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China plans to reform SOEs through mergers, share sales-document

[BEIJING] China will push its state-owned enterprises (SOEs) to engage in mergers and share sales as part of the most far-reaching reforms of the country's sprawling and inefficient state-owned sector in two decades, according to documents seen by Reuters.

The guidance, jointly issued by the Commmunist Party's Central Committee and the State Council, China's cabinet, comes nearly two years after President Xi Jinping called for market forces to play a decisive role in allocation of resources.

Two officials familiar with SOE matters confirmed to Reuters the contents of the document, which was titled Document No 22 and dated Aug 24.

The State-owned Assets Supervision and Administration Commission (SASAC), which manages SOEs for the government, said in a Monday post on its official Weibo microblog that the government had approved a document outlining the reform. The document would be released soon, it added.

An official at SASAC's news department declined to comment further.

The document called for the restructuring of shareholdings and management at SOEs, with "decisive achievements" in various reforms to be made by 2020.

Boosting the efficiency of SOEs is one of the country's thorniest quandaries and comes as Beijing moves to transform its economy to a more more developed model.

China's state industrial economy is dominated by central government-owned 111 conglomerates, which account for about 60 per cent of SOE revenue and are overseen by SASAC.

The document said asset holding companies, divestitures and stock market listings would be used to improve the competitiveness of state sector firms, but stopped short of calling for full-scale privatisation.

Oil and gas, electricity, railways, and telecommunications were identified as sectors that could be suitable for limited non-state investment.

The plan also provided a broad range of policy objectives, including bolstering corporate governance and oversight systems to eliminate corruption and prevent government interference. "Some enterprises have prominent problems with chaotic management, insider control, conveying of inappropriate benefits, and loss of state assets," the document said.

The document splits SOEs into commercial and public welfare-related businesses. It encouraged market-driven firms in competitive industries to sell some ownership to non-state investors and list companies in their entirety.

For companies operating in strategic sectors and are seen as important for national security, the government must remain a majority shareholder, it said.

Non-competitive companies should be closed or allowed to go bankrupt, the document said.