The ongoing reform at the central level will affect everyone.

Recently, various ministries have successively held press conferences, releasing one important signal after another, constantly triggering market excitement. The release and implementation of these policy signals play an important role in boosting market confidence.

However, what Xiao Ming is more concerned about is a profound and far-reaching change that is quietly brewing. This change involves local governments, national-level state-owned enterprises, as well as employees of state-owned enterprises. Ultimately, it will inevitably affect all of us...

In recent years, Gu Chaoming's theory of "Balance Sheet Recession" has been widely circulated. He believes that after the burst of the Japanese bubble, both enterprises and individuals have been focusing on repairing their balance sheets (repaying debt instead of borrowing more), leading to Japan's lost decade.

However, Yuichiro Nagosh in "The Lost Thirty Years" pointed out that Japan lost 30 years because there was a huge change in the world economy at that time, with the biggest variable being China. The key point here is the reform of state-owned enterprises. The state-owned enterprise reform in the 1990s unleashed tremendous potential, driving China rapidly from an agricultural to a manufacturing industry structure. China has a large young labor force, allowing it to produce more cost-effective goods. The manufacturing industry market, which had been dominated by Japan, was quickly replaced by China. Japanese companies were not unwilling to expand through loans, but their old industrial structure and "vertical integration" production methods were no longer competitive in the face of China's huge impact.

At the end of the 1990s, China's GDP only accounted for about 3% of the world's total. Today, the size of our country's economy accounts for approximately 17% of the global total.

The new round of deeper reforms from local governments to central state-owned enterprises and individuals will inevitably bring greater impact.

Recently, many places have been busy dismantling investment promotion departments, canceling grassroots investment promotion quotas, and establishing state-owned investment promotion companies.

For a long time in the past, attracting investment was not too difficult for local governments. On the one hand, it is because there is a large potential market space, and many companies are eager to invest and expand production. On the other hand, it is because local governments have a wide range of tools at their disposal.

The most common practice is to provide cheap land and favorable tax conditions: Local governments offer tax incentives to businesses when signing investment promotion agreements, such as reducing administrative fees, providing financial rewards or subsidies linked to taxes.

These preferential policies may work well locally, but from a global perspective, they disrupt the tax collection order of the entire country, undermine the investment environment for the whole society, and may lead to unfair competition.

Moreover, when looking at the situation over a longer period of time, the negative impact on the local area also becomes increasingly significant:

As the incremental space decreases, local governments have to intensify their investment attraction policies in order to seize projects, offering enterprises "extraordinary preferences." This inefficient competition of digging into existing enterprises not only increases the burden on local governments but also fosters a mentality of "short-term arbitrage" among enterprises. Xinhua News Agency aptly refers to this as "mutually harmful investment attraction."

After the implementation of the "Regulations", all local preferential policies that violate the principle of fair competition, especially industrial support policies linked to tax subsidies, have come to an end in local investment attraction.

This move essentially aims to encourage local governments to change their roles, reshape government functions, and transform the way investment promotion is conducted - shifting from the past approach of attracting business investment through tax incentives and financial rewards to a focus on public service functions, industrial ecology, and optimizing the business environment.

Because, after the withdrawal of "policy preferences that violate fair competition", the only reasons that truly attract business investment are the "hard conditions" of the city's industrial base and the "soft conditions" of the local business environment and operational services. Click here to make investment attraction more accurate, effective, and sustainable for industrial parks.

As early as the end of 2015, all streets in Shanghai had already stopped attracting investment. The staff who were originally focused on attracting investment were freed up, shifting the focus of street work to social governance such as public services, public management, and public safety. From an overall perspective, this will be more conducive to optimizing and promoting the healthy development of Shanghai's urban industrial structure in the future.

Therefore, Xiao Ming believes that everyone does not need to worry too much that the phenomenon of random fines and closures will spread unchecked, because such behavior that disrupts the local business environment is nothing more than digging one's own grave.

From 2017 to 2021, the total assets of state-owned assets increased by 1.68 times, but the return on assets was not satisfactory. In 2023, the overall asset return rate of national state-owned enterprises (including holding enterprises) was only 1.4%.

By the end of 2022, the total assets of national state-owned enterprises amounted to 33.95 trillion yuan. If the return on assets increases by 1 percentage point, it will bring an increase of over 3 trillion yuan, which can greatly alleviate the financial strain caused by the decline in land transfer fees. Therefore, it is crucial for national state-owned enterprises to deepen reform and improve efficiency. In recent years, national state-owned enterprises have been taking frequent actions.

1. Restructuring and integration, focusing on core responsibilities and main business.

On September 25, the State-owned Assets Supervision and Administration Commission of the State Council held a meeting to promote the professional integration of central enterprises and a signing ceremony for key projects. A total of 26 companies from 12 groups signed contracts for professional integration projects at the meeting.

This is just a microcosm of the accelerated process of professional integration in state-owned enterprises.

Professional integration is aimed at allowing central state-owned enterprises to focus on their main responsibilities and core businesses. In the past, many central state-owned enterprises were pursuing expansion on a large scale, but the result was that they became big but not strong. Their stock prices also did not rise, falling well below net asset value, because they were involved in too many businesses, making their image in the capital market very unclear.

Therefore, at the beginning of the year, the State-owned Assets Supervision and Administration Commission set a goal: by 2024, based on the previous pilot exploration and experience accumulation, comprehensively promote the market value management assessment of listed companies.

Market value management is a common practice in mature capital markets, which can push enterprises to pay attention to the quality of operations, truly promoting the improvement of business efficiency.

Moreover, the focus of central state-owned enterprises on their main responsibilities and core business, rather than expanding in all directions, also leaves more room for development for private enterprises.

2. Continuously exerting efforts in strategic emerging industries.

Accelerating the layout of strategic emerging industries and future industries is an important focus for state-owned enterprises to cultivate new productive forces and is also a key aspect of deepening the reform and enhancing the operation of state-owned enterprises.

Data released by the State-owned Assets Supervision and Administration Commission of the State Council shows that in the first seven months of this year, investments made by central enterprises in strategic emerging industries alone exceeded 1 trillion yuan, with a year-on-year growth rate of 24%, accounting for 38% of total investments by central enterprises.

Local governments are also not showing any weakness, issuing relevant guidelines and setting up related companies. For example, at the recent 12th Plenary Session of the 6th CPC Sichuan Provincial Committee, it was proposed to integrate and establish Sichuan Science and Technology Innovation Investment Group, Sichuan Data Group... The purpose is to strengthen the leading position of state-owned enterprises in scientific and technological innovation.

3. State-owned enterprises have also loosened up on their venture capital investments.

Venture capital, as a key force driving technological innovation, industrial upgrading, and achieving high-quality development, is becoming increasingly important.

For example, Hefei relies on three major platform companies - Jiangtou Group, Chantou Group, and Xingtai Holdings - as investment "maneuvering hands", seizing key points of innovation-driven strategy, targeting industrial development directions and national policy orientations, and achieving vigorous development of emerging industries. This has led to other cities flocking to learn from it.

On September 18, the State Council held an executive meeting and put forward several new requirements for the development of the venture capital market. It was proposed to improve policies and measures related to state-owned capital investment, assessment, tolerance for failure, and exit mechanisms. These measures happen to correspond to the four major obstacles hindering the development of new productive forces in state-owned enterprises.

Previously, the "Guangdong Province Science and Technology Innovation Regulations" have been formally adopted and will be implemented starting from October 1 this year; Hubei Province State-owned Assets Supervision and Administration Commission has introduced the "List of Matters on Fault-Tolerance and Exemption for State-owned Enterprises" to establish a fault-tolerance and exemption "1+N" work system.

Because venture capital is inherently high-risk, the risk does not decrease simply because state-owned enterprises invest. Therefore, there must be a margin of error to encourage state-owned enterprises to have a more adventurous spirit.

Local governments and central state-owned enterprises are all reflecting on themselves, and employees of central state-owned enterprises are naturally no exception. For a long time in the past, entering a central state-owned enterprise meant obtaining a secure job. However, in recent years, this situation has been changing.

On September 27th, the State-owned Assets Supervision and Administration Commission of the State Council held the third special promotion meeting for deepening and enhancing the reform of state-owned enterprises by 2024. Wang Hongzhi, deputy director of the State-owned Assets Supervision and Administration Commission, said at the meeting that efforts must be made to promote competition among managers of state-owned enterprises, to enhance the adjustment and removal of incompetent personnel on a broader and deeper level. By 2025, state-owned enterprises must universally implement systems for adjusting and removing incompetent personnel.

Translation: In plain language, it means from now on, those who are capable will take the lead, if you can't do it, step down. Also, compared to the "thorough" mentioned at the first special meeting at the beginning of the year, this time a stronger "must" was used.

Previously, the State-owned Assets Supervision and Administration Commission of the State Council made it clear that by the end of 2024, the coverage of the adjustment and inadequacy removal system in central and local state-owned enterprises and their secondary and tertiary subsidiaries should not be less than 70%.

The data for 2023 released in February this year shows that the coverage of the system for adjusting low-performing personnel and for those deemed incompetent in primary enterprises is only 77.2%. As for secondary and tertiary subsidiary enterprises, the coverage is even lower.

Moreover, during the implementation process, there are cases of using illegal and disciplinary violations, reaching retirement age, voluntary resignations, etc. as replacements for those who fail to meet performance assessment standards to "exit."

During the three-year action period of state-owned enterprises reform, significant breakthroughs have been made in institutional mechanisms such as the "three system reforms." The focus of the new round of reform actions is to institutionalize, make long-lasting, and effective the achievements of relevant reforms, with the aim of promoting state-owned enterprises to truly operate according to market mechanisms.

Operating under market mechanisms means that state-owned enterprises need to truly break away from the practice of "looking at identity, rank, and seniority," and instead be evaluated in the market based on "looking at positions, performance, and contributions."

Promoting the implementation of term limits for management and contractual management improvement is a key focus of market-oriented operation mechanisms, it is one of the crucial tasks of the reform, and it is particularly urgent.

On one hand, central state-owned enterprises are stabilizers and ballasts of the national economy. With the current economy facing significant downward pressure (the Third Plenary Session of the 20th Central Committee provided a rare detailed description and deployment of the current economic situation), it is urgent to further stimulate the vitality of state-owned enterprises. On the other hand, as the "Promotion of Private Economic Development Law" is being accelerated and a series of policies for establishing a unified national market are being introduced, the policy advantages of central state-owned enterprises are being weakened. Faced with intense market competition, these enterprises must deepen reforms in order to survive and develop. Click me to undertake the "one target and five rates" policy, stabilize growth, and achieve profitability.

Although the current system of final adjustment and incompetent exit is aimed at managerial personnel, once the system is implemented, it will inevitably gradually spread within the company. This is also a reasonable expectation.

Some state-owned enterprises have long been implementing a policy of eliminating the lowest-performing employees. In recent years, downsizing and optimization in central state-owned enterprises are no longer uncommon.

For example, as early as 2021, China Southern Power Grid implemented market-oriented measures to lay off more than 3200 employees and demote over 13000 employees, marking the largest reduction in staff numbers in its history. It was regarded by the State-owned Assets Supervision and Administration Commission of the State Council as a benchmark for reform.

Since the reform and opening up in 1978, state-owned enterprises have undergone several major reforms, all focused on enhancing vitality and efficiency.

In the past, employees of state-owned enterprises in China were rarely removed or lost their jobs due to poor performance, so state-owned enterprises have become synonymous with stability and have been highly sought after. However, as reforms deepen, the existing boundaries will continue to be broken.

The meeting of the Central Political Bureau held on April 30 pointed out that reform and opening up are important magic weapons for the Party and the people's cause to catch up with the times by leaps and bounds... The whole party must consciously give more prominence to reform... It is necessary to deepen reform and expand opening up unswervingly, build a unified national market, and improve the basic system of the market economy.

The Third Plenary Session of the 20th Central Committee proposed more than 300 important reform measures, all of which involve institutional, mechanistic, and systemic aspects. Therefore, it is evident that as we enter the deep waters of reform, the resolve of the central government is firm, and the direction is clear. A systematic and profound reform is coming. Do not underestimate the determination of the central government! (Author: Ai Zhenqiang, Chief Editor and Chief Researcher of Mingyuan Real Estate Research Institute)