China's state-owned firms must reform: Sinochem head

[BEIJING] China's state-owned enterprises must adapt over the next decade to face enormous challenges, the head of state-owned chemical company Sinochem said on Thursday, as Beijing attempts to slim down and reform the sector.

China's state-owned enterprises (SOEs) have long struggled under a system that requires them to both maximise economic gains and fulfil government policy objectives.

"In the next 10 years, there must be fundamental changes ... in equity, in the shareholding structure," Frank Ning, chairman of Sinochem Group, told a forum in the Chinese capital.

Sinochem, which employs more than 50,000 people in China, has outstanding debt of US$11.55 billion and annual operating revenue last year of around US$60 billion, Thomson Reuters data and the company's website show.

China's previous efforts to reform SOEs several years ago were more focused on going public in Hong Kong or the United States, Mr Ning added.

"We thought that would solve the problem, but it turns out that if you still hold 70 per cent control, nothing will change," he said.

Responding to a query whether the SOEs can become world-class, Zhang Yichen, chairman and chief executive of CITIC Capital Holdings, said, "SOEs don't have to be world-leading companies."

He added, "In a lot of ways, SOEs have a social function. That doesn't prevent China from producing world-leading companies like Alibaba and Tencent.

"In my view, China's world-leading companies should be produced by the private sector rather than the SOE sector, given the dual task that SOEs typically carry."

Top performers at SOEs are "leaving in droves" for reasons ranging from poor pay to better opportunities elsewhere, added Mr Zhang, who said private equity fund CITIC Capital Holdings manages close to US$10 billion.

China has about 150,000 SOEs that manage more than 100 trillion yuan (S$20.5 trillion) in assets and employ more than 30 million people.

REUTERS