Abstract: In recent years, mixed-ownership reform has become a hot topic. From central to local governments, policies have been rolled out one after another and actions taken frequently, with the reform quickly moving into an "upgraded version" stage.
In recent years, mixed-ownership reform has become a hot topic. From central to local governments, policies have been rolled out one after another and actions taken frequently, with the reform quickly moving into an "upgraded version" stage.
The mining industry has become an important area for mixed-ownership reform, with oil and gas being the top priority. At the same time, as the construction aggregate market booms, state capital has aggressively entered the sand and gravel aggregate sector, making the mixed-ownership reform of construction aggregate mines both lively and increasingly complicated. Some ill-timed reforms, or even those contrary to central government policies, have begun to stir.
The proposal and development of mixed ownership: To smoothly advance mixed-ownership reform, the concept of mixed ownership must first be clarified.
"Mixed ownership refers to a new ownership allocation structure and economic form formed within the same economic organization through diversified investment and mutual integration by different property rights entities," said Shen Sheng, partner of Beijing Yuren Law Firm and director of the Mining Law Research Center. At the macro level, mixed ownership refers to the non-unitary nature of the ownership structure of a country or region, including not only public ownership such as state ownership and collective ownership, but also non-public ownership such as individual, private and foreign ownership. At the micro level, it means that within an enterprise, there are multiple property rights entities, jointly funded by investors of different ownership natures, with each property rights entity having a certain influence and role.
The mixed-ownership economy is a macro-level semantic concept. It refers to an economic system in which at least two of the production materials ownership components—state ownership, collective ownership and non-public ownership—are combined. Its main forms include cross-shareholding, joint-stock systems and listing, and its micro-level form is the mixed-ownership enterprise.
"The mixed-ownership economy is a property rights allocation structure and economic form formed through diversified investment and mutual integration of capital of different ownership types. It is an important realization form of China's basic economic system, an important foundation of the modern enterprise system, a major breakthrough in deepening the reform of state-owned enterprises, an important driving force for invigorating both state-owned and private enterprises, and a boost for forming a competitive market structure," Shen Sheng analyzed.
The concept of a mixed-ownership economy in China has a long history. As early as September 1997, at the 15th National Congress of the Communist Party of China, the concept of a mixed-ownership economy was formally proposed for the first time.
The report adopted at the congress pointed out: "We must fully understand the meaning of the public economy. The public economy includes not only the state-owned economy and the collective economy, but also the state-owned and collective components of the mixed-ownership economy." Subsequently, the description of the mixed-ownership economy was continuously enriched and improved at various Party meetings and in government reports.
In September 1999, the Fourth Plenary Session of the 15th CPC Central Committee began to propose "carrying out joint-stock operations and developing the mixed-ownership economy as an important direction for the reform of large and medium-sized state-owned enterprises."
At the end of 2002, the 16th CPC National Congress clearly stated that it is necessary to "deepen the reform of state-owned enterprises and further explore multiple effective forms of public ownership; except for a very small number of enterprises that must be wholly state-owned, actively promote the joint-stock system and develop the mixed-ownership economy." In October 2003, the report of the Third Plenary Session of the 16th CPC Central Committee further strengthened the expression of "developing the mixed-ownership economy," proposing to "vigorously develop the mixed-ownership economy."
In 2007, the 17th CPC National Congress proposed "developing the mixed-ownership economy on the basis of a modern property rights system."
In 2013, the "Decision of the CPC Central Committee on Several Major Issues Concerning Comprehensively Deepening Reform," adopted at the Third Plenary Session of the 18th CPC Central Committee, pointed out that "the mixed-ownership economy, in which state capital, collective capital and non-public capital hold shares in each other and merge with each other, is an important realization form of the basic economic system," and that "more state-owned economies and economies of other ownership types should be allowed to develop into mixed-ownership economies."
In 2014, the "Government Work Report" further proposed to "accelerate the development of the mixed-ownership economy."
In 2015, the "Government Work Report" again explicitly proposed to "develop the mixed-ownership economy in an orderly manner."
By 2016, with the deepening of reform, mixed-ownership economic reform was officially placed on the important agenda. The term "mixed-ownership reform" (hun gai) was formally proposed at that time.
At the Central Economic Work Conference held in 2016, mixed-ownership reform was proposed for the first time. The meeting emphasized that "mixed-ownership reform is an important breakthrough in the reform of state-owned enterprises."
In 2017, the report of the 19th CPC National Congress pointed out: "We need to deepen the reform of state-owned enterprises, develop the mixed-ownership economy, and cultivate world-class enterprises with global competitiveness."
The Central Economic Work Conference in 2018 once again emphasized the need to "actively promote mixed-ownership reform."
The 2019 "Government Work Report" stressed the need to "actively and steadily promote mixed-ownership reform. Deepen reforms in areas such as electricity, oil and gas, and railways. For natural monopoly industries, network and transport operations should be separated according to the characteristics of different industries, and competitive businesses should be fully opened to the market."
The importance attached by the CPC Central Committee and the State Council to developing the mixed-ownership economy is evident. It can be said that adhering to and improving the basic economic system and stimulating the growth momentum and potential of both the state-owned economy and the private economy are the fundamental purposes of developing the mixed-ownership economy.
Mineral resources are the grain and blood of industry. How to use mixed-ownership reform to break down barriers in the oil and gas sector, stimulate the vitality of mining enterprises, ensure the preservation and appreciation of state-owned assets, and at the same time guarantee the supply capacity of mineral resources is precisely the key and difficult point of mixed-ownership reform in the mining sector.
The significance and path of mixed-ownership reform: Mixed-ownership reform means introducing other state-owned capital or non-state capital into state-owned enterprises to achieve diversification of corporate equity. This reform is a major component of the socialist market economy with Chinese characteristics and an important lever for comprehensively deepening economic system reform. It is of great significance for safeguarding the country's long-term stability, maintaining social stability, improving the operating models of state-owned enterprises, enhancing the controlling power and competitiveness of the state-owned economy, and promoting the transformation and upgrading of the national economic structure.
"Deepening the mixed-ownership reform of state-owned enterprises is a key link in achieving high-quality economic development. The purpose of implementing mixed-ownership reform in state-owned enterprises is mainly to improve the modern enterprise system, stimulate economic vitality, improve the allocation and operation efficiency of state capital, and promote the transformation of state-owned enterprise operating mechanisms, so as to better meet the people's ever-growing needs for a better life. Whether for central enterprises or local state-owned enterprises, future mixed-ownership reform will be carried out under a state-owned capital management system centered on 'capital management,'" Shen Sheng introduced. The main path of mixed-ownership reform is for non-public economies such as private enterprises or foreign enterprises to enter state-owned enterprises. The main methods include equity investment, fund investment, and restructuring through listing.
However, the mixed-ownership reform of state-owned enterprises has not been smooth. It has roughly gone through four stages: early germination (1980-1993), practical exploration (1993-2013), initial development (2013-2018), and deepened development (2018 to present). Especially during the practical exploration stage, state-owned enterprises, including mining enterprises, generally underwent corporate restructuring, and cadres and workers in some mining enterprises held shares.
From the perspective of practical exploration, there are currently three common paths for developing mixed ownership: First, state-owned enterprises introduce non-state capital to participate in reform. The main approach is for non-state capital investors to participate in the restructuring and reorganization of state-owned enterprises, participate in capital increases and share expansions of state-controlled listed companies, and participate in the operation and management of state-owned enterprises through various methods such as capital contribution, equity acquisition, subscription of convertible bonds, and equity swaps. Second, introduce strategic investor investment platforms. Third, explore employee stock ownership plans through methods such as capital increase and share expansion, or establishment of new enterprises with capital contributions.
"When state-owned enterprises promote mixed-ownership reform, they must focus not only on 'mixing' but also on 'reform.' Property rights 'mixing' is the means, and institutional 'reform' is the purpose. Through mixed-ownership reform, new and obvious progress must be made in dismantling the institutional and mechanical barriers that prevent state-owned enterprises from adapting to market competition," Shen Sheng said. Complementary advantages are the foundation of mixed-ownership reform of state-owned enterprises. Whether for state-owned enterprises or non-public enterprises, mixed-ownership reform must be able to benefit the entities participating in the reform in some way. Complementary resource advantages are the basis for state-owned enterprises and non-public enterprises to participate in mixed-ownership reform and integrate with each other. If the reform only benefits state-owned enterprises, non-public enterprises will certainly not participate; if it only benefits non-public enterprises, even if state-owned enterprises implement mixed ownership at the call of the state, such mixed-ownership enterprises or projects are unlikely to be sustainable.
"Mixed-ownership reform of state-owned enterprises is not a matter of privatizing state-owned enterprises, nor is it a matter of 'state advancing and private retreating,' with state-owned enterprises encroaching on private enterprises. The purpose of mixed-ownership reform of state-owned enterprises is to use the institutional form of mixed ownership to give full play to the comparative advantages of state-owned and private enterprises and achieve integrated development. The reform should be based on a unified theoretical logic, change reform concepts, establish a common philosophy of mixed-ownership reform, eliminate concerns and resistance to mixing, and broaden the breadth and depth of mixing," Shen Sheng further analyzed.
Mixed-ownership reform is a very complex systematic project involving various internal and external activities of enterprises, such as equity structure design, adjustment of interests of all parties, reconstruction of incentive mechanisms, property rights market transactions, and asset value assessment. It requires ensuring equal protection of all types of property rights, ensuring transparency of market information such as equity transfers and capital increases, and ensuring strict supervision of market transactions and effective play of the role of third-party institutions. All of this presupposes the construction of a legal system.
Especially for the mining industry, due to large cyclical market fluctuations and the fact that mineral resources, the main source of value, are buried deep underground with great uncertainty, the difficulty of assessing and determining asset value during mixed-ownership reform is increased. If mixed-ownership reform is chosen during a trough in mineral product markets, it is easy to give the impression that state-owned assets are being sold at a low price. Therefore, many mining enterprises are timid and full of concerns when it comes to mixed-ownership reform, and dare not easily undertake it.
The principles and direction of mixed-ownership reform: China's mixed-ownership reform of state-owned enterprises has gone through a tortuous course. Especially during the practical exploration stage from 1993 to 2013, many state-owned enterprises, including mining enterprises, basically carried out corporatization restructuring in accordance with relevant policies. Overnight, mining bureaus in the coal industry became coal industry (group) companies. During this period, the most successful mixed-ownership reform in the coal industry was Henan Shenhuo Group Co., Ltd. After the reform, the company's vitality greatly increased and it became a star enterprise nationwide. There is also Zijin Mining Group Co., Ltd., which was successfully listed on the Hong Kong stock market in December 2003. After opening the curtain on mixed-ownership reform, the company has developed rapidly and is now ranked among the Fortune Global 500.
However, many state-owned enterprises have not been so fortunate in their mixed-ownership reform. Due to the discontinuity of laws and regulations, and the introduction by relevant state departments of a series of new policies such as the "Opinions on Regulating Shareholding and Investment of State-Owned Enterprises" to standardize the restructuring of state-owned enterprises and prevent loss of state-owned assets, many central enterprises carried out a comprehensive buyback or transfer of shares held by cadres and workers, temporarily bringing mixed-ownership reform in many central enterprises to a standstill.
This share-clearing storm also affected many local state-owned enterprises. In Yuzhou City, Henan Province, there was a local state-owned coal mine. In 1994, when the enterprise was restructured into a company, it encountered funding difficulties during the launch of a new coal mine project. The more than 20 million yuan borrowed from the China Development Bank through coordination was only a drop in the bucket, and the local government was unwilling to invest in the huge project. Forced by circumstances, the mine took the lead with Party members and cadres, mobilizing workers to raise funds to build the new mine. Between 1994 and 1998, the company barely managed to keep the new mine construction going through three or four rounds of fundraising.
Because coal mine construction projects have long cycles, large investment and slow returns, coupled with the weak coal market at the time, the company was unable to repay the funds raised from cadres and workers when they matured. For the long-term investment and construction of the coal mine project, the enterprise began to imitate its neighbor Shenhuo Coal Group, and around 1998 again mobilized Party members and cadres to convert the raised funds into equity, so as to fundamentally ease the pressure on construction funds. Although workers complained quite a bit, they still accepted the company's decision for the long-term development of the enterprise. However, around 2004, the local government introduced a large provincial state-owned coal enterprise. In order to facilitate the provincial coal enterprise's merger and acquisition of this local state-owned coal company, the local government forced workers to return their shares, ultimately bringing this relatively successful mixed-ownership reform to an abrupt end.
Since 2016, after the state repeatedly required the comprehensive acceleration of mixed-ownership reform, the reform has once again met with favorable conditions. Hao Peng, Secretary of the Party Committee and Chairman of the State-owned Assets Supervision and Administration Commission of the State Council, recently said in an interview with the media that the "Three-Year Action Plan for SOE Reform (2020-2022)" will soon be issued and implemented. China will take the implementation of the three-year action plan as an opportunity to sound the charge for reform once again, and by accelerating and deepening reform, make enterprise mechanisms more flexible, optimize the layout and structure, and strengthen development momentum.
It is understood that the most important work of the "three-year action plan" is to promote reform in monopoly industries, including railways, oil and gas, and electric power, and to further advance mixed-ownership reform. It is necessary not only to promote mixed property rights ownership, but also to break monopolies and establish market-oriented operating mechanisms. Following the principle of tackling easier tasks first, the new three-year action plan after the tough battle of SOE reform is to continue consolidating and deepening the parts already marketized, and then tackle the hardest bones, continuously pushing reform to make breakthroughs.
Guided by the new reform roadmap, mixed-ownership reform of SOEs is accelerating into an "upgraded version" stage. Industry insiders believe that this year, as the first year of the three-year action plan for SOE reform, with the launch of four batches of 210 mixed-ownership reform pilot projects and a series of reform measures such as the "Double Hundred Action," "Regional Comprehensive Reform Pilot," and "Science and Technology Reform Demonstration Action," reform pilots for thousands of enterprises will accelerate across the board, striking a strong note in the capital market.
Central enterprise mixed-ownership reform is speeding up and expanding, and local mixed-ownership reform is also accelerating implementation. However, it cannot be ignored that in the process of promoting mixed-ownership reform of state-owned enterprises, some localities, under the banner of "you in me, and me in you," not only promote mixed-ownership reform of state-owned enterprises, but also require private enterprises to undergo mixed-ownership reform, allowing state capital to participate in or even take control of private enterprises, which completely runs counter to the original intention and direction of mixed-ownership reform.
In particular, in recent years, with the sharp rise in prices of sand and gravel aggregate, some central enterprises and local state-owned enterprises have flocked into sand and gravel mines, even bidding for mining rights at sky-high prices. Some local governments have explicitly stipulated that newly established sand and gravel mining rights may only be invested in and built by central enterprises or local urban investment companies. If private enterprises want to enter, the local urban investment company must take control through "dry shares" (shares without actual capital contribution).
Against this background, some private sand and gravel mines have taken the initiative to cooperate with central enterprises or local state-owned enterprises. In their words, "wearing a yellow vest" is more beneficial to development. As long as both sides are willing, such mixed-ownership reform is not unreasonable. However, in some places, certain private sand and gravel mines are developing well by themselves and neither want nor need mixed-ownership reform, yet local governments, seeing that the sand and gravel industry is profitable, use various ways to force enterprises to undergo mixed-ownership reform, letting urban investment companies and other state-owned enterprises take equity stakes or control private mines.
"In simple terms, 'mixed-ownership reform with private enterprises as the main body' actually means cooperating with state-owned enterprises or other ownership entities through equity transfers, capital increases and share expansions, equity swaps, and other methods. In terms of the subjects involved, this is a transaction between equal civil subjects and should abide by the basic principles of equality, voluntariness, fairness and good faith in civil activities," Shen Sheng analyzed. No party to a transaction may use its strong position to coerce the other party into an unequal transaction. Transaction subjects have the right to independently choose and decide transaction counterparts and transaction conditions according to their true will, establish and change transaction legal relationships, and at the same time respect the will of the other party and social public interests. They may not impose their own will on the other party or any third party, and no other organ, organization, group or individual as a third party may interfere. If local governments force private enterprises that are unwilling to undergo mixed-ownership reform to do so, that violates relevant national laws and the moral norms of honest and credible market economic activities.
Shen Sheng also pointed out that parties to mixed-ownership reform should follow the principle of fairness in determining their respective rights and obligations. All business operators should be treated fairly and reasonably according to market transaction rules, enjoying no privileges and not bearing any unfair obligations, with rights and obligations being consistent. In particular, the mixing objects and mixing methods should be chosen "according to needs," adhere to market-oriented selection of mixing objects and forms, avoid adverse selection risks, and actively encourage mixed-ownership reform in various forms such as vertical integration, horizontal integration, mergers, reorganizations, new capital contributions, project investment, and capital mixing.
It can be said that China's mixed-ownership reform has now entered the deep-water zone and the crucial period. How to reform and what to do still need to be further explored and tested in practice. But no matter how the reform is carried out, specifically for the mining industry, there is always only one goal: to stimulate the growth momentum and potential of both the state-owned economy and the private economy through mixed-ownership reform, fully realize the high-quality development of China's mining economy, truly achieve the transformation from a large mining country to a strong mining country, thereby improving China's capacity to guarantee mineral resources and better meeting the people's ever-growing needs for a better life.