“Reform is a major undertaking. Design institutes must figure out how to reform and what to become. They need a mature plan, then persuade government authorities to secure preferential policies,” said Hou Wei, President of Shandong Provincial Architectural Design and Research Institute, at the 2017 work conference of the 8th System Reform Committee of the Architectural Design Branch of China Exploration and Design Association held recently.
By the end of this year, the corporatization reform of state-owned enterprises will be completed, and the reform of operational public institutions will be completed within this year and next…… Since the 18th National Congress of the Communist Party of China, with the introduction of national policies and the clarification of deadlines, comprehensively deepening reform has become a current challenge and important task for exploration and design units of state-owned enterprise and public institution nature. How to reform? In what way? These have become the focus of the industry.
Urgent Reform Timeline
Before the reform and opening up, under the planned economy system, exploration and design units were public institutions, with tasks assigned by the state, staffing controlled by authorized strength, and funds fully allocated by the state treasury. After the reform and opening up, the exploration and design industry closely followed national policies, continuously explored the market-oriented path, basically completed the market-oriented transformation of the industry, and the industry system and market pattern began to take shape.
“Some state-owned design institutes transformed from public institutions to enterprises between 2000 and 2005, especially at the central enterprise level, where national-level design institutes basically all became enterprises. At the local level, some provincial, autonomous regional, and municipal design units completed privatization reform. Jiangsu and Henan provinces had the most vigorous reforms, with provincial design units achieving privatization,” Zhu Boshan, General Manager of Tianqiang Management Consulting Co., Ltd., told the reporter. “Over the past 20 years, design units have undergone several rounds of reform, but some are still public institutions, and among state-owned enterprise design units, a considerable number are still under whole-people ownership (non-corporatized). The state requires completing the corporatization reform of state-owned enterprises by the end of this year and completing the transformation of operational public institutions into enterprises within two years. The tasks and pressure of reform are very great and very urgent.”
In the current new round of reform, the different nature of design units determines different directions and tasks. Zhu Boshan said: “Although many state-owned design units are already enterprises, they are still non-corporatized enterprises and need further reform into corporate enterprises. Some also face the need to promote mixed-ownership reform. A considerable number of public institution design institutes face the requirement of transforming into enterprises, mainly concentrated in water conservancy design institutes, some planning institutes and municipal institutes, and a small number of architectural design institutes. In addition, according to the requirements of the Third Plenary Session of the 18th CPC Central Committee to establish a new state-owned asset management system, some enterprises face a new round of state-owned asset restructuring.”
Reform Despite the “Pain”
The new round of reform is a national requirement, an imperative of the times, and an inevitable choice for establishing a fair and orderly market environment and enhancing enterprise competitiveness. Unlike previous reforms, under the continued pressure of economic downturn, design units face dual pressures from changes in the external competitive environment and internal system reform. The “labor pains” of reform are inevitable.
“Design enterprises must endure the ‘pain’ of reform. No matter how painful, reform is a good thing for the entire market and industry. If market competitors are not market-oriented, the market-oriented development of the industry will be fraught with difficulties,” Zhu Boshan said.
Transforming state-owned enterprises into corporate entities and establishing a modern enterprise system helps eliminate the drawbacks of the state-owned enterprise system and mechanisms. The reform of public institutions is a basic requirement of market competition.
Zhu Boshan said: “The nature of public institutions is inherently contrary to the principles of a market economy. If market competitors are not market-oriented, if design institutes remain public institutions subordinate to government authorities, and if design personnel still have public institution staffing, it is impossible to truly achieve marketization, and it seriously violates the law of the market dominating resource allocation, thereby affecting the implementation of individual responsibilities and the establishment of a unified market.”
The conversion of personnel status, changes in wages and benefits, pensions for retired employees…… Enterprise system reform faces a series of practical problems that need to be solved. In Zhu Boshan’s view, the biggest challenge of reform is still the issue of mindset. “Reform has a certain impact on relevant personnel, but the state has issued policies to properly address them. In fact, what often cannot be overcome is people’s mindset. Design units should understand and think about reform from the perspective of becoming bigger and stronger, should not overly dwell on whether employees hold shares and the proportion of employee shareholding, and should treat the disposal of state-owned assets prudently.”
Reform Underway
As the reform deadlines approach, some design units have already produced reform plans, while others are still confused by various problems faced in reform.
Chen Zhen, Secretary-General of the Architectural Design Branch of China Exploration and Design Association, said: “The system reform of architectural design enterprises is a major strategy concerning the long-term development of enterprises and requires advancing with the times, continuous innovation, and continuous improvement. Design institutes that have not yet reformed should seize this favorable historical period and favorable policies, take the initiative in reform, actively seek government support, fully respect the wishes of employees, design a good reform plan, and achieve successful reform as soon as possible.”
At the same time, he suggested that design units not yet qualified to reform into private enterprises adopt a “whole-game” and “two-step” approach: first reform into enterprises, then reform according to the requirements of mixed-ownership enterprises. He does not recommend the direct “card-flipping” “one-step” reform method. For enterprises that have completed reform and are undergoing secondary deepening reform, they should standardize the equity allocation plan as soon as possible and make full use of capital to promote rapid enterprise development.
Jiang Jianlin, Director of the General Office of Fujian Provincial Architectural Design and Research Institute, and Jiang Yongjie, Director of the Comprehensive Management Department of Sichuan Provincial Architectural Design and Research Institute, both agreed that the primary task of reform is to clarify the relationship with the superior enterprise, and then reform into an enterprise legal person under modern corporate governance according to the requirements of mixed-ownership enterprises.
For design enterprises that have already reformed, since the equity allocation mechanism no longer matches current conditions, they face the need to standardize the equity flow system, and also face new requirements such as enterprise listing and PPP capital operations. They urgently need standardized transformation to adapt to the modern enterprise management system. Issues such as the controversial fixation of major shareholders are still worth discussing.
It is reported that according to reform requirements, Shanxi Provincial Architectural Design and Research Institute plans to integrate several provincial-level design institutes under its jurisdiction into the “Shanxi Design Group” in order to become stronger and bigger. Shandong Provincial Architectural Design and Research Institute has submitted its reform plan to the competent authorities, striving for major progress within the year.