In the face of the ongoing economic downturn and severe losses in state-owned enterprises, Chinese government officials from the State-owned Assets Supervision and Administration Commission recently announced that by 2025, state-owned enterprises must universally implement the management personnel “last adjustment” and “incompetence exit system.” Analysts believe that this is a disguised way to downsize state-owned enterprises amid economic recession, but it is unlikely to affect the privileged elite who hold positions in these enterprises.
According to a report by the Chinese state-run Xinhua News Agency, on September 27, the State-owned Assets Supervision and Administration Commission of the State Council of the People’s Republic of China called on state-owned enterprises to “focus on competition,” “last adjustment,” and “incompetence exit” mechanisms and must make efforts to universally implement these systems by 2025.
Wang Hongzhi, Deputy Director of the State-owned Assets Supervision and Administration Commission of the State Council, emphasized the need to prevent mere formalities without actual actions. He also warned against setting arbitrary thresholds for adjustment or engaging in a blanket approach. The “exit” of employees deemed unfit should not be substituted with methods like violations of laws and regulations, retirement due to age, or voluntary resignation.
The so-called “competition to take the post” refers to the screening of employees through unified exams and performance evaluations by state-owned enterprises. “Last adjustment” means that employees with the worst performance evaluations will face pay cuts or job reassignments, while “incompetence exit” refers to employees judged as “incompetent” being forced to leave their jobs.
Interestingly, some netizens have pointed out that the official statement referred to management personnel, specifically those in various management positions, rather than specifically targeting leadership cadre members.
According to information released on the official website of the State-owned Assets Supervision and Administration Commission of the State Council, since 2023, several provinces and cities have reported that the “last adjustment” and “incompetence exit” systems have been fully implemented, covering all employees. The number of employees who have been “adjusted” or forced to “exit” generally accounts for around 10% of the total workforce.
Regarding the so-called “reforms” in state-owned enterprises, some Chinese netizens commenting on related news believe that in the actual “assessment” and “evaluation,” those with connections and backgrounds will not be negatively affected even if their job performance is poor. Conversely, those without connections often end up being the “scapegoats.”
In recent years, due to economic downturns, not only have privately-owned enterprises faced closures or layoffs due to severe financial losses, but there have also been reports of salary reductions and delayed payments in centrally-controlled and state-owned enterprises, which have traditionally enjoyed policy support or monopolistic positions.
Commentator Li Lin told Da Ji Yuan that central and state-owned enterprises in China have always been a realm for the privileged within the Chinese Communist Party, princelings, and those with high-ranking connections. For instance, Li Xiaopeng, the son of former Chinese Premier Li Peng who recently stepped down from his position as Party Secretary of the Ministry of Transportation, is a typical example. Regardless of how these enterprises undergo changes, the interests of the CCP elites remain untouched. Some high-ranking officials in state-owned enterprises have fallen from grace due to infighting or being on the wrong side.
Li Lin believes that the so-called competitive appointment or performance evaluation systems in Chinese state-owned enterprises are merely superficial, and the results of who stays and who goes are predetermined. Many of those eliminated from their positions due to poor performance are simply backgroundless management personnel. The recent measures by the authorities are essentially a disguised way of downsizing.
Former Director of the Legal Advisory Office of the Inner Mongolia Autonomous Region government in Belgium, Du Wen, expressed to Radio Free Asia that China’s state-owned enterprises are essentially a platform for the CCP elites to share profits like a piece of pork. Those who enter state-owned enterprises typically have connections and pathways, often being children of leaders. With the current economic downturn, state-owned enterprises are under immense pressure, and the new measures from the State-owned Assets Supervision and Administration Commission provide reasons for cleaning house, in other words, layoffs, primarily targeting those without connections.
This year, China’s economy has continued to decline, with several major international investment banks lowering their growth forecasts for the Chinese economy. The latest official data on profits from industrial enterprises above a certain scale released on September 27 showed a shift from a 4.1% year-on-year growth in July to a 17.8% decrease in August.
According to data released by the National Bureau of Statistics of China on September 20, the unemployment rate among the 16-24 age group excluding students in August rose to 18.8%, reaching the highest level this year. This data accounts for the changes in statistical methodologies employed by the authorities. David Huang, an economist based in the United States, estimates that if counting those unemployed or severely underemployed, the actual unemployment rate in China may exceed a quarter to a third of the population.
Economist Li Hengqing from the Institute for Information and Strategic Studies in Washington believes that the new measures by the State-owned Assets Supervision and Administration Commission will only exacerbate the current unemployment situation. Amid the authorities’ continuous push for the “entry of the state and the exit of the private” policy, the status quo of state-owned enterprises benefiting from a collective share distribution will remain unchanged.