By Shen Nianzu (沈念祖)
Issue 626, July 1, 2013
Nation, Page 10
Translated by Dou Yiping
Original article: [Chinese]

This is an extended abstract of an article that appeared in this week's edition of The Economic Observer, for more highlights from the EO print edition, click here.

It's already been 100 days since a new generation of officials took up their posts in the country's State Council. Many of the newly appointed politicians formerly served as executives at some of China's major state-owned enterprises (SOE).

For example Guo Shengkun (郭声琨), who was recently appointed as Minister of Public Security and also as one of China's five State Councilors, once served as the CEO and Chairman of Aluminum Corporation of China (Chinalco or 中国铝业公司).

Similarly Wang Yong (王勇), another of the newly-appointed State Councilors, headed up the China Aerospace Science and Technology Corporation (中国航天机电集团公司) before taking up various positions with the State-owned Assets Supervision and Administration Commission.

China's new Finance Minister Lou Jiwei (楼继伟) also used to head up China Investment Corporation (CIC), the country's $500 billion sovereign wealth fund and Miao Wei, who is in charge of the Ministry of Industry and Information Technology, once worked as an executive with Dongfeng Motors (东风汽车公司).

An Incubator for "Officials-in-waiting"

In recent years, the state-owned firms that are directly under the control of the central government have become an important incubator for helping to develop the talents of individuals who go on to become senior economic officials. Likewise, many current senior party and government officials have got to their position via demonstrating their talents at a state-backed firm and this has already become a pathway for those seeking to attain a senior party or government position. It's gotten to the point that executives at these large state-owned companies are jokingly referred to as "officials-in-waiting" (准官员).

Researchers from the School of Economics at Renmin University of China analyzed data on personnel shifts at state-owned enterprises that operate directly under the central government between 2008 and 2011. (link to full paper - in Chinese - here).

They looked at the appointments of 189 central SOE executives over that four-year period and found that "work performance" (政绩), connections (关系) and a PhD (博士) were the three key factors that determined career advancement among the pool of candidates.

According to one of the academics involved in the research, Renmin University professor Nie Huihua (聂辉华), most executives at SOE ultimately want to become fully fledged government officials. This is because the administrative level of top leaders within SOE is capped at vice-minister (副部级) and only by becoming a government or party official do they really have any hope of climbing further up the career ladder as measured according to official ranking.

Because of this, many executives are motivated not so much by material gain but rather it's the allure of a future political appointments that drives them to perform.

Official Rankings

Although working as an executive with a state-owned firm is not a government position, the individuals who are appointed to such roles are ranked according to the same system that applies to government officials.

One of the stated goals of SOE reform was to abolish the use of such official rankings for employees of state firms.

As early as September 2000 the now redundant State Economic and Trade Commission (国家经贸委) published draft rules that sought to halt the use of such official administrative rankings in companies.

In 2008 and 2009 Shanghai and Guangdong also carried out pilot reforms aimed at eliminating such practices.

However, to this day, the importance of administrative levels in SOE remains high.

Heng Lin (桁林), a Marxist scholar with the China Academy of Social Sciences (CASS), told the EO that China is the only country in the world that maintains such administrative rankings for executives working in state-owned companies.

Executives-in-waiting

Some government officials choose to return to positions with SOEs when the prospect of further promotion dims or when they near retirement in order to collect the higher levels of pay that come with working for a company.

Nie believes that this does not help these state-backed firms when it comes to maintaining vitality and threatens to turn some SOEs into "retirement homes".

Links and Sources
Renmin University of China - Center of Firm and Organization Studies (CFOS): The Political Promotion of Quasi Government Officials - Evidence from Central State-owned Enterprises in China