Forty-five years since its establishment in 1961, the COSCO Group has developed from a small company with four ships and 22,600 tons of load capacity to the second biggest shipping company in the world with 650-plus ships and more than 38 million tons of load capacity.

"We have benefited from updating our development strategy and innovation in our management system," said Wei Jiafu, president and the CEO of the COSCO Group at the Boao Forum for Asia (BFA) 2006 on Sunday.

"We used to be followers of the advanced management system, but now we are the inventors," he said.

Wei believed that in addition to technological innovation, management innovation is also a key to state enterprises' success.

Large state-owned enterprises (SOEs) are able to play a leading role in technological upgrading and innovation as well as reform of the management system, said Wang Ruixiang, vice-chairman of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

"Having gained strength from these years' reforms, big Chinese SOEs have developed a large number of the most advanced technologies in the country, some of which have even reached

the world stage," Wang said.

Citing two leading SOEs in China as an example, he said the exploration, mining and drilling technologies of China National Petroleum Corporation (CNPC) and the oil refining technology of the China Petroleum and Chemical Corporation (Sinopec) have both reached the world's most advanced level.

He said innovation, which is the most important element of economic growth, and the competitiveness of enterprises, needs to be backed up by strong economic and technological capacity.

Large SOEs' special status in the country's economy has enabled them to support innovation. Large SOEs are mostly operating in critical areas of the national economy, said Wang. In China, almost all the crude oil, natural gas and ethylene manufacturers are SOEs, while all the infrastructure of telecommunication services and the majority of added value services is provided by SOEs. Meanwhile, SOEs are also producing 43 percent of electricity and 47.5 percent of automobiles.

"The increasingly intensive competition is shortening the life of products, so innovation-based, high-value products are key to market success," said Utz-Hellmuth Felcht, chairman and CEO of Degussa AG, a German group company, which has established a world-class research and development center in Shanghai.

He noted that only by adopting a long-term innovation strategy, could an enterprise continue to be successful.

Pan Gang, chairman and president of Inner Mongolia Yili Industrial Co. Ltd., China's biggest dairy producer, echoed this sentiment.

He attributes his company's success to innovation. With a clear vision for long-term development and the focus on domestic market, the company enjoyed a growth rate of 40 percent in 2005.

"Compared with large international companies, we are quicker to introduce innovation in management, marketing and technology," said Pan, adding that it is very important for SOEs to adopt new standards.

In the past, the reform of China's SOEs was launched by the government with an emphasis on restructuring to offer those enterprises more latitude in business operation, said William G. Parret, Global Chief Executive Officer of Deloitte. Having achieved major progress in the reform, China's SOEs should now focus more on the innovation of management and technology to improve their market competitiveness.

As a result of the inflow of transnational companies and rising of private companies, China's SOEs are facing big challenges. Under the current market mechanism, some SOEs are struggling to survive or have even become bankrupt while a large group of SOEs have entered the stage of sustainable development, said Wang.

In 2005, China's SOEs produced 6,700 billion yuan (about 837 billion U.S. dollars) of sales volume, up 19.2 percent over the previous year, with combined profits of 904.7 billion yuan (about 113 billion U.S. dollars), up 25.1 percent. In 2005, the number of China's SOEs which entered the list of the world's top 500 enterprises reached 15.

Source: Xinhua