China Power

Xi Jinping Promises Salary Cuts at State-Owned Enterprises

Xi’s promise is a signal that SOEs will need to change to fulfill the CCP’s goals for economic reform.

Xi Jinping Promises Salary Cuts at State-Owned Enterprises
Credit: Xi Jinping image via Kaliva / Shutterstock

During a meeting of China’s leading reform group, Xi Jinping said that executives at China’s state-owned enterprises (SOEs) should expect pay cuts. “Unreasonably high and excessive incomes must be regulated,” Xi said, according to Xinhua. Xi called for SOEs to have “proper” and “reasonable” salary structures, and said that management of SOE salaries must be closely supervised. Xi also said that other perks for SOEs executives would be cut. Company leaders should not get extra benefits “in the name of ‘entitled consumption,’” Xi said.

Xi Jinping was chairing a meeting of the central leading group for reform when he made the comments. The central leading group is the main government body responsible for approving and implementing new reforms according to the blueprints laid out at larger Party meetings such as last year’s Third Plenum. This week, the leading group was considering a proposal for reforming salary structures and overall budgets at China’s state-owned enterprises. Though Xi’s remarks indicated support for the proposal, Xinhua reported that the central leading group “decided that the plan has to be further amended” before it can be approved.

Xi is clearly expecting political pushback in cutting the salaries and perks of SOE executives, who constitute a powerful interest group. In his remarks, Xi “urged SOE executives to realize their responsibilities, accept and support the reform.” Politically, Xi helped pave the way for salary cuts at SOEs through the anti-corruption campaign, which targeted Party officials working at SOEs as well as in political offices.

Fallen SOE executives include Song Lin, formerly the head of China Resources, one of China’s largest state-owned conglomerates, as well as Jiang Jiemin, formerly the head of PetroChina. In addition, many executives at China National Petroleum Corporation (the parent company of Petro China), where disgraced official Zhou Yongkang made his name, have also come under investigation. China Daily reported in July that over 50 executives and managers at Chinese SOEs have been removed from their posts since the anti-corruption drive began in 2012.

As others (including China Power author Kerry Brown) have mentioned, cracking down on corruption is an essential part of Xi Jinping’s economic reforms. For one thing, removing corrupt officials and executives has the benefit of bringing down powerful interest groups who would likely oppose reform. It also serves as a cautionary tale for remaining executives who might be tempted to stonewall Xi’s attempt to rein in their salaries: get in line, or get arrested.

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Restructuring salaries at SOEs may just be the first round of more drastic changes designed to further distance the government from the business sector — a crucial step for giving market forces a greater hand in China’s economy, as Xi has pledged to do. Already, China’s leadership has floated the idea of allowing SOEs to become “mixed-ownership companies” and otherwise increasing support for privately-owned companies. When discussing the problems inherent in SOEs, the China Daily article listed not only their “unchecked spending and corruption” but also the more fundamental question of their monopolies on certain sectors.

Opening up SOE-dominated fields to private competition would be an enormous step away from the tightly controlled economy that formed under Deng Xiaoping. Accordingly, it would be extremely difficult politically. Currently, Xi and the other leaders are treading cautiously even on the smaller question of salary reform, perhaps to gauge the political response to their highly-publicized plan. Xi’s anti-corruption drive is one thing; in the field of true economic reforms, Xi and company are having to tread more cautiously.