SOE-licon valley
Beijing wants to free up state-owned enterprises (SOEs) to spend more on innovation.
- That is our main takeaway from the SOE regulator’s (SASAC) Friday leadership meeting.
Some context: Facing a structural slowdown in growth and US-led restrictions on critical technologies, Beijing relies increasingly on central SOEs to drive technological innovation and industrial upgrading.
- In 2023, central SOEs' combined investments in strategic emerging industries (SEI) surged by 45.3% y/y, reaching RMB 2.18 trillion.
More context: While their spending on innovation has grown massively, SOEs' ability to invest is constrained by a set of stringent annual key performance indicators (KPIs).
SASAC wants that changed, calling for reforms to:
- Evaluate SOE investments in innovative and fundamental technologies over a medium-to-long-term – rather than short-term – horizon
- Tweak SOE KPIs to guide investments toward developing crucial technologies and resolving supply chain bottlenecks, in line with national strategic and industrial upgrading objectives
Efforts are already underway:
- In March, SASAC announced that the new energy vehicle (NEV) businesses of China's three large central automakers – which are trailing behind private competitors and require huge investments to catch up – will be evaluated based on factors such as technological advancement and market share, rather than short-term KPIs.
Get smart: SOE managers are reluctant to channel investment into tech innovation as such investments are costly and take years to bear fruit.
- By loosening the KPI reins, SASAC's reforms could soon help unleash a massive new wave of R&D spending.