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Mixed Ownership Reform Has Shown a New World


Practice of Mixed Ownership Reform of China Building Materials Group

In recent years, China National Building Materials Group Corporation has been actively adapting to the new normal form of economic development, followed the law of market economy and the law of enterprise development, carried out a series of market-oriented reforms, and implemented bold exploration in promoting the development of mixed ownership economy, and find a national path that features market-oriented reform and industry restructuring according to the principle of standard operation, mutual respect, long-term cooperation.

Founded in 1984, China National Building Materials Group Corporation. (Hereinafter referred to as "CNBM") is a large-scale comprehensive building materials industry group that integrates scientific research, manufacturing and circulation, and also the dual pilot enterprise that develops mixed ownership economy and implements the board of directors entrusted by State-owned Assets Supervision and Administration Commission of the State Council. As a central enterprise in the field of full competition, CNBM was originally a grass-root central enterprise with weak economic basis and less capital. Since 2002, in the face of dual pressure that the enterprise shall become bigger and bigger and the industry features small, scattered and disorder, CNBM had focuses on the industry consolidation and capital mix, restructured nearly a thousand private and other different ownership enterprises, found a national approach towards market-oriented reform and industry restructuring, finally become the world's largest manufacturer in the building materials industry. Song Zhiping, Chairman of the Group, said that "the combination of market resources and social capital had changed the fate of the Group, and achieved tangible results in the reform and development.

Reorganization of thousands of private enterprises

The mixed ownership reform of CNBM is compelled by the pressures and also an initiative option that the enterprise follows the laws of market economy and development logic. CNBM has faced fierce completion in the industry, featuring serious excess capacity, decentralized layout and vicious competition in the cement, glass and other industries. The development of mixed ownership economy, integration of resources, structural optimization and industrial upgrading have become a real option to make a breakthrough and achieve rapid development for the Group

At the beginning of the reform, CNBM decided to return to the bulk of cement and other building materials industry so as to develop the Group to become bigger and better. However, CNBM has not setup the cement enterprises, how to solve this problem? Thanks to the combination of market resources and social capital, it has changed the fate of Group and explored a new growth model that combines capital operation, joint reorganization, management integration, integration and innovation, which has solved some critical problems such as funds, resources, benefits and technology. In this way, this Group has achieved sustained and rapid development, and made some big transformations such as from speed to quality, from size to efficiency and from rapid and extensive growth to intensive lean growth.

Before and after 2006, the cement industry is facing overcapacity, low concentration and disorder competition. The cement enterprises in East China and other regionals have faced vicious competition, resulting in serious losses. CNBM has seized favorable opportunity of national industrial restructuring and promoted the supply-side industry structural reform. In just a few years, CNBM had rapidly restructured nearly a thousand enterprises, became world's largest cement supplier with production capacity of 450 million tons, the "cement king" honored by the media, which creates a miracle in the history of the development of cement in the world. This practice of large-scale reorganization is selected into the cases of Harvard Business School.

As CNBM takes the lead in promoting the reorganization, China's cement industry production concentration increases from 16% in 2006 to about 58% at the end of 2015, which reshapes the industry ecology and guides to move toward orderly competitive and healthy operation. When carrying out joint reorganization, CNBM takes the lead in eliminating backward production capacity and excess capacity, promotes the development of industry reduction, and actively promotes market competition, promotes self-limiting production, peak production, returns product prices to a reasonable level, and effectively promotes the health and stable development of cement industry.

After years of practice, CNBM has developed "three-layer mixture" model in the mixed ownership reform. The first layer: listed companies, CNBM had absorbed a large number of social capital; second layer, platform company, absorb part of the shares from private enterprises and implement cross-shareholding; third layer, business company, share 30% stake for the original holders. This three-layer mixture has ensured the Group's absolute holding in the strategic decision-making, fixed assets and equity investment and other aspects, and raise subsidiaries' enthusiasm in the fine management, technological transformation and other aspects. More importantly, the market mechanism will be truly introduced into the central enterprises, thus enhance the competitiveness of enterprises.

According to the subordinate enterprises' characteristics and the actual situation, CNBM has explored the model of employee holdings in Nanjing Nanjing Kisen International Engineering Co.Ltd., Hefei Cement Research and Design Institute and other research institutes and high-tech enterprises, combines the corporate's benefits with the employee's benefits and capital elements and elements of labor according to the requirement of pilot first, standardized operation and order promotion, establishes a sound incentive and long-term mechanism, retains the core backbone, absorbs external talent, greatly enhances the cohesion, creativity and competitiveness of enterprises, thus making the "employees and enterprises grow together."

"Three-seven principles" and "three beef"

For the development of mixed ownership, some state-owned enterprises has some worries that state-owned capital will be decomposed in a manner of "ants moving", while private enterprises worry that their future development will be in the mode of "public-private partnership." So, how to achieve mutual cooperation when CNBM implements reorganization and mixture? Reporters visit the enterprise and understand four characteristics of CNBM.

First, the "Market operation of central enterprises" wins advantages of the mechanism. The mode of "Market operation of central enterprises" is a reform mode that CNBM has explored for numerous years. "Central enterprises" is the owner attribute, including four connotations: adhere to the party's political core role; take the lead in the implementation of the party and the state's policy; take the initiative to assume political and social responsibility; create good economic benefits, accumulate the wealth for the people and country. "Market operation" is a market attribute, including five cores: equity diversification, standardized corporate system and governance structure, professional managers system, company's internal mechanism of the market, carry out business operations in accordance with market rules. Through the " Market operation of central enterprises", CNBM establishes  the mechanism that is adapt to market economy, greatly enhances vitality and competitiveness, and achieved win-win situation with various ownership enterprises.

Second, the design of "three-seven principle" ownership structure. The mode of mixed ownership is a new form of ownership that integrates state-owned capital, collective capital, non-public capital and other cross-shareholding. How to carry out equity design? Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Deepening State-Owned Enterprise Reform puts forward that we must give full play to the role of market mechanisms, adhere to the principle of implementing the policy according to the actual place, industry and enterprise, and set up independent enterprise, realize independent control and participate independently according to the actual condition. CNBM has taken "up three seven" and "down three seven" diversified ownership structure. The "up three seven" means that CNBM holds more than 30% of the shares of listed companies, and acts as the largest shareholder to carry out relative holding. Chairman Song Zhiping proposed that the development of mixed ownership system should be "mixed moderate", that is, we will explore diversified ownership structure and introduce active shareholders provided that we had  "relative holding", become "the largest shareholder" and hold "one third or majority of shares". The reform should not neither make one enterprise become dominant and ignore others, nor make the shares become too scattered, resulting in decentralization, and  shareholders can reach consensus and do not care about the development of the company, and internal person controls the company's internal rights. As for the "down three seven", it refers to that the listed companies of CNBM takes "down three seven" ownership structure, that is, about 70% of the shares is held by listed companies, while 30%is held by other investors or private enterprises. Through the division of "Up three seven " and "down three seven", CNBM has formed a set of top-down effective control system, which not only ensures the Group's absolute control in strategic decision-making, fixed assets and equity investment, but also ensures that the profits of listed companies and subsidiaries.

Third, attract private enterprises with "three beef". John Naisbit, Futurist, management master has proposed that "if we want to change, we must give beef" in his book Mind Set In the process of mixing with private enterprises, CNBM prepared three "beef": first, hire professional intermediaries to conduct market assessment, invite entrepreneurs to carry out original venture to obtain a reasonable return on the basis of fair and transparent pricing; second, provide entrepreneur with 30% of the shares, so that entrepreneurs have the opportunity to share the benefits of integration; Third, continue to retain those who have the ability, performance, professional entrepreneurs, attract them to become professional managers, which stabilizes the restructuring of enterprises, fully optimizes the management team, and also provides business platform for outstanding private entrepreneurs to achieve personal value and return to the country.

Fourth, promote the harmonious development with "inclusive culture". We adhere to the people-oriented, achieve inclusive growth through harmony with nature, society, competitors and employees; implement green sea strategy, lead the industry to reshape the ecological pattern featuring orderly competitive and healthy operation and win wide support from the community; establish corporate culture featuring inclusive, so that the reorganized enterprises have a strong sense of belonging, and create a strong atmosphere of "one family of CNBM and Sinoma".

For the experience of mixed ownership reform, Chairman Song Zhiping's statements are very appropriate. He says that "mixed ownership reform" is a test of the enterprise's inclusiveness, which relies not only on the provisions of terms and also the wisdom of tolerance. The implementation of mixed ownership reform of enterprises is just like a cup of good tea. The water may be state-owned enterprises, while the tea may be private enterprises, and they are not separable when they mix. As old saying goes "A gentleman gets along with others, but does not necessarily agree with them". The state-owned enterprises and private enterprises shall have "hybrid" advantage just like hybrid rice so as to ensure the success of mixing and achieve harmony and win-win.

Achieve harmony and win-win through mixed ownership reform of enterprise

Thanks to the development of mixed ownership economy, CNBM has obtained strong endogenous power and achieved remarkable results.

First, promote the vitality and competitiveness of enterprises. Driven by the mixed ownership of enterprises, CNBM has optimized industry layout, updated management mechanism, management system and concept of employees. In Ten years, CNBM had achieved leap-forward development, and the income, profits both increased by 100 times, and annual compound growth rate increased by more than 40%, net assets return year after year increased more than 15%, state-owned assets value-added rate year after year increased by more than 110%, and achieved A level for annual business performance assessment for seven consecutive years and become Global Top 500 enterprise for five consecutive years. With the "mixed ownership of enterprise", it has created a number of strong industrial platforms, grows into China's largest, the world's second comprehensive building materials industry group, and production capacity of cement, gypsum board, glass fiber and other industries ranks first in the world.

Second, enlarge the state-owned capital function. The number of mixed ownership enterprises in CNBM accounted for more than 85%, and its state-owned interests achieved 30 billion yuan. CNBM had attracted 100 billion yuan of social capital, leveraged 430 billion yuan of total assets, achieved the state-owned capital preservation and appreciation, and significantly enlarged the state-owned capital function.

Third, cultivate a number of outstanding backbone enterprises and entrepreneur team that can solve serious problems. Thanks to the internal incentives under the mixed ownership of enterprises, CNBM gradually created a good ecological environment that is beneficial to the entrepreneurial growth and  entrepreneurial spirit, cultivated a number of backbone enterprises with management, performance and competitiveness such as South Cement, China Jushi, Zhongfu Shenying Carbon Fiber Co.,Ltd and Lianyungang Zhongfu Lianzhong Composites Group Co., Ltd, and a number of outstanding professional managers and entrepreneurs.

Fourth, accelerate the industry supply-side structural reform process. With the large-scale joint reorganization of Chinese building materials, China's cement industry concentration increased from 16% in 2008 to 58% in 2015, and explored an effective way to promote the reform of the supply side of the excess industry by industry integration and national cooperation. CNBM has played "national team" role in enhancing technological innovation and social responsibility of central enterprises, and makes a series of major breakthroughs through promoting the "mixed ownership reform" and focusing on the technical high point of the industry.

Fifth, create cooperation and win-win scenario for state-owned economy and private economy. CNBM had combined the central enterprises' standardized management, scale advantages, technical strength and private enterprises' flexibility, incentives, entrepreneurial spirit, and formed unique strong "mixed" advantage, make the best of different ownership economy, promote mutual development, and create cooperation and win-win scenario for state-owned economy and private economy.


Commentator article:

Achieve cooperation and win-win scenario of mixed ownership

CNBM has carried out a bold exploration and achieved remarkable results in the promotion of mixed ownership reform, not only provides strong endogenous motivation for enterprise development, and also find a path featuring cross-shareholding of state-owned capital and private capital, mutual integration and common development, creates cooperation and win-win scenario for state-owned economy and the private economy.

CNBM is a large-scale comprehensive building materials industry group that integrates scientific research, manufacturing and circulation, which is not an easy task to carry out mixed ownership reform. CNBM must maintain the momentum of sustainable development, achieve the preservation and appreciation of state-owned assets, effectively enlarge the state-owned capital function, but also attract social capital, promote the healthy development of the industry and industrial structure optimization ... ... In the face of many difficulties and challenges, CNBM follows the law of market economy and enterprise development to engage in reform, promote the transition, locate the proper  position, clarify the concept, identify the direction and solve real problems in a down-to-earth manner.

First, the purpose of CNBM's reform is to enhance the development, achieve better survival and development condition through reform. Once the central role has determined, the direction of reform is self-evident; second, focus on the key areas of reform, and implement a series of policies, focusing on the reform of the property rights as the basis, conversion mechanism as the core, integration of resources as the main line, innovation and transformation as a support, management as the starting point, and inclusive culture as a link, Third, adhere to the bottom line and red line of reform and ensure that the whole process of mixed ownership reform is open and transparent, implements standardized norms, which  effectively protects various types of investors' rights and interests and  prevents the loss of state assets. At the same time, CNBM has focused on "people" the most active factors of production, protected and enhanced the entrepreneurial spirit through program design, system protection, thus maximizing the entrepreneurial vitality.

It is particularly important that CNBM had effectively combined the people governance structure and political core role of the party organizations, established and improve the party organization, comprehensively implement the strict management of the party, and continue to innovate paths and methods that make the central enterprises play the political core function. A series of reform and practices make enterprises become more vibrant, more competitiveness, and also provides valuable learning experience to promote mixed ownership reform in the future.

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