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Plan won’t sway SOEs on dividends

(Global Times)

16:01, February 19, 2013

The State Council approved a plan on income distribution which urges profitable centrally administered State-owned enterprises (SOEs) to pay higher dividends during the 12th Five-Year Plan (2011-15) period to cover expenditures on social security, local media reported recently.

At first glance, it seems reasonable for SOEs to increase their dividend payouts. Yet, in practice, the plan will likely do little to channel more funding into social security. If an SOE is unwilling to follow these orders, there are just too many ways it can suddenly make its profits disappear. Companies can always find reasons to spend more on things like expanding their business scope, increasing investment, improving employee benefits, increasing their labor force and upgrading equipment.

Frankly speaking, top executives at many SOEs couldn't care less how their financial statements look given the deep flaws in their incentive mechanisms. The compensation packages of SOE decision makers are not affected by their financial results, and they don't need to take responsibility for the losses or gains of their company.

The author is Zhou Kecheng, an economic commentator.

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