Shanghai SOEs: a cornerstone of China's economy

State-owned enterprises have been a key driver of Shanghai's growth for years, and the SAIC Group, in particular, has effectively harnessed foreign investment and introduced advanced technology, achieving a remarkable milestone by ranking among the world's top 500 companies as early as 2004.

"Automobiles entered Shanghai in the early 20th century, a time when the city was home to only an auto repair and distribution industry," said Guan Yizhong, general manager of SAIC's public relations department.

"Weihai Road was once known as a hub for auto repairs," Guan said.

SAIC started its journey in 1955 as the Shanghai Internal Combustion Engine Parts Manufacturing Company. By 1958, the company began to transit into the automobile manufacturing sector, ultimately evolving into what is now known as SAIC Group.

"In 1978, at the onset of the reform and opening-up policy, China lacked a modern automobile production system. Deng Xiaoping, who was the secretary-general of the Communist Party of China Central Committee at that time, proposed the establishment of joint ventures within the country's automobile industry."

"Chinese representatives engaged in negotiations with German Volkswagen for six years, ultimately leading to the establishment of Shanghai Volkswagen in 1984," stated Guan.

China's initial wave of car-related joint ventures comprised Shanghai Volkswagen with Germany, Guangzhou Peugeot with France, and Beijing Jeep with the United States. Only the first of these joint ventures remains active and profitable today.

China encouraged joint ventures in a wish to earn foreign exchange at that time. However, it was difficult to meet the quality standards of Germany in tires, car antennas, radios, and speakers. Guan said that the need to import over 9,000 additional parts made the wrong way in getting more foreign exchange.

"So, Zhu Rongji, then Shanghai mayor, suggested that we create our own auto components that satisfy international standards and stop producing low-quality alternatives. That led to the gradual establishment of a standard vehicle parts system in China," Guan explained.

SAIC grew from learning from international superior technology and Shanghai's gradual reform of state-owned companies.

After China joined the WTO in 2001, Shanghai's state-owned enterprises hastened their integration into the market economy and undertook reforms.

Shanghai established the State-owned Assets Supervision and Administration Commission (SASAC) on August 1, 2003, making it China's first legally established regulatory authority for state-owned assets.

Shanghai pioneered the local state-owned enterprise board of directors' pilot operation in 2005. Three years later, SAIC, Shanghai Electric, Jinjiang International Group, and Bailian Group became pioneer board construction units.

After 2010, practically all big overseas investment projects by state-owned firms were centered in Europe, America, Australia, and other developed countries and regions.

In addition to SAIC's acquisition of Rover in the United Kingdom, Bright Food Group, a state-owned firm, acquired Australia's Manassen Foods and other internationally known enterprises, while Shanghai Electric purchased Japan's Akiyama International, among many other examples.

Furthermore, SAIC entered the Indian market in 2009 in collaboration with General Motors of the United States, and in 2013 signed a strategic cooperation deal with Thailand's Charoen Pokphand Group to establish an overseas manufacturing base and marketing channels for its own brand in Thailand.

SAIC and many other state-owned companies will continue to actively expand and penetrate overseas markets in the coming years, as SOEs' foreign investment methods have evolved from the previous relatively simple investment through factory construction to capital operation methods such as mergers, acquisitions, and equity participation.

After SAIC gains technological power in the automobile industry, it hopes to remove the constraints of joint venture operations by developing its own brand and becoming a new playground for international competition.

In 2014, the government recommended developing new-energy cars as a critical priority, ushering in a new age in China's auto sector.

"This year, SAIC has signed new cooperation agreements separately with Audi and Volkswagen, which is a confirmation of Chinese automotive strength, proving that Chinese shareholders can also empower foreign established industries," Guan said.

SAIC began researching and developing NEVs as early as 2001, producing a variety of new prototypes. Despite encountering numerous challenges and setbacks during the research and development process, SAIC persevered.

In the years that followed, SAIC launched its own brand Roewe, and acquired the British brand MG, both of which did well in the market.

The company achieved outstanding results in NEVs and overseas markets, with annual sales of 1.123 million units of NEVs, ranking second in sales among domestic automobile enterprises, and annual sales of 1.208 million units in overseas markets, ranking first in the domestic industry for the eighth consecutive year, enabling China to catch up with Japan.

Optimization of Shanghai's state-owned firms remains a challenge.

The "Shanghai program," the upgrading action plan of the state-owned enterprises reform, was introduced last year. It included the formation of platforms in emerging industries, the layout of several major projects, and the guidance of state-owned funds to improve small business and science and technology investment ratios.

He Qing, director of the Shanghai State-owned Assets Supervision and Administration Commission, remains confident in the development of Shanghai SOEs.

"Shanghai's state-owned enterprises have strong capital strength and a complete industrial system, so they bear the responsibility of helping Shanghai build a modernized industrial system," he said.

"In the future, Shanghai will continue to support state-owned capital optimization to become a metropolis of international significance."