China's SOE reforms to increase efficiency and competitiveness

A long-awaited SOE reform blueprint was announced by China government in September 2015. While it was a disappointment to most observers on its release, no changes qare expected to happen gradually, especially as the economy weakens further. Reform of the state-owned enterprise (SOE) sector in China is likely to gain further momentum during 2016-2020, with swifter action at the local government level, states Barclays.

Under the latest plan, SOEs are divided into two categories: commercially-driven SOEs; and non-profit oriented SOEs. For the commercially-driven SOEs, we see the operating model changing to one that separates ownership and operation. The latest plan also mentioned to allow the failing companies to exits.

Overall, the 13FYP is believed to be reiterated the SOE reform plan in terms of SOE classification and an evaluation system, which will help to introduce market-based incentives and modern corporate structures, both critical steps to increasing the efficiency and competitiveness ofChinese SOEs. 

"We could also see relaxation in ownership requirements to attract private and foreign capital, especially in the competitive SOE sectors, though the government will likely remain a large shareholder in these SOEs. We expect the next step to be the introduction of KPIs for commercially-driven SOEs and management teams. We also expect a pickup in asset injections, group listings and M&A activity in the SOE sector", added Barclays.