The state of state reform

Jiang Jiemin’s toppling as the head of the State-owned Asset Supervision Administration Commission（SASAC） has kicked up lots of dirt on the political heavyweight’s connection to China National Petroleum Corporation （CNPC） and a band of former associates that the Communist Party has also detained.

The political intrigue runs deep. Jiang’s “severe disciplinary violations”could tether him to a sinking ship captained by the elite-but-disposed Bo Xilai who was tried on similar charges late last month.

But don’t forget that Jiang’s ouster also quietly lopped off the head of SASAC， which oversees trillions of dollars in state-owned assets. Depending on who replaces Jiang， the shakeup has the potential to brush another layer of reform-resistant lacquer over stateowned enterprise （SOE） – or perhaps expedite positive change during a time of ambiguity.

“Reform for state assets and stateowned firms has already entered a period of confusion，” reads a frontpage report from the most recent issue of The Economic Observer， an independent Chinese weekly newspaper.“Reform for deep-seated institutional obstacles has been in a period of hesitation for years.”

Two of SASAC’s characteristics make this kind of dilly-dallying on reform increasingly dangerous.

First， the organ wields immense power and， according to some pundits， acts not as the supervisor but “owner”of all of the country’s monopolies on strategic industries such as oil， transportation and telecommunications. Its leaders have been tightening control for a decade.

Since the establishment of SASAC in 2003， support for state firms has strengthened while private enterprises have reluctantly been shunted to the side. The following decade is often described by the Chinese idiom guojinmintui， or “the state advances， the people retreat.”

Today， SASAC has little bureaucratic intervention from other government departments and， with the leaders of state firms， operates without oversight or competition. “The public sector has effectively delegated its rights to a few agents acting on their behalf； these agents have almost become the actual owners of the enterprises，” according to a 2012 report from the Unirule Institute of Economics， an independent non-governmental think tank based in Beijing.

A second， potentially more alarming note is that the state assets are struggling and many sectors have amassed incredible amounts of debt. For example， China’s steel sector had a debt ratio of about 70% as of June， or about US$490 billion in outstanding loans.

SASAC is in need of a reformer at its head. The top leadership position at the organ is not a perfunctory role： It vests the chairman with real power to reform SOEs， Zhao Long， a professor at Unirule said. Past experience doesn’t hold out much hope.

Jiang’s appointment to SASAC in March was not a step toward reform. In fact， it was another step backward.

Before Jiang took the position， he headed CNPC， one of China’s biggest and most powerful SOEs. Wang Yong， Jiang’s predecessor， was the head of a state-backed aerospace corporation before he took the reins at the organ.

Choosing a new head for SASAC from a pool of state firm bosses is a sure way to maintain the government’s hold on industry while potentially dragging the massive enterprises deeper into the red. When leaders at state firms move into government， they are indebted to the companies that brought them to power and will likely support such enterprises， often with massive subsidies. There’s also little hope of them allowing firms to file for bankruptcy， an important step toward reforming the state sector.

The next head of SASAC will likely be plucked from the top of a state enterprise. The Economic Observer says that the names of three SOE bosses are being traded in Beijing’s corridors.

Those looking for signs of real change will watch the appointment carefully on the off-chance that a reformer is tasked with grappling a fiercely independent beast loyal to its own.