OREANDA-NEWS. October 07, 2014. If you tried to tell any serious corporate managers that you were going to increase efficiency by bringing in 25 strategic investors you would be considered a joke.

But not on the mainland, where politics come before numbers.

Sinopec chairman Fu Chengyu has just conducted a master class in the sale of the oil giant’s retail arm, Sinopec Marketing.

Like it or not, he has defined the meaning of the “mixed-ownership” reform much publicised by the new leadership. Don’t be surprised to see the model followed in other state-owned enterprise (SOE) reforms to come.

First, the room will be very crowded. In the case of Sinopec, it is 25 investors sharing 29.9 per cent. That is the only way an SOE manager won’t be accused of dishing out favours to anyone. Amid the anti-corruption campaign, being accused of favouritism is the last thing one would want.

And let’s not forget that one cardinal rule in this round of SOE reform is that no one should be seen to be pocketing state assets cheaply. Having a long list of benefactors makes it easier to dodge the flak if you underestimate the price of a factory by mistake.

How shareholders holding no more than 2.8 per cent each will bring in any effective and meaningful reform is beside the point. Any reform is to be management- or state-led, not shareholder-led.

Second, other state-controlled entities will make the majority of new shareholders – 16 of the 25 in Sinopec’s case. Those loyal state followers will be controlling 20.164 per cent while Sinopec keeps 70.01 per cent.

Among the loyalists are six state-owned enterprises, including China Life Insurance and China Tobacco, and 11 state-controlled asset management companies or private equity houses.

Would anyone seriously expect fund managers like CICC Investment Group and Changjiang Pension Insurance – owned by dozens of Shanghai-based SOEs – to defy any state plan?

Let’s be honest. The deal will be tabled to the Ministry of Commerce for approval. On what basis are those men and women going to vet the deal when Beijing has yet to come up with any clear policy directive?

Only the sale of state stakes from the left hand to the right hand will get the green light.

Of course, some cosmetic moves are needed to make the mixed ownership look real. That leads to the third feature – publicly offered funds will be key players.

Harvest Fund Management got 4.2 per cent of the Sinopec Marketing shares, China Asset Management 2.282 per cent and ICBC Credit Suisse Asset Management got 0.56 per cent. Harvest is already marketing two publicly offered funds to foot the 15 billion yuan (HKD18.9 billion) investment.

That is the best cosmetic any SOE “reform” can get – public participation plus reliable voting by the fund managers.

No wonder, the regulators have already granted Harvest approval to market the first public offering fund to invest in unlisted shares on the mainland.

Four, private money will stay a negligible but necessary minority. Despite all the earlier media hype, private enterprises and foreign-controlled private equity firms will control only 9.826 per cent of Sinopec Marketing.

After all, who will waste their hard earn money on an experiment knowing that they are only the “garnish” unless there are some juicy side-dishes?

The six private enterprises who have invested in Sinopec Marketing all have some kind of business links with the giant.

For example, Huiyuan – paying three billion yuan for a 0.84 per cent stake – will be selling juice in Sinopec’s 30,233 petrol stations.

That’s not too big a bill to pay. Like others, the private investors cannot sell their stakes for three years, but they are allowed to pledge them to banks for financing. The banks will be happy to help.

Some will say this is sleight of hand rather than of reform.

Absolutely. But the big question is whether Fu and Sinopec will stop here.

The sale has not only brought in more than 100 billion yuan but also much publicity for President Xi Jinping’s “determination” to reform the state sector. Fu and Sinopec are now the banner carriers for Xi’s reform. That’s a much needed political asset if Fu is to push further ahead.