By Ren Huiyong

1. Main models of China’s mixed ownership reform

   The main characteristics of the new round of state-owned enterprise reform are comprehensive and deepening. On the surface, the reform of mixed ownership seems to be a change of ownership structure. The more essential change is the real regulation and improvement of the corporate governance structure, which has become an important breakthrough for the reform of state-owned enterprises. MBO, ESOP, strategic restructuring, financial mergers and acquisitions, open restructuring and reorganization are the modes of mixed ownership reform of state-owned enterprises, which are operated more in practice. This section focuses on the introduction and detailed description through specific cases.

   1.1 Research background

   Greenland Holdings Group is a comprehensive enterprise group with real estate as its main industry. Its predecessor is Shanghai Greenland Development Corporation, initiated by Shanghai state-owned Agricultural Industry and Commerce Group and founded in 1992. After more than 20 years of development, the industrial management and capital management of Greenland Group have developed synchronously, forming the industrial layout where the “real estate, energy, finance” troika go hand in hand, and industry, construction, consumption and other related industries are flourishing. Before the restructuring in 2012, Greenland Group has successfully deployed overseas business in Britain, Germany, the United States, South Korea, Canada and other countries, and the leader in the Chinese real estate industry. Domestically, the real estate projects developed by Greenland are distributed in more than 80 cities in 29 provinces (including municipalities directly under the Central Government and autonomous regions) and the annual contractual development volume is more than RMB200 billion exceeding Vanke. With its increasing share in the domestic and foreign markets, Greenland has grown into a global diversified enterprise group with total assets of more than RMB300 billion. With the support of SASAC of Shanghai, in order to be more conducive to the long-term development of enterprises, Greenland initiated the restructuring in 2013, guided by “publicization, capitalization and internationalization”, adhering to the dual-wheel drive of industrial operation and capital operation, and taking the coordinated development of “going out” and “introducing” as the goal. In that year, Shanghai Greenland Group became the largest shareholder of the company by absorbing and merging the ESOP association of Greenland Group. In 2014, strategic investors were introduced to further enhance capital scale and operational strength. On August 18, 2015, Greenland officially landed in A-share capital market by backdoor listing. As one of the largest enterprises under the SASAC of Shanghai, the mixed ownership reform of Greenbelt Holdings Group is the benchmark of this round of state-owned enterprise reform in Shanghai.

   1.2 Greenland reform “tetralogy”

   1.2.1 Restructuring ESOP association

   In August 2016, SASAC of the State Council promulgated “Opinions on ESOP Pilot in State-controlled Mixed Ownership Enterprises”, which clearly defined the conditions for the pilot enterprises: first, commercial companies whose main business is in the field of full competition or industry; second, the ownership structure of enterprises is reasonable, the shares held by non-public capital shareholders should reach a certain proportion, and the company’s board of directors has directors recommended by non-public capital shareholders; third, sound corporate governance structure, and the establishment of a market-oriented labor and personnel distribution system and performance evaluation system; fourth, more than 90% of operating income and profits come from the external market of the enterprise group. The ESOP association of Greenland Group was established in March 1997. After several adjustments to the ownership structure, the ESOP association of Greenland had a total of 982 members before the restructuring, and the total amount of capital held of Greenland Group is RMB376 655 200, accounting for 29.09% of the shares of Greenland Group. Regulators made it clear that they would not accept the application of ESOP association as a shareholder or initiator for public issuance of shares. That is to say, if the company wants to go public, it needs to liquidate the shares held by its employees. ESOP association represents all the senior and core employees of Greenland Group, and restructuring ESOP association will become the key to mixed ownership reform and listing.

   1.2.2 Absorption plan of ESOP association

   In this case, Greenland established Shanghai Greenland as a new partnership, which converted ESOP association into a limited partnership after inheriting all assets, rights and liabilities and other all rights and obligations of ESOP association. On April 5, 2014, Greenland Group issued the “Information Note on the Restructuring Plan of the ESOP Association of Greenland Group”, explaining the basic principles of the restructuring plan, the specific methods of the restructuring, the agreement of absorption and merger, and the agreement of shareholders’ meeting, etc. According to RMB0.01 per share, all the members of the ESOP association contributed RMB37 665 520.81 to set up Shanghai Greenland (i.e. large partnership). The total contribution of Shanghai Greenland corresponded to the total number of shares held by the members of the ESOP association, and the contribution of all partners corresponded to the proportion of shares held by the members of the ESOP association. After the completion of the restructuring, Shanghai Greenland absorbed and merged the ESOP association and changed its 29.09% stake in Greenland Group to the name of Shanghai Greenland.

   1.2.3 Centralized coordination of management rights

The management of Greenland Group invested RMB100 000 to set up a management company named as Greenland Investment, whose legal representative is Zhang Yuliang, the chairman of Greenland Group. The total core management staff of the group at that time were 43 people. All members of the employee stock ownership meeting acted as limited partners (LP) and Greenland investment acted as general partners (GP), establishing 32 limited partnerships (hereinafter referred to as “small partnerships”): Shanghai Greenland One Investment Management Center to Shanghai Greenland 32 Investment Management Center (hereinafter referred to as “1-32 small partnerships”). Greenland invested with 32 small partnerships to set up a limited partnership (hereinafter referred to as “grand partnership”) Shanghai Greenland. After the establishment of the large partnership Shanghai Greenland, it inherited all the assets, rights and liabilities and other rights and obligations of the ESOP association by absorbing and merging the ESOP association. The large and small partnerships and all their partners authorized Greenland to invest, and the plenipotentiary representatives of the Investment Management Committee to participate in the formulation and implementation of specific capital operation plans (listings) and complete related work.

   1.2.4 Attract strategic investment, optimize ownership structure and prepare for listing operation

Before the reform of mixed ownership, Shanghai SASAC was the controlling shareholder of the joint stock company, controlling 60% of the shares of Greenland Group through Shanghai Real Estate Group and its wholly-owned subsidiaries. At the beginning of 2014, Greenland Group introduced strategic investors vigorously through the open market bidding mechanism. Five strategic investors, PingAn Venture Capital, CDH Investments, Huisheng Juzhi, Zhuhai Pro Investment and National Investment Corporation, jointly invested RMB11.129 billion in Greenland, holding 10.01%, 4.3%, 3.86%, 1.01% and 0.97% respectively, totaling 20.15%. The proportion of state-owned shares represented by Shanghai Real Estate Group and City Investment Group decreased to 18.20% and 20.55%, and the proportion of the ESOP association rose to 28.79% as a single major shareholder. Since then, Greenland Group has formally changed from state-owned holding to mixed ownership enterprise. This investment has further consolidated the capital strength and diversified the ownership structure of Greenland, thus achieving mutual checks and balances among shareholders, which has a beneficial impact on improving the corporate governance structure and improving the operation effect.

   Greenland Holdings succeeded in backdoor listing as its attempt after the restructuring in 2015. After listing, Shanghai Greenland became as the largest shareholder of Greenland Holdings in the listed company. Two major state-owned shareholders of Shanghai Real Estate Group and City Investment Group have no more than 30% of the company shares and cannot control the company alone. There are no nominal controlling shareholders and actual controllers in the listed Greenland Group. State-owned shares have changed from 60.68% to 48.45%. SASAC is no longer the controlling shareholder of Greenland Group, and it will not interfere in specific business activities. The business of the company is independent of the main shareholders, and there is no competition between the company and the main shareholders in the same industry. The overall listing of Greenland Group has played a good demonstration role in reducing and eliminating the competition between listed companies and major shareholders in the same industry.

2. Reorganization of the “Three Meetings” to get rid of state control and establish a modern enterprise management system

   Han Zheng, former mayor of Shanghai, made it clear that “the success of Greenland lies in the state-owned system and market mechanism”. The modern corporate governance structure is that the shareholders’ meeting manages the distribution of rights and interests, the board of directors manages the development strategy, and the advisory committee manages the professional execution. In the core of corporate governance - the setting of the board of directors, the checks and balances of shareholders in Greenland are obvious.

   1) The newly established board of directors in Greenland consists of 13 members, including 5 members appointed by the ESOP association (including the chairman), 4 members appointed by SASAC of Shanghai (vice-chairmen), 3 members recommended by social capital and 2 independent directors (since then, independent directors increase to 5 members and the board of directors increases to 15 members). The board structure represents the different interests of state-owned capital, strategic investors, management and employees, which is conducive to the checks and balances of power. Such a layout ensures that a single stakeholder cannot directly control the board of directors, so that the decision-making of the board of directors is fair and just, which reflects the interests of all board members. The establishment of independent directors plays its supervisory role, and the division of labor between departments is more reasonable.

   2) The board of supervisors in Greenland has been improved with the intervention of strategic investors. Five people in the initial stage (later increased to eight) involve in different business areas, including statistics, law, economy, finance, strategy and management. The breadth and depth of the professional level provide a guarantee for the operation and management of enterprises.

   3) The “Advisory Professional Committee” nominated by the board of directors and the board of supervisors covers four professional directions: the Strategic Committee, the Audit Committee, the Nomination Committee and the Compensation and Assessment Committee. These special committees play an important role in the corporate governance structure of the company. The role of the “three meetings” is to help managers make more scientific and efficient decisions, make full use of the advantages of state-owned capital (Shanghai Real Estate Group and Shanghai City Investment Group declare that both sides are independent, and will attend the shareholders’ meeting of Greenland Group as financial investors, and will not substantively intervene in the management decision of Greenland Group), meanwhile avoid the disadvantages of state-owned capital in operation and management, and let enterprises take profit as the goal and as the driving factor of enterprise development.

   4) Under the protection of the “three meetings”, the management team of the enterprise is appointed by the board of directors and shareholders’ meeting according to the Company Law, and the hierarchy system of the state-owned enterprises is cancelled for the first time to provide a clearer platform for the execution of control rights. The Compensation Proposal adopted at the first time by the delegation of personnel power evaluates the performance of the company according to the principle of objectivity, truthfulness, fairness and impartiality, and focuses on the assessment and fulfillment of the individual according to the company’s annual business plan and the completion of work/performance. This reflects “the consistency of responsibility and interests, the matching of ability and value, and the linkage between performance and earnings” and effectively exerts the incentive and restraint effect of performance compensation, thus establishing a flexible and effective personnel training and development mechanism for Greenland Holdings.

3. Conclusion and enlightenment

   Under the background that China’s economic development has entered a new normal state, stimulating China’s state-owned enterprises to vigorously develop a mixed-ownership economy is of great significance for further activating and improving the state-owned economy. After years of reform and development, the operation and management system of state-owned enterprises has been integrated with the market economy in general. But at the same time, we can see that there are still many deep-seated contradictions and difficult problems in state-owned enterprises. Through the demonstration of multi-investor, ESOP and corporate governance in the reform of mixed ownership of Greenland Holdings, it is found that the core of mixed ownership reform of state-owned enterprises is an important breakthrough in the transformation of talent mechanism, governance structure and management system. In this case, in order to use the capital operation platform of listed companies and make rational use of the excellent period of its own development, Greenland Holdings improves the core competitiveness of enterprises by means of comprehensive merger and acquisition reorganization scheme. Through restructuring ESOP association, Greenland introduces PE strategic investors to broaden financing channels and relies on capital market in order to become bigger and stronger in the future and realize the development goal of the company’s strategy. The final result is that under the authorization of the board of directors, managers are the owners of the company, their rights and interests are protected, and their initiative is stimulated.

   The current internationalization of enterprise development is the only way for the transformation of state-owned enterprises. “One belt and one road” brings opportunities and challenges to international operations for many years to come. International investment decision-making and risk management need to fundamentally change the organizational structure and decision-making mechanism of the enterprise. This poses a major challenge to the reform of the human resources system of state-owned enterprises. Implementing the talent incentive mechanism, establishing a compliant management team, and applying a scientific management system, the mixed ownership reform case of Greenland provides us with these positive signals. At the same time, as the largest state-owned real estate enterprise in China, Greenland Holdings Group has been listed as a whole, which provides a milestone for the continuous deepening of the reform of state-owned enterprises. By actively developing mixed ownership, Shanghai’s state property, employees and external investors have achieved a win-win situation. The overall listing of Greenland is just when China’s economy enters the “new normal” state and the traditional economic structure is facing severe adjustment. The development of Greenland is also based on “synchronization with reform” and “peer with the times”, and has a high grasp of the trend and structure in each historical stage. The success of Greenland is the success of continuously deepening the reform, of promoting the diversification process of enterprises, and of promoting the internationalization, marketization and publicity of the system; it is also the success of Greenland managers to examine more angles, be good at long sleeves and dance, to make use of the advantages of various mixed mechanisms to complement each other and develop synergistically, and constantly stimulate the dynamic vitality of the company. More importantly, the multi-win situation of Greenland’s mixed ownership reform has won the recognition of the government. Shanghai SASAC issued 20 experiences of reform in 2014: on the road of mixed ownership reform, Greenland has been in compliance with the law and achieved remarkable results, which has reference significance for other enterprises, and has done a good job as a model representative.