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Economy

Bling And Bureacracy: What's Wrong With China's State-Owned Companies

Outrage in China over high salaries and low performance of top executives of state-owned enterprises exposes an entire system that responds to neither markets or the public interest.

This image of the head of one of China's top real estate holdings flashing his Hermes belt lit up the Chinese Internet.
This image of the head of one of China's top real estate holdings flashing his Hermes belt lit up the Chinese Internet.
Hu Jiayuan

-Analysis-

BEIJING – The government has made its intentions clear: it is time to trim the outrageous salaries of top executives of China's stated owned enterprise (SOE). Dubbed the "Wage-cutting order," the measure is regarded as the latest victory for the power of Chinese public opinion in the campaign for fairer distribution of wealth.

It has been clear from the outset that remuneration of executives of China's public companies, and in particular those owned by the central government, was not a simple economic issue. Indeed, it had been seen very much of a political symbol. Today, instead, it has become a social issue. Top Beijing SOE executives have regularly made it into the countries top income rankings, from millions to tens of millions of RMB (hundreds of thousands to millions of dollars).

With so much at stake, clarity on some key questions is imperative. For instance, are senior public executives administrative officials or business leaders? Who is to determine how much they should be paid, the market or the government? And how is their personal contribution to be measured, by their company's economic performace of its political contribution?

These seemingly simple remuneration management issues get to the core element of much needed SOE reform: whether a public company meets with Beijing's policy, whether their governance structure is efficient and whether the definition of executive responsibilities, rights and interests are clear and precise.

Pursuing interests

The reason why the existing system for compensating SOE executives is unreasonable is because no clear division exists between SOE businesses and the public interest, nor clarity about whether they should be competitive by nature or monopolistic.

In the financial, petrochemical and telecommunication sectors where the monopolistic SOEs enjoy the double advantages of access to resources and the government's preferential policies, high executive salaries are particularly unpopular.

It's also worth noting that numerous central government SOEs in more competitive sectors have failed, in part for a failure to institute modern corporate governance structures. The lack of a board of directors means that the representatives of shareholders and the heads of management are the same people. Since there is no clearly defined responsibility and authority over the executives, some actually increase their own salaries, even when their enterprises are performing very badly.

Unless institutional control is improved, SOEs’ external market position and internal governance structures will remain obscure. Since the executives are selected through the administrative appointment system, they owe their allegiance to the government. This often makes for bad corporate leadership, where we often see these managers trying to move in both political and business circles to promote their own career opportunities. This not only distracts those who possess real professional talents, but can also expose them to accusations of protecting their own vested interests rather than carry out their public charge.

Clearly, what China's public awaits is not just an official plan to trim the outrageous salaries of top public company executives but, even more importantly, a radical reform of the entire status of SOEs so they can be run like bonafide modern enterprises.


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FOCUS: Israel-Palestine War

Our Next Four Days In Gaza: Digging For The Dead, Hunting For Food, Hoping Ceasefire Sticks

With Qatar now confirming that the temporary truce will begin Friday morning, ordinary Gazans may be able to breathe for the first time since Oct. 7. But for most, the task ahead is a mix of heartbreak and the most practical tasks to survive. And there’s the question hanging over all: can the ceasefire become permanent?

Photo of Palestinians looking for their belongings in the rubble of their housein Deir al-Balah, Gaza

Palestinians look for their belongings in the rubble of their housein Deir al-Balah, Gaza

Elias Kassem

It’s what just about everyone in Gaza has been waiting for: a ceasefire in the Israel-Hamas war is expected to begin Friday, bringing a respite to more than 2.3 million people who have been living under war and siege for seven straight weeks.

By the stipulations of the deal, the truce is expected to last four days, during which time Hamas will release hostages captured during their Oct. 7 assault and Israel will release Palestinian prisoners from their jails.

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While details of the negotiations continue, ordinary Palestinians know they may only have four days before the bombs starting dropping and tanks start rolling again.

Some will continue sifting through the rubble, looking to find trapped family members, after searches were interrupted by new rounds of air attacks.

Other Gazans will try to find shelter in what they’ve been told are safer areas in the south of Palestinian enclave. Some will hurry back to inspect their homes, especially in the northern half of the strip where Israeli ground forces have battled Palestinian militants for weeks.

Ahmed Abu Radwan says he will try to return to his northern town of Beit Lahia, with the aim of resuming digging the rubble of his home in hopes of pulling the bodies of his 8-year-old son Omar.

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