Chinese SOEs to ride new reform wave

China's government made another big move in its commitment to reform by unveiling a guideline on Sunday promising to push state-owned enterprises (SOEs) to become independent market entities.

China will modernize SOEs, enhance management of state assets, promote mixed ownership and prevent the erosion of state assets, according to the guideline released by the Communist Party of China Central Committee and the State Council.

The 20-page reform agenda, which reportedly took over two years to draft, called for a gradual move to mixed ownership, setting a deadline of 2020 for its major targets to be achieved.

The government said it would open projects up to private investment in sectors including telecoms, shipping, securities, banking, oil and gas that have long been highly restricted and dominated by SOEs.

SOEs should attract multiple types of investors and the government will encourage them to go public, according to the guideline. It set no specific timetable.

"This round of SOE reform is more market-oriented, and it is expected to yield big results with relatively little hardship by invigorating the whole economy," said Li Jin, deputy head of the China Enterprise Reform and Development Society, a think-tank managed by the State-owned Assets Supervision and Administration Commission (SASAC).

Critics of Chinese SOEs say their ownership lacks transparency, they benefit from too much government intervention, are inefficient and unresponsive to market conditions.

SOE profits have been declining. According to official figures, SOEs' profits nosedived in July, with the pace of decline picking up dramatically from the first six months of the year.

The decline was 2.3 percent year on year in the Jan-July period to 1.4 trillion yuan (221.2 billion U.S. dollars), while the drop was a relatively slight 0.1 percent in the first six months.

Meanwhile, growth in fixed-asset investment, a crucial economic driver, slowed to 10.9 percent in the first eight months of 2015 -- the weakest pace in nearly 15 years, pointing to further cooling in the world's second-largest economy.

Reforms to SOEs to improve their efficiency and competitiveness have become a major task for China's policymakers.

While allowing private capital into SOEs, the government will also encourage state capital to be invested in private enterprises, especially those in public services, sophisticated technology and environmental protection, according to Li Weiliang, deputy head of the National Development and Reform Commission, at a briefing on Monday.

SOE reform kicked off in China in 1984, with gradual introduction of joint stocks, bankruptcy, budgetary and performance evaluation mechanisms.

There are currently 110 state-owned conglomerates administered by the SASAC, while many more SOEs are owned by local governments.

Since Shanghai spearheaded the introduction of mixed ownership in local SOEs last year, more than 25 other provinces and municipalities have rolled out similar measures.

"This time, we will see increasing mergers and acquisitions among SOEs not only at home, but also abroad," Li Weiliang said.

China Railway Group Limited and one of its subsidiaries announced asset reorganization plans on Sunday night, following the landmark consolidation of China's two major bullet train makers in the first half of the year.

However, the reform process won't be easy. Having enjoyed a dominant market position and favorable situations such as easier access to loans, many SOE heads will understandably be unenthusiastic about allowing the winds of change into their organizations.

"Most SOEs still have much to do to turn themselves into fully independent market players inside and out," said one insider on condition of anonymity.

State assets regulators will offer guidance to SOEs via government-backed capital investment and operation platforms like Singapore's Temasek to avoid direct government intervention, according to Xu Hongcai, assistant minister of finance.