.5 billion euros. This year's first big privatisation sale – a stake in China Unicom, one of China's three largest telecommunications operators, has yet to occur. Reuters reports that the yet-to-be-finalised plan involves offering shares of China Unicom listed on the Shanghai stock exchange and that the company expects to raise some 10–15 billion euros from the sale. Reuters expects the biggest investors to include internet-based Chinese firms Tencent, Alibaba, Baidu and JD.com.

As part of efforts to support partial privatisation, the Chinese government ordered at the end of July that all companies administered by the central government (other than those in the financial and culture sectors) be converted to limited liability or joint stock corporations by the end of this year. To encourage enterprises to make the switch, the government is offering a five-year exemption from fees of land-use right transfers and reliefs in their value-added taxation. The State-owned Assets Supervision and Administration Commission (SASAC), which oversees enterprises owned by the central government, currently manages 101 conglomerates, which include roughly 50,000 smaller enterprises. The government says that about 3,200 of these firms will be converted to limited liability or joint stock corporations. Over 100,000 firms controlled by local governments are unaffected by the move.

A second, longer-term project involving SOEs is the creation of "national champions" though mergers to create larger and powerful corporations. A decade ago, the Chinese state owned about 150 conglomerates. SASAC plans to take the current 101 conglomerates down to around 80.

Money raised from partial privatisation sales will help SOEs struggling under mountains of debt. Privatisation is also hoped to improve corporate governance in SOEs and increase their efficiency. As the state retains a majority stake in most cases, however, it is unclear how much power private investors will be granted in managing corporate affairs. Most observers find little to be optimistic about. On the whole, the state's role in the Chinese economy seems to be growing rather than getting smaller.