Chapter 2: The Path to Prominence 49. Corporate Restructuring (Part 1)

In recent years, the wave of state-owned enterprise reform has swept across the land. Although Huajiang Province is located in the western region, under the leadership and promotion of the Huajiang Provincial State-owned Assets Supervision and Administration Commission (SASAC), the reform of state-owned enterprises has been progressing vigorously.

According to the deployment of the Huajiang Provincial SASAC, the year 2009 was designated for the comprehensive advancement of establishing a modern corporate system. Although the national Company Law has been in effect for many years, some state-owned enterprises have yet to register under the corporate system and still exist in the form of the all-people ownership inherited from the planned economy era.

Following the plan set by the Huajiang Provincial SASAC, all remaining all-people-owned enterprises across the province were to be cleared and transformed. The requirement was to convert all such enterprises into companies, establish a modern corporate system based on the corporate model, and improve the corporate governance structure.

Dongfang Chemical Plant, still operating as an all-people-owned enterprise, naturally fell within the scope of this cleanup and transformation. The task assigned to the plant by the provincial SASAC was to complete the transformation into a wholly state-owned limited liability company by the end of 2011.

In response to the work needs, the plant established a reform leadership group with Director Shi as the leader, myself as deputy leader, and Director Shi entrusted me with leading the specific tasks.

The idea from the provincial SASAC and Director Shi was straightforward: simply change the registration from an all-people-owned enterprise to a corporate system—essentially a rebranding. However, Director Shi emphasized that we must seize this opportunity to request supportive policies from the SASAC.

Since the establishment of Dongfang Chemical Plant, apart from a small initial government investment, the factory’s growth and accumulation have been entirely self-driven. From a small plant with a sales volume of a few million yuan and a few dozen employees, it has grown into a large-scale enterprise with sales in the hundreds of millions, over two thousand employees, and strong market influence and reputation. This success is inseparable from the decades of dedication and effort of all staff and cadres. Government investment has been minimal, and the burdens of being an old enterprise have grown heavier. With increasingly fierce market competition, greater government investment is urgently needed for the company’s development.

After much reflection and repeated discussions with Director Shi, we prepared to request several policy supports from the Huajiang Provincial SASAC:

1. A one-time cash injection of 50 million yuan as registered capital;
2. Coordination with the financial department to return the land transfer fees previously paid through bidding, auction, or listing;
3. Transfer of retired employees to be managed by the provincial SASAC;
4. Annual subsidies of 3 million yuan each for the plant-run hospital, primary school, and kindergarten;
5. A subsidy totaling 13 million yuan for the social and public welfare responsibilities assumed by the plant since its establishment;
6. Write-off of potential losses and anticipated losses caused by various objective factors over the years.

Although we planned to submit these six requests, Director Shi and I did not expect all to be granted. Government policies and subsidies often involve negotiation; we had to set our demands high to leave room for compromise. We believed that obtaining two or three of these items would be a success, and even three or four would be excellent. Securing twenty to thirty million yuan would suffice.

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One weekend, when I visited my father-in-law, Shu Zhongquan, for dinner—who, as director of the SASAC Reform Office, was directly involved in this matter and familiar with the policies—I specifically asked him about this.

Upon hearing the proposals, my father-in-law laughed and said, “You’re asking for the moon.”

I laughed in return, jokingly saying, “But Dad, with you supporting, isn’t it possible?”

He knew I was joking and replied, “Your thinking is understandable—only the child who cries gets milk. That’s the principle.”

Taking a sip of tea, he continued, “The original intent of the provincial government and the SASAC for this reform was simply to change the registration type. They did not plan to provide any special policies. Of course, some exceptions might receive preferential treatment, but you don’t understand the policies well. Several of your requests are simply impossible under current conditions.”

Naturally, I asked, “Which ones?”

“Take the land transfer fee refund, for example. Once paid without prior agreement, it cannot be returned. If you had negotiated with the government before the bidding, auction, or listing, it might have been possible. But now, since you’ve already paid, it’s impossible. This matter isn’t under our jurisdiction, and we can’t coordinate it because there’s no room for negotiation.”

“Second, transferring retired employees to the SASAC for management is unfeasible. Some provinces have considered socialized management of retirees, but it requires manpower and funding, which are unavailable. This is a societal issue, not just a departmental one. So do you think your proposal can be realized?”

“Third, regarding the social functions run by the enterprise—some places are studying how to divest these, but the question is who would take them over. There is no unified central government policy on this yet, so it’s difficult to implement at lower levels. Subsidies are also impossible—if you give to one, others will demand it too, which is unfair. The finance department doesn’t have that kind of money.”

After hearing these three points, I was worried and asked about the others.

“Subsidies for social and public welfare tasks from the past are also unrealistic. It’s hard to justify providing retroactive compensation.”

Hearing this, half my hope was dashed, but I still clung to the last two points.

“And what about those?”

My father-in-law poured cold water again.

“Only one and a half of those have any real possibility, and even then, it requires flexibility.”

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“Let me start with the capital injection. Logically, when you convert to the corporate system, the SASAC as shareholder should inject capital according to corporate governance rules. This is reasonable. However, the original net assets can also be converted into registered capital. Besides, asking the government for cash injections is unrealistic—there isn’t that kind of money. If they invested in one enterprise, they’d have to do the same for many others, which is impossible.”

I thought even this was unlikely until my father-in-law added, “Cash injections are indeed unrealistic, but there is room for flexibility.”

My spirits lifted immediately, and I asked, “What kind of flexibility?”

“Our Executive Vice Governor Wang Shangtong is adept at capital operations. He has an idea for land transactions: converting the nature of state-allocated land to transfer land, and then transferring the enterprise’s land use rights and paying the land transfer fees, which the SASAC can then reinvest into the enterprise as capital. Several pilot cases have already been conducted. Your plant’s land is mostly allocated land, so you could try riding this wave.”

“‘Clear property rights, defined responsibilities, separation of government and enterprise, and scientific management’ is the core of establishing a modern corporate system. This approach helps clarify your assets’ ownership after reform and strengthens your capital base. It also benefits reducing your debt ratio and future financing.”

I asked, “How likely is success with this approach?”

“There’s no absolute guarantee, but I believe you should try. Governor Wang is a very insightful leader who also oversees the SASAC and places great importance on the development of state-owned enterprises. Many enterprises have been revitalized or experienced leapfrog development under his capital operations. This is a great opportunity for you.”

“Understood. Thank you for your guidance, Dad.”

“We’re family. No need to keep things from each other,” my father-in-law smiled. “As for the last point, it’s also workable. According to reform requirements, a thorough asset inventory and valuation must be conducted. You can write off your potential and anticipated losses through this process, solidify your assets, and start fresh.”

“That sounds good, but there’s no tangible investment,” I said, still feeling some regret.

“Xiao Wang, don’t think like that. Sometimes investment isn’t just about cash. If these two points are realized, they will play a significant role in your plant’s development.”

Deep down, I accepted my father-in-law’s advice. After all, he was honest with me—what was feasible, he said so; what wasn’t, he was clear about as well. Some requests, based on his analysis, were indeed impossible and submitting them would be futile. It was better to focus our efforts on the achievable items. I was especially grateful for his guidance on the flexible approach, as without it, we would have been at a loss on how to proceed.