CPC has crucial role in maintaining SOEs’ uniqueness

By Luo Hu Source:Global Times Published: 2017/10/16 21:38:40

Illustration: Peter C. Espina/GT

It has been a year since President Xi Jinping delivered his State-owned enterprise (SOE) Party building speech, and the country has made considerable headway in building the role of the Communist Party of China (CPC) in SOEs and deepening reform of the State sector in its entirety. There has also been increased awareness of and confidence in the country's unique model of developing a modern State sector.

At a high-profile national meeting on building the role of the CPC in SOEs in October 2016, Xi, also general secretary of the CPC Central Committee, stressed Party leadership over SOEs. The key speech by Xi provided answers in a systematic way to a question that is significant for SOE reform and the development of the CPC and the country: Why should and how can the CPC's role be strengthened in SOEs?

Some Western media outlets recently claimed that Chinese enterprises are being required to serve the will of the CPC, but these are unfounded allegations revealing their misunderstanding of the very essence of the modern SOE system peculiar to China.

Xi's speech clearly pointed to the new strategic position of SOEs, which are urged to become a force to be reckoned with in implementing decisions of the CPC Central Committee, putting new development concepts into practice and deepening reforms, pushing for major strategies and initiatives such as "going out" and the Belt and Road initiative, among other missions.

It can thus be seen that China's SOEs and State capital have similarities to their counterparts in developed capitalist countries in that state-owned businesses and capital are positioned to offset an ill-functioning market and exist primarily in the public sector and basic industries. Other than that, China's State economy needs to advance the nation's development, participate in international competition and become a major force in ensuring national security. These are the characteristics and traits that set China's SOEs apart from their Western counterparts and other types of businesses. Therefore, there must be increased and improved CPC leadership over SOEs as well as improved Party-building in SOEs.

In his speech, Xi also stressed reform to establish a modern enterprise system within SOEs that should be adhered to. The unique aspect of China's modern SOE system lies in the incorporation of CPC leadership into the corporate governance structure of SOEs.

Specifically, that means putting into place a scientific decision-making mechanism that integrates the involvement of CPC organizations into the process of making decisions and policies according to SOEs' corporate governance structure. There also needs to be an improvement in the hiring mechanism that integrates the CPC's leadership over the management of SOEs into hiring decisions made in line with their corporate governance structure. Additionally, a democratic management system is being envisioned to give employees enough input into the management of SOE operations. Further, there is supposed to be a mechanism to cultivate "soft power" that welds ideological and political work into SOEs' corporate cultures. Last but not least, SOEs need a compliance system that guards them against corrupt conduct, an effort prioritized by the CPC.

It is fair to conclude that the key speech has provided a systematic interpretation of the CPC's leadership over SOEs, which is the cornerstone of China's unique modern SOE system. It is believed that the system comprises five parts: the CPC's leadership that reflects the basic political system of socialism with Chinese characteristics; the positioning of SOE functions, based on which the SOE asset supervision system is derived; the ownership system that divides SOEs into two categories - sole ownership and diversified ownership; the corporate governance system of SOEs, and the SOE management system.

There are close logical links among the five parts, which constitute the basic framework and internal mechanism of China's SOEs. It is generally thought that a modern corporate system means clear-cut ownership, well-defined powers and duties, a separation of businesses from administrative authorities, and scientific management. In the case of China's unique model of developing SOEs, that should be summarized as CPC leadership, State holding, diversified governance and management in a scientific manner.

As such, the understanding of China's unique SOE system and preserving that unique system is crucial for efforts to build a Chinese model that is underpinned by socialism with Chinese characteristics.

The author is senior economist and deputy director of the research and consulting center of China COSCO Shipping Corp. bizopinion@globaltimes.com.cn


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