Employee Ownership May Expand into China's State-Owned Companies

Roughly three-quarters of the companies in China's A-share market (for companies with share prices denominated in Chinese renminbi) offer some form of equity compensation, but only four publicly traded state-owned enterprises have similar plans. That may be about to change. A pilot program to have state-owned enterprises (SOEs) adopt employee stock ownership plans ("ESOPs," although distinct from the U.S. ESOP) is about to start, and it is expected to be followed by wider adoption of such plans. In the Chinese publication Global Times, Liu Tian writes that "employee-ownership reforms are needed at the country's SOEs. Based on private sector experience, ESOPs can motivate workers, improve profitability and cut waste. Data show that ESOPs can improve enterprise efficiency by as much as 30 percent."

Liu also notes, however, that "Reports say that all State companies with ESOPs in the pipeline will focus on core technical staff and managers, leaving little for rank-and-file workers," although he argues that a key to successfully changing the culture and performance of state enterprises is to provide substantial ownership to rank and file employees as well, noting "as there is already a quite sizable pay divide separating managers and common employees, excluding the latter from ownership reforms would only make an already alarming situation even worse."