Equities surge on hopes of SOE reforms

Stocks posted their biggest gain in a month on Monday amid speculation that the government has approved the long-awaited reform blueprint of State-owned enterprises.

Buoyed by prospects of SOE reforms, the Shanghai Composite Index rose by 4.9 percent to 3,928.42 points on Monday, led by shipping, telecom and construction shares, while the Shenzhen Component Index jumped by 4.31 percent to end at 13,302.96 points.

The State-owned Assets Supervision and Administration Commission, the top regulator of State-owned enterprises, on Monday declined to comment on a report in the South China Morning Post, which said the State Council, China's cabinet, has approved a blueprint to shake up State-owned firms, the biggest of its kind in more than a decade.

The SASAC and regulators including the Ministry of Finance and the National Development and Reform Commission have been working on a host of SOE reform policies dubbed as "1 plus N" plans, which refer to an overall blueprint and detailed support policies.

The plans were expected to be rolled out in the middle of this year but have been postponed partly dragged by measures to prop up the stock market in the past two months, said analysts.

The shake-up will likely result in two new companies similar to Temasek Holdings Pte, Singapore's State-owned investment company, and the SASAC will no longer directly intervene in the running of most SOEs, said the report, citing unidentified sources close to the decision-making process.

Xu Baoli, a senior researcher of the SASAC's research center, said putting a State investment firm in place is necessary for promoting mixed-ownership reform.

However, it is unlikely to use a Temasek-style State-owned investment company to replace the SASAC in China, considering the large scale of SOEs. The SASAC controls 112 non-financial central SOEs.

Another option might be to establish two State-owned operating and investment companies under the SASAC and the Ministry of Finance, separately, Xu told China Daily.

Or the two companies could both be under the SASAC, an operating company in charge of listed SOEs and an investment company in charge of unlisted SOEs, he said.

The government has identified the first batch of six SOEs to implement pilot reform schemes, including the China National Building Material Group and China National Pharmaceutical Group Corp.

The government has already indicated that it will pursue SOE reforms in the second half and key areas will include shipping, oil and gas, aerospace, defense, tourism and materials, Haitong Securities said in a recent research report.

The Party's top decision-making body Politburo said at its mid-year economic work conference that SOE reform is one of the three key reform priorities for the second half of the year, according to a report released by China International Capital Corp.

Local governments have moved more quickly than the central level to implement SOE reform as they need to find new sources of revenue and to lower their liabilities, said experts.