(Yicai Global) Aug. 19 -- Three departments of the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) jointly issued a document decreeing that pilots for employee share ownership in state-held enterprises (SHEs) will start within the year.
Relevant officials with the SASAC told Yicai Global that the pilot employee share ownership projects must proceed in conformity with such factors as the functional classifications of state-owned enterprises (SOEs) and the reform of mixed ownership planning.
Per the decree, SOEs inclined to initiate employee share ownership must first reform their equity structure to introduce private capital, in which shareholding by shareholders of non-publicly-owned capital must comprise a stated proportion, and their boards must comprise directors nominated by shareholders of non-publicly-owned capital.
Further, the major business fields of pilot enterprises must be those industries and fields with sufficient competition, such as steel, coal, building materials, cement, machinery manufacturing, chemicals and electronic technology, and over 90 percent of their business income and profit must derive from the external markets of their parent enterprise groups.
The document also states that researchers, managerial staff and key professionals signing contracts with such enterprises also have the chance to hold shares, but government-appointed SOE heads may not. Employees' joining share arrangements must receive distributions mainly in currency and receive timely payment per contract. Shares held pursuant to asset management plans may not leverage their financing. The decree also mandates that such employee shareholding may not exceed 30 percent of an enterprise's total share capital, and shares held by a single staff member may be no more than one percent. It also specifies the locking, exit mechanism and exit pricing of employee-owned shares.
Central enterprises above level-II and level-I owned by provincial-level local governments and the Xinjiang Production and Construction Corps will preliminarily not be pilots for employee share ownership. This initiative reflects a creeping privatization of SOEs that incentivizes staff in an effort to address problems of over-capacity and lack of competitiveness within moribund enterprises that are relics of the state-planning era without resort to mass lay-offs.