China’s State Firms to Eliminate Some Costly Social Burdens by 2018, According to Reuters

SHANGHAI (Reuters) – China’s government-run enterprises will aim to eliminate certain costly “social functions” such as heating, water, and power supplies by 2018, according to the state asset regulator. This initiative is part of broader efforts to revitalize the sluggish state sector.

Beijing has committed to strengthening and enhancing the competitiveness of its state firms. A reform plan released last year outlined intentions to establish “multi-channel funding” and “appropriate cost-sharing mechanisms” to assist these firms in shedding their expensive social responsibilities.

Many of China’s major state enterprises were separated from government departments and have retained the original social and administrative duties, which encompass providing heat and power to local communities, as well as managing schools, retirement homes, police services, and pensions.

Xiao Yaqing, chairman of the State-Owned Asset Supervision and Administration Commission (SASAC), emphasized that removing these “social functions” and addressing the “historical problems of state-owned enterprises” is crucial for the overall reform of the state sector.

New policies focusing on the reform of state-owned enterprises’ roles in health, education, and firefighting are expected to be announced by the end of this year.

At a recent parliamentary session, a delegate shared that central government-administered enterprises are spending approximately 850 billion yuan annually on schools, pensions, and other social functions, with local government firms incurring even greater expenses.

State-owned companies have long called on the government to expedite efforts to relieve them of these social obligations, particularly in sectors like coal, which is already facing economic challenges, falling prices, and an oversized workforce.

For instance, the Longmay Group in Heilongjiang is laying off thousands of workers due to declining coal demand and bears an annual cost of 300 million yuan while being responsible for the pensions of 180,000 retirees and maintaining 42 hospitals and 130 schools in the region.

Although the discussion of removing “social functions” from state-owned enterprises has been ongoing for decades, implementation of reforms has been slow. In many remote and disadvantaged areas, these large state firms often serve as the primary source of social support and political influence.

Recent data indicates that China’s economy has become increasingly dependent on government spending and the state sector for growth, as private investment wanes, raising concerns about the continuation of SOE reforms.

According to the Ministry of Finance, profits from China’s state-owned enterprises dropped by 8.5 percent in the first half of 2016 compared to the previous year. Additionally, total liabilities for state firms surged by 17.8 percent year-on-year, reaching 83.55 trillion yuan by the end of June.