Relations should be sorted out in SOE reforms: McKinsey

Updated 2017-05-24 09:30:27 Global Times

The government has quickened its steps to carry out reforms of State-owned enterprises (SOE) since the second half of 2016, but there are challenges including insufficient authorization by State asset supervision institutions and a weak talent system, according to a document global consultancy firm McKinsey & Company sent to the Global Times on Tuesday.

According to the report, as of the end of 2016 the assets of State-owned and State-held enterprises stood at 131.7 trillion yuan (.1 trillion), with their revenues and profits reaching 45.9 trillion yuan and 2.3 trillion yuan during the same period, respectively. But SOEs still face a dilemma: They are big in size but not powerful in competence.

The central government has continuously propelled SOE reforms in recent years. In July 2014, COFCO Corp and the State Development & Investment Corp were picked as the first two companies to test SOE reforms.

Two years later, the second array of SOEs including Baosteel Group launched reforms under the guidance of the government.

The report said that the SOE reforms have sped up in recent months, and the focus of this round of reforms includes the reconstruction of companies invested in and run by State capital as well as mixed-ownership reforms.

The McKinsey report also noted that if the SOEs can raise their return on equity by 10 percent to 20 percent, it would mean that their profits can increase about 400 billion yuan to 600 billion yuan annually, not to mention the benefits of those reforms on the SOEs' structure.

Huang He, a partner of McKinsey, said that domestic SOEs face many challenges in the reforms. For example, their management structures are often immature. How the Communist Party of China can properly merge into the companies' governance structure also remains ambiguous.

The McKinsey report stressed that some relations must be made clear to help propel the reforms.

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