(Yicai Global) June 22 -- The first group of large Chinese state-owned enterprises have completed the transition into capital management companies, as part of the process of reforming the regulatory system that oversees the country’s SOEs.

The SOEs involved were China Baowu Steel Group, China State Development and Investment, China Merchants Group, China Resources Holdings, and China National Building Material Group, according to a notice recently issued by the State-owned Assets Supervision and Administration Commission.

China launched a pilot transition program involving 19 big SOEs directly controlled by the central government in July 2014. Five of them have now completed the process.

After the reforms, the system that supervises state-owned assets will have a “three-tier structure,” with SASAC sitting at the top, while the newly formed capital management firms act as a liaison between the regulator and the various SOEs, Wu Gangliang, a researcher at the China Enterprise Reform and Development Society, told Yicai Global.

In that way the capital management companies can act as an “isolation layer,” preventing government officials from being directly involved in the daily running of SOEs, Wu said. They will also play the role of SOE owners, making market-oriented business decisions on matters such as M&As, equity investment, setting up special purpose funds to attract private investment in new projects, he added.

The reforms will establish a new state-owned assets regulatory system with capital management as its main focus, thereby creating a modern enterprise management scheme that fits well with Chinese culture, said Li Jin, chief researcher at the China Enterprise Research Institute.

The successful transition of the first five shows that through reform, SOEs can lift their game in terms of authorized operation, capital management, institutional restructuring, and service to the real economy, while the experience they acquire in the process will provide clearer guidance for other SOEs, according to Zhou Lisha, research director at the Institute for State-owned Enterprises at Tsinghua University.

Editors: Tang Shihua, Futura Costaglione