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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Society

A Mother In Spain Denied Child Custody Because She Lives In Rural Area

A court in Spain usurps custody of the one-year-old boy living with his mother in the "deep" part of the Galicia region, forced to instead live with his father in the southern city of Marbella, which the judge says is "cosmopolitan" with good schools and medical care. Women's rights groups have taken up the mother's case.

A child in Galician countryside

Laure Gautherin

A Spanish court has ordered the withdrawal of a mother's custody of her one-year-old boy because she is living in the countryside in northwestern Spain, where the judge says the child won't have "opportunities for the proper development of his personality."

The case, reported Monday in La Voz de Galicia, has sparked outrage from a women's rights association but has also set off reactions from politicians of different stripes across the province of Galicia, defending the values of rural life.


Judge María Belén Ureña Carazo, of the family court of Marbella, a city on the southern coast of 141,000 people, has ordered the toddler to stay with father who lives in the city rather than with his mother because she was living in "deep Galicia" where the child would lack opportunities to "grow up in a happy environment."

Front page of La Voz de Galicia - October 25, 2021

Front page of La Voz de Galicia - Monday 25 October, 2021

La Voz de Galicia

Better in a "cosmopolitan" city?


The judge said Marbella, where the father lives, was a "cosmopolitan city" with "a good hospital" as well as "all kinds of schools" and thus provided a better environment for the child to thrive.

The mother has submitted a formal complaint to the General Council of the Judiciary that the family court magistrate had acted with "absolute contempt," her lawyer told La Voz de Galicia.

The mother quickly accumulated support from local politicians and civic organizations. The Clara Campoamor association described the judge's arguments as offensive, intolerable and typical of "an ignorant person who has not traveled much."

The Xunta de Galicia, the regional government, has addressed the case, saying that any place in Galicia meets the conditions to educate a minor. The Socialist party politician Pablo Arangüena tweeted that "it would not hurt part of the judiciary to spend a summer in Galicia."

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