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Politics

With reforms, Xi bulking up state companies to take on the world

Chinese rolling-stock giants China CNR and CSR combined to form CRRC earlier this year.

BEIJING -- President Xi Jinping's government is speeding up consolidation of state-owned enterprises to create industry giants ready to compete in the global market.

     Guidelines for reforming these businesses were announced Monday. "Based on [Chinese Communist Party] General Secretary Xi's repeated instructions, we have specified the direction and basic rules of reform," said Zhang Xiwu, vice chairman and deputy secretary of the State Council's State-owned Assets Supervision and Administration Commission, or Sasac.

     The new guidelines, jointly released by the Communist Party and the government, are the first from the current leadership to focus on reforming state-owned enterprises. A decisive result should be seen by 2020, the guidelines say.

     Large-scale realignment is a pillar of the reforms, targeting the creation of world-class multinational corporations, according to the guidelines. The document does not set numerical targets. But Sasac is apparently considering reducing 110 large state concerns to 40 and forming internationally competitive corporate groups, according to a source close to the matter.

     Mergers and industry realignment are already underway in rail and marine transport. Train car manufacturers China CNR and CSR merged in June to create CRRC, a behemoth controlling half of the global subway market.

     In marine transport, parties including Cosco and China Shipping have been thinking about merging lately. The moves are aimed at avoiding competition at home and instead competing globally. Steel and communications are undergoing similar shifts, with regulations being revamped accordingly.

     The business environment will be made conducive to healthy "natural selection" and market exits, the guidelines say. Industries with excess capacity will be the main targets of the reforms.

Tightening Xi's grip

Reforms launched in the 1990s originally aimed to minimize the role of inefficient state-owned enterprises and revitalize the private sector. Zhu Rongji, who took office as premier in 1998, focused on splitting off and privatizing functions of state companies to reduce their presence in the overall economy.

     By contrast, the new guidelines seek to strengthen Communist Party and government control of state-owned enterprises. Xi has linked the reforms to his anti-corruption campaign, implicating leaders of state companies who had opposed his government and sending his own close aides to these businesses. The president appears to be further strengthening his leadership by creating state-owned giants with huge global footprints.

     Some worry that the efforts are undermining the marketization of industry and distorting competition. And with the new guidelines not touching on some 18,000 local-government-owned companies, many saddled with excess capacity, the new reform effort may do little to reduce excess production capacity in the Chinese economy as a whole.

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