China’s state-owned enterprises (SOEs) are set to experience some of their most significant reforms in recent years. According to the Financial Times, authorities in China are moving to allow corporate boards to appoint SOEs’ senior executives, rather than the Communist Party.

At present, the leaders of SOEs are placed in their positions by the Communist Party’s personnel department. Since China’s opening up to the market, placing trusted managers in charge of the country’s largest SOEs has been seen as a key way for the ruling party to maintain control in the absence of traditional central planning.

At present, the leaders of SOEs are placed in their positions by the Communist Party’s personnel department

However, China’s SOEs have increasingly come under fire for urgently needing reforms. With their production totalling 30 percent of all of China’s output, they play a key role in the country’s economic performance, and their increasing levels of indebtedness and declining profits has been blamed for China’s current slowdown.

The move to start allowing corporate board appointments comes after a pilot project in 2014, in which five SOEs were allowed to appoint management via their boards of directors. Now, the Financial Times has reported, “a cabinet task force has approved an expansion of the pilot to include three to five additional groups”. As part of this process, State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) will select a new batch of SOEs to implement the reform following Central Committee approval.

Although many see China’s SOEs as a drag on growth and a hangover from its pre-market reform era, within the country SOEs’ endurance is seen as an integral part of China’s economic strategy. According to the China Daily newspaper: “SOEs…have become the major force of China, ready to compete on an international scale”, citing a recent report delivered by Xiao Yaqing, Head of SASAC. However, Xiao noted that reform of SEOs and the management process behind them would have to continue to deepen in the future.