New SOE categories: profitable firms and social enterprises

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The State Council, the Ministry of Finance and the National Development and Reform Commission jointly released the Guiding Opinions on the Definition and Classification of the Functions of State Owned Enterprises (SOE)( 《关于国有企业功能界定与分类的指导意见》) on December 29. This document divides SOEs into two categories, profitable firms and firms dedicated to public welfare, according to what type of business they conduct. Different policies on reform, development, supervision and evaluation are set out for the two categories.

The aim of profitable firms is defined as enlarging the function of state-owned capital, maintaining the value of state-owned assets and realizing their appreciation. They are encouraged to make use of market mechanisms, operate independently in accordance with the law and achieve a market in which the fittest survive and thrive. Enterprises dedicated to public welfare, on the other hand, are supposed to protect people’s livelihoods and provide products and services for public. The prices of their services can be regulated by the government if necessary. According to the document, profitable firms in fully competitive industries and fields should in principle accelerate company and stock reform as well as the diversity of equity. Public welfare enterprises, on the other hand, can take the form of wholly state-owned enterprises but also encourage non state-owned enterprises to get involved in management.