China Inc gets new chairman as state-owned firms' clout grows

BEIJING Mon Sep 6, 2010 11:30am BST

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BEIJING (Reuters) - Wang Yong, a name little heard on the global business stage, has become boss of the world's biggest mobile telecom carrier, the most valuable coal producer and Asia's top oil refiner.

Wang replaces Li Rongrong as chairman of China's State-owned Assets Supervision and Administration Commission (SASAC), an agency created in 2003 with the aim of "growing the value" of state-owned firms, the government said on its website on Monday (www.gov.cn), confirming earlier reports in local media.

On that count, SASAC has been a remarkable success story.

Profits of the more than 100 firms under its control, including China Mobile, Shenhua Energy and Sinopec, soared to 815.1 billion yuan ($120 billion) in 2009 from 240.5 billion yuan in 2002. Many of these are the parent companies of listed entities in Hong Kong and Shanghai.

But analysts warn that this very success could damage China's long-term growth prospects.

A bigger and bigger share of the economy has fallen into the government's hands over the past decade, despite the fact that the private sector has been the main driver of Chinese growth since market reforms were launched in the late 1970s.

And SASAC's charges, once regarded as dinosaurs on the brink of extinction, are now power centers in their own right, housing vested interests that will complicate China's future reform path.

In Li's departing speech, he focused on the accomplishments, not the concerns.

"Over the past seven years, state-owned enterprises have fulfilled a political duty, an economic duty and a social duty. There has been vast progress in their reform and development," he said, according to a transcript on SASAC's website (www.sasac.gov.cn).

BIG STATE

The state-owned sector's clout in the overall economy has increased since SASAC was launched.

The assets of its stable of firms were worth 61.7 percent of gross domestic product in 2009, up from 59.7 percent seven years earlier. Combined profits of China Mobile and PetroChina outstripped the total profits of the country's top 500 private firms last year, according to company data.

"The stellar profits of China's state firms may come at the cost of private businesses," said Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, a top government think tank.

Yuan said that private businesses faced a battle against state-owned entities which have the undoubted benefit of government protection.

"While many private steel plants have been shut down in the name of clamping down on over-capacity, the economic planner has given approval to state players to massively expand their capacity," he said.

What some see as equally worrying is SASAC's unclear mandate for managing the firms under its purview.

"It hovers between being a shareholder and a regulator," said He Shaoqi, a professor with the Chinese University of Political Science and Law.

In its role as a shareholder, SASAC has been faulted for not taking a bigger cut of state firms' earnings. Despite soaring profitability, they paid an average dividend rate of less than 6 percent last year.

WEAK REGULATOR

As a regulator, critics say SASAC has also been too weak.

"It has done a terrible job in preventing China's biggest firms from falling into the hands of interest groups," said Sheng Hong, a researcher with China Unirule Institute, a private think tank in Beijing.

To be fair to SASAC, it never really stood much of a chance. In China's centralized political system, many leaders of top state firms enjoy the same political ranking as the head of SASAC.

The number of state-owned firms under SASAC's aegis has shrunk to 123 from 196 since its inception seven years ago, but consolidation is now getting tougher. The agency has a goal to reduce the number to under 100 this year, but so far it has eliminated only six.

Nothing in Wang Yong's career trajectory suggests that SASAC will emerge as a more powerful force under his leadership.

He has kept a low profile throughout his career and has secured a reputation as a safe pair of hands. In late 2008, Wang was made head of China's quality control bureau to help resolve a tainted milk scandal.

Previously a deputy chairman with SASAC, Wang is reported by local media to be a soft-tempered but firm person. He is also said to be good at managing senior officials -- a quality that will be essential if he is to have any success in steering China's galloping herd of state-owned firms.

($1=6.801 Yuan)

(Editing by Kim Coghill)