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The Huge Development of SOE in China in the New Era

China's centrally-administered State-owned enterprises (SOEs) registered their best performance ever in 2021, with record-setting revenues and profits, despite lingering impacts from the COVID-19 pandemic.

Net profits of central SOEs went up 29.8 percent from a year ago to hit 1.8 trillion yuan ($282.81 billion) last year, with an average two-year growth rate of 15.3 percent, said the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council.

The companies raked in 36.3 trillion yuan in combined revenues, an increase of 19.5 percent year-on-year.

The figures were at "the best level on record," SASAC spokesperson Peng Huagang said at a press conference.

The profit margin of central SOEs went up 0.6 percentage points to 6.8 percent. The companies spent more on research and development (R&D) to boost innovation-driven development, with total R&D input expanding 16.1 percent year on year to 904.59 billion yuan.

The overall solvency of central SOEs remained stable. At the end of December, the average debt-to-asset ratio of China's central SOEs came in at 64.9 percent, well under the control line of 65 percent.

The stellar performance came as the country started a three-year action plan for SOE reforms in 2020, featuring ownership overhauls and market-oriented operations, with the aim of enhancing the competitiveness of SOEs and facilitating quality growth.

"Some 70 percent of the goals under the three-year action plan have been fulfilled, offering strong impetus to high-quality development of the businesses," Peng said.

As part of the reform outcomes, major restructuring was completed in some leading central SOEs in sectors from steel to technology. Several industrial giants were founded in the sectors of space, logistics and resources, including the China Satellite Network Group and China Rare Earth Group.

More than 380 billion yuan of private capital was introduced into the ownership of SOEs last year.

Peng also highlighted the central SOEs' role in tackling the rare energy crunch that the country faced in 2021.

SOEs in the coal mining sector worked flat out to ensure supply, boosting combined annual coal output to a record high of 1 billion tons. Power-generating SOEs produced 4.95 trillion kWh of electricity, up 10.2 percent year-on-year and accounting for nearly two thirds of the country's total.

Looking ahead, Peng said the goals for 2022 are to keep central SOEs' profits growing faster than those of the broader economy, to make sure their asset-liability ratio is under control, and to increase their profit margin, productivity and the R&D investment.

SOE reform to focus on managing capital

According to the latest deployment of the State-owned Assets Supervision and Administration Commission of the State Council, it will continue to promote State-owned enterprise reform this year, focusing on proper incentive policies, business integration and mixed-ownership reform.

The goal of SOE reform is to establish a modern enterprise system and make SOEs more competitive market entities, rather than branches of the government.

Therefore, it is necessary to promote the construction of boards of directors, form differentiated salary compensation distribution methods and market-oriented incentive policies, implement mixed ownership reform, and realize the regulatory transformation from managing enterprises to managing capital.

Structural adjustment is an important goal of SOE reform. The authorities should continue to advance the business integration of different enterprises, eliminate the business areas that cannot make ends meet, and improve the core competitiveness of large enterprises.

However, some worry that the SOEs are "invading" too many markets and industries that should have been reserved for private enterprises. As a matter of fact, the central government is making efforts to promote the withdrawal of SOEs from competitive fields. Yet, to make breakthroughs in key technologies and industries as soon as possible, a new State-owned research and industrial system made up of institutes and SOEs has been put forward.

This is absolutely necessary, as some key scientific research fields are capital- and talent-intensive, and private enterprises do not have the ability to organize so many resources and meet the costs. Therefore, the government must concentrate manpower, materials and financial resources from all parts of the country through the State-owned research and development system so as to make fast progress.

But what also deserves attention is that while some local governments are cleaning up zombie enterprises, some local SOEs are recklessly expanding their businesses. For example, more SOEs are taking part in the market competition of the environmental protection industry, urban renewal, information services and other fields. In addition, some local SOEs have become investors in technology companies and participate in high-risk industrial competition activities.

The authorities should be alert to the expansion of these local SOEs, whose blind expansion might impact fair competition and economic efficiency in their respective fields. They must prevent the disorderly expansion of SOEs that are just repeating the mistakes of the last cycle.

Stable revenue backs high-quality development despite pressures

The steady growth in revenue of centrally administered State-owned enterprises will better help underpin overall economic growth this year, while these enterprises are also expected to do more in terms of research, innovation and keeping prices stable.

The State-owned Assets Supervision and Administration Commission of the State Council said on Feb 15 that in January, major economic indicators of China's centrally administered SOEs achieved steady double-digit growth as they have worked actively to keep growth stable and pursue high-quality development.

In January, revenue of centrally administered SOEs reached 3 trillion yuan ($470 billion), up 12.4 percent year-on-year. Total profit of these enterprises stood at 185.27 billion yuan, climbing 11.3 percent compared with last January. Total net profit grew 10.2 percent year-on-year to 142.38 billion yuan. Tax and fee payments by these enterprises came in at 352.16 billion yuan, 18.2 percent higher than a year earlier.

Fu Baozong, a professor at the Academy of Macroeconomic Research under the National Development and Reform Commission, said that notable revenue growth by centrally administered SOEs will better help them play an important role in bolstering economic growth this year. Fu said that since last year, a set of measures has been rolled out to help SOEs in improving efficacy and bringing down debt ratios, with visible effects seen. Yet the development of SOEs is also faced with a complex and challenging situation at home and abroad, as are most businesses this year.

"The Central Economic Work Conference in December said the economy is faced with the threefold pressures of contracting demand, supply slump and weakening expectations. This is also the complex situation facing SOEs. This year, SOEs will play a greater role in keeping production and supply chains stable and shoring up weak links in the economy. Their revenue growth needs to be better leveraged to catalyze development of private and smaller businesses in mid to downstream industries, while they should also make contributions in keeping overall prices stable," he said.

SASAC said that in January, the output of raw coal, sales of refined oil products and the production and sales of steel products of central enterprises have all maintained steady growth. Trade volume has also delivered rapid growth.

Fu said the threefold pressure points to fiercer competition in the market as demand is contracting. Therefore, SOEs must work relentlessly to seek key technological innovations to upgrade the country's production and supply chains.

"It is important to take a holistic view when looking at SOEs' growth as they are a very important part of China's economy, and the degree of revenue growth is only part of the overall perspective," Fu said. "This year, SOEs, while maintaining steady growth, need to work more proactively in seeking research breakthroughs and technological innovation to help the country achieve high-quality growth."

A meeting of heads of centrally administered SOEs late last year clearly urged these enterprises to notably increase their investment intensity of R&D funds.

Jiao Huaiqing, an official with China State Shipbuilding Corp, said that in January, its number of signed contracts for ships increased by 146.5 percent year-on-year, with the bulk coming from developed countries.

China issues supervisory rules to handle dereliction of duty by SOE executives

China's top supervisory agency has issued a set of rules to handle the dereliction of duty by management personnel of state-owned enterprises.

The document was made public on the website of the Communist Party of China Central Commission for Discipline Inspection and the National Supervisory Commission.

It is the NSC's first document on substantive rules to guide the work of supervisory agencies in identifying duty-related violations.

The new rules deal with identification issues in cases of illegal personnel involvement in similar businesses, seeking benefits for others, and the negligence and abuse of power.

The NSC said in a statement that the document is aimed at deepening anti-corruption work in SOEs, and punishing relevant violations with a zero-tolerance stance to promote the high-quality development of SOEs.

SOE reform to focus on managing capital

The goal of SOE reform is to establish a modern enterprise system and make SOEs more competitive market entities, rather than branches of the government.

Participating in the drawing-up of trade rules promotes China's high-level opening-up, which is an important driving force for deepening reform

China has entered a stage of high-quality development, which necessitates deeper reform and greater opening-up. The Central Economic Work Conference, in particular, emphasized China's opening-up path and process, and the country's need to take the initiative to meet the high standards of international economic and trade rules.

China first needs to build a sound external environment to ensure macroeconomic stability.Ensuring stable economic development is therefore a priority for China in 2022. Trade agreements are an important mechanism to promote the stable development of bilateral relations and build a sound external environment, and stable foreign trade and foreign investment expectations can be realized to a certain extent through the signing of multilateral trade agreements and regional trade agreements.

In 2021, for instance, the bilateral trade between China and the United States maintained a high growth rate. Through the analysis of data, it can be seen that the first-phase trade agreement signed between the two countries has played a stabilizing role in the development of their trade relations. The stable economic and trade development of China, Southeast Asia and many countries involved in the Belt and Road Initiative has also benefited from the China-ASEAN Free Trade Agreement and Asia-Pacific Trade Agreement, which have provided important policy support to help maintain the stability of the industrial supply chains.

One important development in 2022 will be the implementation of the Regional Comprehensive Economic Partnership agreement, which came into effect on Jan 1.China has also officially submitted its application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement. But China's active participation in building economic and trade rules includes not only regional trade agreements, but also advancing negotiations on relevant rules at the multilateral level of the World Trade Organization.

Through institution-based opening-up, China can improve its market system and stimulate the vitality of market players. With the practice of opening-up and innovation from the inside out and from the bottom up, the goal of continuously stimulating the vitality of market players can be realized through the macro policies proposed at the Central Economic Work Conference. At the same time, we should make sure that the interests and demands of Chinese enterprises can be met when international economic and trade rules undergo restructuring.

On its part, China will work to ensure national treatment for foreign-invested enterprises, shorten the negative list for foreign investment access, expand the opening of service sectors such as telecommunications and healthcare in an orderly manner, revise and expand the Catalogue of Industries to Encourage Foreign Investment, and introduce a negative list for crossborder service trade in pilot free trade zones. China will also seek to attract more investment from multinational companies and speed up the implementation of major foreign investment projects while promoting high-quality cooperation under the framework of the Belt and Road Initiative.International trade rules include rules for business facilitation. There are some important rules and provisions about State-owned enterprises reform in the CPTPP that China is seeking to join. The target of China's SOE reform in 2022 is to realize a three-year action plan and steadily promote the reform of monopoly industries such as the power grid and the railways. In the reform process, it is necessary to increase transparency, standardize commercial assistance, and combine international standards with China's own reforms to better boost the economic vitality of all Chinese SOEs.

China will also strengthen rulemaking for the development of the digital economy and promote rules related to fair competition. The maintenance of relevant rules on intellectual property rights protection will help promote economic innovation and an innovative economy.

At present, China has formed its own advantages in the process of institutional innovation in each pilot free trade zone where it is necessary to carry out policy coordination and cooperative innovation to smooth the domestic circulation, such as the unification of some standard rules, which is an important guarantee to promote the national economic circulation through institutional innovation. In the field of global climate change, the establishment of climate change rules related to international trade has been accelerated, such as the carbon boundary regulation mechanism proposed in Europe. This has put some external pressure on China, but it is also an important opportunity for China's economic and industrial transformation and development. China will participate in the establishment of rules for promoting green development.In the process, China will promote the high-quality growth of its economy through the scaling-up of its carbon market and the development of a domestic carbon tax, while paying attention to the interests of developing countries in the negotiations for rules, grasping the law of historical development, and building an international rule system for inclusive development.

This reflects that China has evolved from learning and obeying international rules to actively participating in the construction of international economic and trade rules in the process of conforming to international rules. High-level opening-up is an important driving force to promote deep-level reform, and taking the initiative to adopt high-level international economic and trade rules is an important path for China to carry out highlevel opening-up.The author is director of the Department of International Trade of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

SOEs assisting overseas clients to hit green goals

China's State-owned manufacturers and infrastructure project providers－a group of companies that have long been a thriving part of many countries' industrialization and urbanization processes－are increasingly applying digital solutions in the global market to meet demand from its clients and maintain robust growth.

SOEs such as China Railway Construction Corp Ltd, CBMI Construction Co Ltd and China Communications Construction Co Ltd have all introduced new platforms and technologies to improve construction and production efficiency in overseas markets via digital, networking and smart transformation and upgrading solutions.

They have already accelerated investment in strategic emerging industries, such as new energy vehicles, satellite navigation systems, e-commerce, 5G and other new types of information infrastructure in both domestic and foreign markets.

China Railway Construction Corp Ltd, one of the country's major rail construction contractors, said that digital technologies have been widely used in the construction of Lusail Stadium, the main venue of FIFA World Cup Qatar 2022.

Located about 15 kilometers north of Doha, Qatar's capital, the stadium can hold up to 80,000 spectators. It is the first World Cup venue to be contracted by a Chinese company and the largest China-built overseas professional venue with the largest spectator capacity.

It will host the final on Dec 18 as well as, among other matches, the first semifinal. The stadium's main body is already completed.

People approaching the stadium will notice a delicately decorated wall glimmering under the desert sun. It is made of triangular aluminum plates carved with more than 4,200 simulated enamel lantern patterns. The plates were made using 3D laser scanning technology and Building Information Modeling (BIM) solutions.

Liu Dawei, the project's manager, said that it is the first time BIM has been widely used by a Chinese company in an overseas ultra-large stadium for a global sporting event.

Liu explained that the essence of BIM technology is to build a virtual construction model and use it to guide construction and operations.

During construction, CRCC partnered with 110 large subcontractors from 15 countries to integrate high-quality technological resources and realize a coordinated design.

Promoting digital transformation is practical to improve SOE's businesses in global markets, especially in economies related to the Belt and Road Initiative, said Li Jin, chief researcher at the China Enterprise Research Institute in Beijing.

"Apart from responding to the government's call to accelerate the cultivation of world-class enterprises with a technological edge, it has great significance as it will help maintain the stability of the world's industrial and supply chains," Li said.

In Europe, CBMI Construction Co Ltd, a subsidiary of Beijing-based China National Building Material Group Co Ltd, said that its production line renovation project at the MK3 cement plant in France, contracted by the company, was completed and put into operation in the first quarter.

Based on smart construction methods integrating digital operations, smart equipment and remote technology, the plant is now a technically leading digital smart plant in Europe's cement industry.

The rotary kiln is a major equipment component of cement plants, and its installation was a key part of the renovation project.

According to Lin Dong, general manager of the company's French subsidiary, smart methods were used during hoisting and installation. The engineering site and its position were simulated through animation, through which the engineering space and positions of the rotary kiln body and the engineering vehicles were accurately confirmed as being of maximum efficiency.

Lin said such visualized engineering modeling helps workers understand their tasks and improves operational precision and efficiency.

Engineers collected data and information using unmanned aerial vehicles and sent the findings to a data center. The intelligent database then generated the best operational suggestions to help on-site engineers carry out further work.

Lin added that connections between the data center and the project were cut off when the project was completed, which guarantees the data security of the French client.

Managers and operators can study data such as distances between devices and operating times of bearings by touching digital screens. They can also directly send engineering commands via mission management platforms.

Thanks to the advanced technologies, production efficiency of the plant has increased to 5,000 metric tons of cement output on a daily basis.

Since France has set a strategy aiming to reach carbon neutrality by 2050, Lin said that the plant meets current low-carbon development requirements.

Shanghai's key SOEs stay busy even amid lockdown

While many factories in COVID-hit Shanghai remain closed or are preparing to resume production, Shanghai branches of China's centrally administered State-owned enterprises have taken multiple measures to safeguard operations of the industrial chain in the Yangtze River Delta region.

These efforts include organizing large-scale closed-loop management to continue production at various plants, providing timely supplies of power, staple foods and social services, as well as creating new logistics channels for export-oriented companies to ship their goods from ports in Shanghai, said SOE executives working in the city.

Shanghai Zhenhua Port Machinery Co, or ZPMC, one of the world's biggest port machinery manufacturers by market share, said that its Changxing manufacturing base in Shanghai's Chongming district has not halted production for a single day since March, and its production orders were met during the month. To date, its 13,000 engineers and workers have all been living in the company's factories in Changxing, without any reported infections.

Zhou Yafen, deputy general manager of ZPMC's Changxing branch, said timely shipments of port machinery and equipment guarantee operations of container terminals around the world and provide necessary support for large-scale international and domestic water transportation logistics.

"These moves also ensure that global terminal operators do not disrupt their production and operating plans, which to a certain extent will help downstream customers," Zhou said.

ZPMC, also a subsidiary of Beijing-based China Communications Construction Co Ltd, said that its seven canteens in Changxing base have sufficient vegetable and food supplies. Currently, their stocks of rice, flour, cooking oil and frozen vegetables can be used for three weeks, while fresh vegetable stocks can be consumed for more than three days.

Li Haiyun, chairman of Shanghai Energy Technology Development Co Ltd, a subsidiary of Beijing-headquartered State Power Investment Corp, said that in accordance with local rules for epidemic prevention and control, the company's smart energy power station project, located in Chongming district, has been running smoothly so far this month.

To keep supply chains running smoothly in the Yangtze River Delta region, China COSCO Shipping Corp, the country's largest shipping group by fleet size and ports－including those in Taicang, Nanjing and Zhangjiagang－have been helping export-oriented companies in Jiangsu province ship containers to ports in Shanghai via waterways. This has ensured the smooth transportation of exports for domestic manufacturers.

Fifty-five ports have launched such transshipment services along the Yangtze River by the end of last week. Of these, ports in Nanjing, Yangzhou, Zhangjiagang and Xuzhou have provided daily services to send shipping containers via waterways to ports in Shanghai for export, according to Shanghai-based China COSCO Shipping.

Xin Guobin, vice-minister of industry and information technology, said that the current COVID-19 outbreak has had a negative impact on the industrial sector, hampering logistics and industrial production in some places.

"The temporary shutdown of a company may affect a large number of firms in related industrial and supply chains, especially in the Yangtze River Delta region, where many automobile equipment and electronics companies are located," he said during a conference held by the China Federation of Industrial Economics over the weekend.

To tackle bottlenecks, Xin said that a white list system for key industrial and supply chain enterprises has been established to give priority to these companies to guarantee coordination, especially in key areas including integrated circuits, automobiles, equipment manufacturing and biomedicine. Currently, more than 2,000 companies have been included in the white list.

"At the same time, more efforts will be made to increase supply and stabilize prices of important raw materials, and strengthen the production capacity of chips. The ministry will also support leading companies in the field to play an active role in boosting supply chains," he said.

The official added that the government will make every effort to ensure the supply of medical materials, strengthen production scheduling and guarantee key medical necessities, including nucleic acid tests and antigen detection reagents, so as to meet the needs of medical supplies in Shanghai and elsewhere.

Medical SOE helps Shanghai in COVID-19 fight with TCM playing vital role

Facing the resurgence of the COVID-19 outbreak in Shanghai, State-owned medical enterprises are sparing no efforts to help the metropolis' residents get back on track to normal life as soon as possible.

As one such SOE currently fighting against the contagion in Shanghai, Yifang Pharmaceutical Co Ltd is leveraging its edge in traditional Chinese medicine, or TCM, to safeguard the safety of residents.

According to the company, as of April 19, it had donated some 1 million bags of TCM, with various functions in the anti-COVID-19 battle, to Shanghai.

"To protect as many people as we can is the ultimate goal of the battle in Shanghai. As an SOE, we must bear in mind our role in the battle, which is to deliver more anti-pandemic supplies to the front line," said Wei Mei, chairman of Yifang.

"Yifang will spare no efforts to help safeguard the lives of residents to the last moment till the end of the pandemic, and ensure the supply of our products."

A subsidiary of China Traditional Chinese Medicine Holdings Co Ltd (China TCM) under the Sinopharm Group, Yifang is a leading enterprise specializing in modern TCM production. With an eye to the daily healthcare demands in China, the company has been actively integrating its research and development to have TCM play a bigger role in promoting healthier conditions in China.

Giving full play to the role of TCM is China's anti-pandemic wisdom, which has been well-proved in several shockwaves of the COVID-19 pandemic since 2020.

According to an expert meeting held by the WHO on the evaluation of TCM in the treatment of COVID-19 from Feb 28 to March 2 this year, in addition to routine treatments, the results from the studied TCMs suggest that, based on clinically relevant outcome measures, the studied TCMs are beneficial in the treatment of COVID-19, particularly in mild-to-moderate cases.

The HuaShiBaiDu Formula is one such TCM that has been applied in some parts of the nation, including Wuhan, Hubei province, to fight the COVID-19 pandemic.

This same TCM is also recommended as a therapeutic drug in the notification issued by the National Health Commission on the latest Diagnosis and Treatment Protocol for Novel Coronavirus Pneumonia (Trial Version 9).

From January to April 2022, Yifang has supplied millions of bags of the HuaShiBaiDu Formula to Shanghai, Jilin and Guangdong provinces, Wei said.

"We have applied the HuaShiBaiDu Formula to the makeshift hospitals, which showed very good results. TCM plays a crucial role in fighting the pandemic," said Fang Bangjiang, head of the TCM experts at the Shanghai New International Expo Center makeshift hospital and director of the emergency department of Longhua Hospital Affiliated with the Shanghai University of TCM.

It is a great challenge for pharmaceutical factories to ensure production and logistics distribution when many cities reported infected cases recently.

"As a pharmaceutical enterprise, our mission is to boost our efforts to help patients recover," Wei said.

At present, Yifang's eight production lines have recovered production and been given priority to producing pandemic prevention TCM.

Apart from TCM production, disrupted logistics poses another challenge. To deliver TCM to patients in time, Yifang first transported them to Zhejiang province by air and then to Shanghai by trucks.

"Our drivers stayed in the trucks for nearly 10 hours until they delivered the product to the makeshift hospitals," said Chen Peng, Shanghai branch manager of Yifang, who has been working continuously since the current outbreak began.

"It is a challenging job for me. But seeing our products working for the residents sweeps all the fears and exhaustion away," Chen said.

China's centrally administered State-owned enterprises (SOEs) also spent more on research and development to boost innovation-driven development in the first three months of 2022, the country's top State-owned assets.

The central SOEs' total R&D input from January to March expanded 18.9 percent year-on-year to 151.42 billion yuan ($23.76 billion), according to the State-owned Assets Supervision and Administration Commission of the State Council.

The operating profit margin of central SOEs stood at 6.8 percent during the first three months, flat with the same period last year.

Tuesday's data also showed that the production efficiency of central SOEs increased steadily. Their annualized total labor productivity was 727,000 yuan per capita in the first three months, a year-on-year increase of 13 percent.

In the January-March period, these companies raked in 9 trillion yuan in combined revenues, up 15.4 percent year-on-year. Their net profits grew 13.7 percent to 472.33 billion yuan, according to the commission.