2016.12.19 Zhang Wei Views:
If SOE’s C-level executives still hold no shares, the mechanism will not change. I am not interested in companies of this kind.
If SOE’s C-level executives still hold no shares, the mechanism will not change. I am not interested in companies of this kind.
The mixed-ownership reform should touch the incentive mechanism and optimize SOEs’ governance. Stock shares let entrepreneurs have a say. It is both protection in property rights and an economic incentive.
In CoStone’s portfolio, only under 5% are SOEs. In 2014, a central SOE reformed its ownership by selling 30% of its shares to those renowned companies and institutional investors at the price of 100 billion RMB. But the result was unpromising because of the company’s inefficient asset.
I didn’t see this change as an opportunity back then, for the reform didn’t touch the SOE’s governance system. Outside investors were scattered and had no seat on the board. The largest sponsor only held 2.8% of its shares which was impossible to earn them a say on the board to improve the company.
The situation was even worse when you noticed that even the management team had no shares. The largest problem in SOEs is the lack of a long-term incentive mechanism. That is why today’s SOE reform is less effective than the Chinese Four Banks’ introduction of overseas strategic investors. Because, at least, outside investors had seats in the Four Banks’ boards. They can help the company to improve. Without a say on the board, the management team is inactive. That’s why the central SOE’s performance was dissatisfactory even after selling their shares to the private sector.
The above is part of an interview with the Economic Observer, where Zhang Wei shared his insights and concerns over the SOE reform and his recognition of some successful reform cases.
Rewritten by Chen Cong, Edited by Li Yunzhen, Du Zhixin
The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.
Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.
Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.
Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.
These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.
For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, making Huawei anindustry leader.
So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.
At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across
