SOEs ordered to cut salaries and reduce costs

All wages are to be strictly linked to business performance and loss-making divisions closed

State-owned companies with declining profits have been told to cut gross salaries and other operational costs, the State-owned Assets Supervision and Administration Commission said in a statement on Wednesday.

It said all SOEs should be prepared to shut down loss-making operations to slash costs and improve efficiency across all departments, to ensure annual targets are met.

Gross salaries should be strictly linked to business performance, and any increases should be no higher than increases in profits, said the statement.

"State companies should follow the central government's budget regulations on business travel, conferences, entertainment expenses and operational spending," it said.

The cost-cutting measures, said officials, have been introduced against a backdrop of industrial losses across many sectors, driven by the country's economic slowdown.

According to data from the Ministry of Finance, total profits of the SOEs were 704 billion yuan ($114 billion) during the first four months, a drop of 5.7 percent year-on-year.

The largely loss-making coal, steel and nonferrous metals sectors were hit hardest, due to their ongoing overcapacity problems.

Major coal consumers, such as power stations and steel mills, saw demand fall during the four-month period, according to the China Coal Industry Association.

Total coal industry revenue fell 10.8 percent year-on-year in the first quarter to 613.83 billion yuan. Total SOE losses across the sector were 23.59 billion yuan, a 33.9 percent rise on the same period last year.

The steel industry, too, is suffering from falling prices and shrinking demand.

During the quarter, major domestic steel companies lost a total of 13.78 billion yuan, a dramatic 117.41 percent rise on the same period last year, the figures showed. Nearly half (45.54 percent) of all steel producers nationwide were loss-making.

Given the industrial conditions, the SASAC said companies should develop better strategies to expand both at home and abroad to raise profitability.

They should focus their overseas expansion on the government's "Belt and Road Initiative" and improve relations with neighboring countries, it said, while every effort should be made to optimize their assets and resources, and strengthen capital positions.

Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, said: "SOEs, especially energy companies facing commodity price declines, should make use of the period to improve their management systems, and adopt policies geared toward lower future profits."