The Shanghai Securities News recently learned through interviews that Shanghai, Guangdong, Shenzhen, Shandong, Chongqing, Qinghai, Guizhou, Wuxi and other regions, following the direction that “the market plays a decisive role in resource allocation,” are stepping up efforts to formulate or improve local state-owned asset reform plans, with Shanghai's plan expected to be unveiled next week.

Pragmatic reform is bound to hit the mark. The privatization of state-owned enterprises under the “grasp the big, let go the small” policy in the 1990s contributed to rescuing SOEs from difficulties at the time. Today, as China faces economic transformation and industrial upgrading, how to invigorate SOEs and enable enterprises to play a leading role in upgrading and transformation has become the mission of this new round of state-owned asset reform.

Whether in Shanghai, where reform is already quietly underway, or in Shandong and Guangdong, where plans are still being drafted, the reform goals all point to industrial upgrading and transformation. Shanghai proposes that state-owned assets and enterprises are the main force driving the city's “transformative development,” and that a major goal of the reform is to concentrate “80% of the state-owned assets under the SASAC system in key sectors and advantageous industries such as strategic emerging industries, advanced manufacturing and modern services, and infrastructure and livelihood security.”

Goals determine the means. The reporter's interviews found that local state-owned asset reforms will first implement classified supervision, on which basis market-oriented operation will be pursued for competitive SOEs; second, high-quality strategic investors will be introduced, with consideration given to implementing equity incentives or employee stock ownership systems. Ultimately, vitality will be enhanced from both inside and outside the enterprise.

Local reforms frequently show distinctive features. In Shenzhen, after nearly a decade of reform, the securitization rate of state-owned assets has risen to 60%, and it also leads the country in classified supervision and classified assessment. For this reason, the Shenzhen SASAC's priority next year is law-based corporate governance. Shanghai's state-owned assets, situated in an international financial center and coinciding with new policies for the free trade zone, place greater emphasis on enhancing international competitiveness and supporting enterprises in transnational operations and participation in global resource allocation. Shandong's state-owned assets, dominated by resource-based enterprises, must first consider absorbing excess capacity and integrating resources.

Although local plans have not yet been issued, some highly proactive local SOEs have already raced ahead. From November to now, nearly 10 listed SOEs on the Shanghai Stock Exchange alone have suspended trading to plan major matters, with Pudong Jinqiao, which suspended trading last week, being a typical case.

Data show that since June this year, more than 50 listed state-owned companies have suspended trading to plan major matters, and judging from subsequent resumption announcements, most involve mergers and acquisitions. It can be foreseen that with the advancement of state-owned asset reform, mergers and acquisitions involving listed SOEs in the capital market will become even more dynamic, and improvements in corporate governance and profitability are also worth anticipating.

Britain's SOE reform helped the country escape the “British disease,” with corporate profits rising substantially and the stock market enjoying a 20-year bull run. China's capital market [0.00%] will also reap the fruits of this new round of state-owned asset reform.

A Shenwan research report shows that among listed companies in the A-share and H-share markets, the total market value of central and local government holdings can reach 14.5 trillion yuan, of which the total market value of holdings in competitive industries awaiting revitalization reaches 3.9 trillion yuan. The new round of state-owned asset reform is precisely aimed at unlocking this nearly 4 trillion yuan in market value to add impetus to economic transformation.