【Epoch Times October 2, 2024】Amid the continuous downturn of the Chinese economy, the State-owned Assets Supervision and Administration Commission (SASAC) of the People’s Republic of China recently announced that State-owned enterprises must universally implement the “last adjustment” and “incompetence exit system” by 2025, stating the aim is to “prevent having only systems without actions.”
Analysts believe that this is a disguised layoff strategy to streamline personnel and reduce expenses in the severe economic situation of China. However, it will intensify political struggles within State-owned enterprises, leading to mutual suppression and the elimination of truly capable individuals.
Wang Hongzhi, Deputy Director of SASAC, made the above statement at the third special promotion meeting of the deepening and enhancing action for the reform of State-owned enterprises in 2024.
The “Deepening and Enhancing Action for the Reform of State-owned Enterprises” was launched in 2023. On July 18, the 20th Third Plenary Session of the Communist Party of China also passed the “Decision on Further Comprehensive Deepening of Reforms to Advance China’s Modernization.”
These measures by the Communist Party of China have attracted attention. Huang Dawei, an economic scholar residing in the United States, told Epoch Times that there are four main reasons for the Communist Party’s adoption of such measures.
He stated that the first reason is to change the bureaucratic system operating in State-owned enterprises and optimize personnel management. “Currently, many officials in State-owned enterprises are promoted from within. Most of them are not professionals in their respective fields, and there are fewer technical bureaucrats. Most of them are political bureaucrats who have climbed the ladder through loyalty and relationships.”
The second reason, against the backdrop of the advancement of State-run enterprises over private enterprises, State-owned enterprises have seized market share from private enterprises, leading to bulging personnel and the urgency for adjustment.
The third reason is that State-owned enterprises’ profit-making ability is weaker than private enterprises. In the context of economic downturn, their profitability is even lower, relying mainly on market monopoly and policy support to barely sustain operations. In such a situation, manpower must be streamlined to reduce expenses.
The fourth reason involves following the Leninist approach of increasing loyalty, which entails purging a certain percentage of officials each year to maintain loyalty within the workforce.
Information published on the SASAC official website shows that since last year, State-owned enterprises across many regions have successively implemented the “last adjustment” and “incompetence exit” system for management personnel, achieving full coverage. The number of personnel subject to “last adjustment” and “incompetence exit” is generally below 10% of total employees.
When referring to the “incompetence exit” system, Wang Hongzhi clarified that it targets management personnel in State-owned enterprises. He also mentioned the need to “prevent having only systems without actions,” cautioning against simply drawing a line on exit percentage adjustment and emphasizing the importance of strong incentives and strict constraints.
However, Wang Hongzhi did not mention a supporting, fair, and objective performance evaluation mechanism.
Sun Guoxiang, Associate Professor in the Department of International Affairs and Business at South China University, told Epoch Times that the official statement from the Communist Party of China has revealed the real problems, pointing out the systemic and cultural barriers within many Communist Party policies. He emphasized that State-owned enterprise management and evaluation mechanisms are relatively rigid and lack scientific standards and evaluation methods.
“If there is a lack of effective supervision and accountability mechanisms, policies will remain superficial in implementation,” Sun said.
Huang Dawei believes that the implementation of the “incompetence exit” system is very challenging and raises two major issues.
He mentioned the first issue, likening it to the bureaucratic political system of the Communist Party, where the promotion of the vast majority of officials depends on loyalty assessments by superiors, rather than actual competence.
“They even manipulate educational qualifications, such as establishing many party schools and administrative academies, resulting in fraudulent educational backgrounds. In terms of work ability, they often seize capable individuals, while many truly capable individuals are suppressed. So, the system is inherently flawed. Now, if you want to implement the incompetence exit policy, it means that a significant number of leaders may have to exit the system, which they may be unwilling to do, presenting a problem with the mechanism.”
He added that the second issue is that the “incompetence exit” system often intensifies the political struggles within State-owned enterprises. Due to the inherent bureaucratic system, corruption and power struggles easily breed, leading to the removal of truly useful individuals while political parasites are often promoted, resulting in a scenario of political infighting.
Sun Guoxiang also remarked that this system could lead to internal fragmentation, with the management of State-owned enterprises potentially abusing these systems. “In the long run, it may damage the core competitiveness of enterprises, further deteriorate the position of State-owned enterprises in the market, and cause the loss of truly outstanding talents within State-owned enterprises.”
Duo Wen, former Executive Director of the Legal Advisory Office of the Inner Mongolia Autonomous Region Government living in Belgium, told Radio Free Asia, “Chinese State-owned enterprises are essentially Tang monk meat, a platform for Communist Party elites to share profits. Those who can enter State-owned enterprises have connections and sources. Many of them are leaders’ children.”
He mentioned that those being laid off are individuals without connections, likely from ordinary families who entered through various exams. “They are given reasons and pushed out.”
Some netizens expressed concerns that “the tide of layoffs in State-owned enterprises is reemerging” and noted that “State-owned enterprises are all about family relations; those at the bottom of the list are certainly unrelated honest individuals.”
Sun Guoxiang told Epoch Times that this system could create pressure on social stability. State-owned enterprises play a vital role in China’s employment system, and if downsizing is not handled properly, it can lead to more unemployment, intensify the current employment difficulties in the mainland, and make re-employment for laid-off employees very challenging due to potential lack of skills.
According to Reuters, sources revealed that the Chinese Communist Party plans to lay off 5 to 6 million State-owned enterprise workers in the next two to three years.
As the Chinese economy continues to decline, several major international investment banks have already lowered their growth expectations for China. The latest official data from the Communist Party of China on profits of large-scale industrial enterprises showed a shift from a 4.1% year-on-year growth in July to a 17.8% decline in August.
In this context, the top echelons of the Communist Party are taking frequent economic actions, indicating that not even State-owned enterprises are exempt from adjustments, even though they are considered the foundation of the regime. Huang Dawei stated that this signifies that the Communist Party is beginning to grasp the reality of economic contraction.
Sun Guoxiang pointed out that layoffs in State-owned enterprises cannot truly solve China’s economic problems; political system reform is the key.
He emphasized that there are deep-rooted issues in the Chinese economy, such as the low efficiency of State-owned enterprises, government debt, local debt, and the contraction of private enterprises, which require political system reform to address. Yet, political system reform involves adjusting deep-seated interest patterns, something the Communist Party is unable to achieve.