China unveiled the much-awaited reform plan for state-owned enterprises (SOEs) on September 13, marking the biggest overhaul of its kind in a decade.

The new guidelines are particularly significant as SOEs, which account for a quarter of the country’s economic size, are seeking restructures and efficiency in a slowing economy.

China’s state enterprises are dominated by 111 central government-owned conglomerates, which contribute about 60 percent of SOE revenue, and are overseen by the State-owned Assets Supervision and Administration Commission (SASAC).

The grand blueprint was released jointly by the Communist Party and the State Council, China’s cabinet. The details are still scant, but it has set directions for future directives and has many highlights. For starters, the plan splits the ownership and operations, giving SOEs more power to make their own operational decisions.

“To me, the most remarkable highlight of the blueprint document is that China is determined to change the role of SOE supervisor from ‘managing asset’ to ‘managing capital’,” said Shi Ketong, a Beijing-based senior partner at JT&N.

The SASAC has been playing the role of both referee and football player for a long time. To effectively manage assets, the government agency has to retain the ultimate call to manage people and operational decisions of SOEs, making government bureaucracies and corporate decisions confusingly intertwined, and resulting in inferior efficiency and weak returns compared to the private sector.

The plan to limit SASAC’s power to “managing capital only” is in line with President Xi Jinping’s call to let the market play a more decisive role. If the overhaul is successfully implemented, the SASAC will function more like a shareholder and claim rights based on corporate laws, instead of giving direct ex-ecutive orders.

As bold as it sounds, the reform proposal reveals a muddled combination of liberal and conservative elements. For example, it calls for more private participation in State firms and promotes the mixed ownership of state assets, but it also emphasises the Communist Party’s leadership in SOE management. In addition, the guidelines fail to mention if underperforming SOEs would be allowed to fail.

The SOE reform has proved to be a tough nut to crack. The blueprint was forged amid many disagreements and revisions, according to people familiar with the matter. Beijing outlined plans for the overhaul at its agenda-setting annual plenum in November 2013, but progress was stalled by the vested interests of different government agencies.

The plan did not give a definitive time frame for the reform but stated that decisive results must be accomplished by 2020.

LESSONS FROM TEMASEK

Rome was not built in a day, and Chinese officials know it.

That is why the new plan calls for the creation of new state asset-management companies – entities that sound like Temasek, Singapore’s sovereign wealth fund – to help the overhaul proceed smoothly.

The proposal has been lauded by many economists and policymakers who believe that establishing a financial holding company modeled after Temasek could maintain state ownership of SOEs while insulating company operations from political clout.

For many, however, that option is far from feasible.

“The grand plan can be called quasi- Temasek, but is far different from the original Temasek,” said Guan Jun, another senior partner at JT&N. He also pointed out the most essential characteristic of Temasek: it is founded on the separation of government and enterprises. The proposed Chinese mod-el, however, “still emphasises party control over the company,” Guan added.

Another point to consider is how revamping the State sector in an economy as huge as China’s requires a lot more effort to deal with more complicated situations compared to what’s needed to implement reform in a city-state like Singapore.

“There are two sets of views: one goes for learning from Temasek model, and the other goes against it. Both views stand up well to a certain degree. But as a lawyer, I can tell you that from a pragmatic point of view, it is really hard to carry out the Temasek model in practice,” Guan said.

Moreover, while Singapore’s Ministry of Finance is the sole shareholder of Temasek, the question of which Chinese agency would have the same function is far from settled. An article on Tencent Finance said that China’s Finance Ministry wanted to adopt the Temasek model and be in charge of all state-owned assets, but the SASAC was also vying to be the state investment firm.

In addition, some analysts warn that as long as the party has the ultimate say, SOEs will never act like purely profit-seeking entities or modern corporations.

“It is really all about giving to government what belongs to the government. And giving to market what belongs to market,” Shi of JT&N said.