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asia policy for yangqi to improve the quality of goods and services or boost operational efficiency, such as by streamlining internal departments and reducing staff. As mergers simultaneously produce larger SOEs and shrink the number of players operating in still-protected sectors, these problems will become more acute. Those looking to China’s anti-monopoly law to address the concerns about competitiveness raised by mergers among SOEs will be disappointed. Enforcement authority is fragmented among three government agencies—the National Development and Reform Commission, the Ministry of Commerce, and the State Administration for Industry and Commerce—with limited resources and little authority to rule against mergers mandated by higher levels of government. Tough Choices about Marketization Remain Beijing’s latest reform push is running headlong into concerns about economic and political stability, leaving the timing and process of future marketization unclear. The guiding opinions for SOE reform never mention the “decisive role” for the market pledged at the Third Plenum in November 2013. In 2015, Chinese stock market turmoil solidified conservative political elites’ conviction that party-controlled yangqi are an essential part of the government’s toolkit for averting financial crisis. Beijing is also extremely concerned about the security implications of foreign investment and technology, as demonstrated by the National Security Law and banking technology regulations. Tough choices lie ahead about which market-oriented reforms the government should adopt, which agencies will be responsible for carrying them out, and when, where, and in what order reforms will be implemented. The first approach under consideration is gradual expansion of mixed ownership between centrally owned firms and other state-owned and private investors through instruments including share subscriptions, equity stake purchases, and convertible bonds. But many private investors have remained skittish despite rosy coverage by official media and efforts by the State Council to clarify the permissible forms and scope of investment. 15 An alternative approach involves authorizing the holding companies of state-owned business groups, presumably those classified as commercial, to augment their role in state capital management. In effect, this would shift SASAC’s function 15 “Guowuyuan guanyu guoyou qiye fazhan hunhe suoyouzhi jingji de yijian” [Opinions of the State Council on State-Owned Enterprises Developing Mixed Ownership Economy], State Council (PRC), Document No. 54, September 24, 2015. [ 90 ]
leutert • china’s reform of state-owned enterprises away from asset management toward a regulatory role. Although SASAC set up pilots in 2014 to explore these two options, the guiding opinions call for additional experimentation, making it unclear which of these tactics, if any, will be implemented on a wider scale. 16 Others advocate rolling back administrative monopolies and boosting competition—both between state and private firms and within the state-owned sector—as the best approach to improve efficiency and service quality in the long run. 17 Most if not all of the nonstrategic sectors still protected by the Chinese government as “pillar industries”—electronics, machinery, information technology, automobiles, steel, nonferrous metals, chemicals, and construction—are inherently competitive, if capital intensive. Lowering levels of state ownership while making administrative interventions more limited and predictable will boost the efficiency of resource allocation and encourage the participation of smaller private firms. 18 The State Council’s pledge in October 2015 to phase out price controls in nonstrategic sectors by 2017, limiting government-set prices to sectors like electricity and water supply, is an important step toward creating more competitive markets. However, this move is unlikely to seriously affect yangqi domination of these industries in the near term. aligning mismatched managerial incentives Personnel Control versus Personal Power A second obstacle to carrying out new reforms arises from SOE leaders and the party’s system of personnel control. The Central Organization Department, the powerful party organ charged with management of elite cadres, appoints top executives for the core 53 SOEs. Leaders of the remaining central state-owned firms are appointed by SASAC in coordination with the Central Organization Department. In theory, the party exercises influence over SOEs through its authority to appoint, transfer, and remove their top leaders. This control is thought to align officials’ career incentives with party priorities. According to 16 “Guoziwei qidong si xiang gaige shidian” [SASAC Starts Four Reform Pilots], Xinhua, July 14, 2014. 17 World Bank and the Development Research Center of the State Council (PRC), China 2030: Building a Modern, Harmonious, and Creative Society (Washington, D.C.: World Bank, 2013). 18 Ibid., 110. [ 91 ]
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