China tells bloated state firms to cut fat, improve competitiveness

State firms directly controlled by the central government should reduce layers of management from the existing 5-9 levels to 3-4 levels in the next three years, the cabinet said in a statement late on Wednesday.

A Xinhua report on the cabinet meeting said firms would have to cut around 20 percent of redundant management.

State companies should also cut costs by 100 billion yuan ($15.28 billion) by the end of 2017, the cabinet statement said.

Hiring and compensation at state-owned companies should be based on market needs, and firms should also consolidate operations around their core business, lower debt levels and cut accounts receivables and inventory levels, while also strictly controlling expenses, the cabinet added.

Steel and coal companies were instructed to cut production capacity by 10 percent over 2016 and 2017, and accelerate mergers while cutting losses.

Workers laid off due to capacity cuts should receive support to start their own businesses in the form of tax cuts and loans, the cabinet said after the meeting on Wednesday.

Central state firms are overstaffed, have bloated management levels, an abundance of subsidiaries and poor-performing core businesses, among other issues, the statement said.

China has 112 central state-owned firms, or those directly managed by the central government, and thousands of firms are owned by local governments.

The Chinese government is trying to promote more sustainable economic growth by calling for increased support for private investment while also looking to reduce overcapacity in some sectors and improve the efficiency of state-owned companies.

Private-sector investment for January to April grew just 5.2 percent, its weakest pace since the National Bureau of Statistics (NBS) started recording the data in 2012. Investment by state-owned firms rose 23.7 percent over the same period.

(Reporting by the Beijing Monitoring Desk, Sue-Lin Wong and Elias Glenn; Editing by Richard Borsuk and Kim Coghill)