SOEs chosen for trial reform plan

China has selected six companies including COFCO for a trial designed to overhaul state-owned enterprises, giving them more freedom to make investment decisions and hire top executives.

Trials are necessary because there are many challenges and risks associated with reforming SOEs, Peng Huagang, chief of the reform office under the State-owned Assets Supervision and Administration Commission, said yesterday.

State Development & Investment Corporation, China National Building Materials Group, China Energy Conservation and Environmental Protection Group, Xinxing Cathay International Group and China National Pharmaceutical Group are the other companies involved in the trial, according to the State-owned Assets Supervision and Administration Commission.

Peng said SOEs involved in the trial should be bold and avoid any losses of state assets.

The commission, which administers more than 100 SOEs, divided the trial into four areas. In one part, COFCO, the country's largest grain trader, and State Development & Investment Corp will be given more power to invest assets.

Meanwhile, China National Building Materials Group will be allowed to appoint senior executives — in the past the government made such appointments.

In another reform, private companies will be allowed to own stakes in pilot SOEs. The commission said it will also select up to three SOEs for discipline enforcement reform, but didn't name the companies.

Fitch Ratings said in a June report that reform could focus on the gradual diversification of ownership, redefining the roles and functions of SOEs, improving corporate governance and developing the private sector.

Still, Fitch analyst Ying Wang said there could be challenges because of the government's reliance on SOEs to perform many strategic and policy-oriented functions.

"There will also be resistance from the powerful vested interests that exert significant power and influence over China's policymakers," Wang said. "The complexity of reform is further compounded by the involvement of different levels of government and with other major political, economic and financial reforms."