China’s State Enterprises have a long way to go to follow the Commercial standards of Singapore’s Temasek

This is an analysis from Ryan Rutkowski of the Peterson Institute for International Economics.

Singapore’s Temasek was committed to selling underperforming state-owned assets, and even investing in private or foreign companies to improve the performance of its portfolio. Of the 35 state-owned companies in Temasek’s portfolio at inception, only 11 firms remain. The rest have been divested or liquidated. Today only 30 percent of Temasek’s portfolio is exposed to Singapore.

One of the key differences between the China model and the Singapore model is the failure to manage state assets on a commercial basis. In theory SASAC is supposed to enhance the performance of state assets. However in practice it acts more as a supervisor for the corporate governance reforms of state-owned enterprise, leaving operational decisions and investment responsibilities at the central level to 115 unlisted state-owned groups.

Presumably this could begin to change with the new reforms. For example, in Shanghai, a local asset management company is reported to be taking over equity ownership of seven listed state-controlled firms.

The performance of state firms, whether corporatized or not, are also unlikely to improve without more competitive markets. Temasek’s success was related to the liberalization of state dominated sectors. For example, the telecommunications market was liberalized in 1998, exposing the Temasek-owned – Singtel – to competition from private players, such as M1 Limited. Financial services have also long been exposed to domestic and foreign competition in Singapore. The state-controlled – DBS bank – only controls about two-fifths of the assets of domestic-owned banks. As a city-state Singapore industries – whether state or private-dominated – are also inherently more vulnerable to foreign competition on services then large territorial nations like China.

In contrast, China’ state-asset regulators continue to call for maintaining absolute control of important sectors and strategic areas, and majority control of backbone industries, new technology sectors, and strategic emerging industries.

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