China's government wants to make state-owned enterprises more competitive

China will modernize state-owned enterprises (SOEs), enhance state assets management, promote mixed ownership and prevent the erosion of state assets, according to a guideline released by the Chinese government late on Sunday evening.

According to state-run news agency Xinhua the reforms will improve the competency of SOEs and turn them into fully independent market entities, stating that the government aims to have them fully implemented by 2020.

The reforms will make SOEs more robust and influential and have greater ability to avoid risks, adding it will allow for greater levels of creativity and the ability to compete against foreign rivals by the time the reforms have been fully implemented.

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

The proposed reforms will break SOEs down into two distinct 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”, said the guideline.

Xinhua notes private sector firms will be encouraged to participate in the reform process, encouraging them to buy stakes or convertible bonds issued by SOEs. Employees will also be offered the opportunity to buy shares in the companies they work for, as part of the reform process.

While a seemingly positive announcement, it will be interesting to see the reaction in Chinese stocks once they begin trading later on this morning.

While the measures, if fully implemented, will reduce levels of indebtedness through share and hybrid asset sales and make SOEs more efficient, whether investors will react positively to the news these firms will face greater competition from foreign firms is at this point uncertain.

Trading will get underway at 11.30am AEST. All eyes will be on the SSE 50 and CSI 300 indices, those containing large-cap stocks.

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