China is set to publish a planning document aimed at improving the country's inefficient state-led firms by harnessing the power of the market, subject to the government's enduring reluctance to cede too much control over the economy.
One year after President Xi Jinping called for measures to diversify ownership and improve management at state-owned enterprises (SOE), the document will provide new nationwide principles to draw non-state capital and grant managers more freedom from political interference, according to officials briefed on the plan.
The guidelines, expected within weeks, will fall short, however, of the most far-reaching measures, such as privatization and market deregulation, which might challenge the state's pre-eminence in economic matters.
"The government wants state enterprises to work more effectively, but the government likes state capitalism," said Joe Zhang, former chairman of small business lender Wansui Micro Credit and one-time deputy head of China investment banking at UBS, who has not seen the document.
"This is a piecemeal effort," he said of the reform program.
Even so, Chu Xuping, director of the research centre at State-owned Assets Supervision and Administration Commission (SASAC), the ministry-level body that directly oversees China's 113 central government-controlled conglomerates, said these would be significant measures.
"This round of reform isn't designed to further protect state-owned enterprises, but allow the market to play a decisive role and make all companies compete on a level playing field," he said.
Improving the efficiency at the SOEs, which dominate China's economy, is critical as the country struggles to maintain the breakneck pace of growth it has delivered for two decades.
Stephen Sun, head of China equity strategy at HSBC Global Research, says return on equity, an efficiency measure, is less than 5 percent for local state firms and about 10 percent for central SOEs, compared with about 15 percent for private businesses listed in Hong Kong.
"There's a huge performance and operational efficiency gap," Sun said.