BOAO, Hainan, April 23 (Xinhua) - Forty five years since its establishment in 1961, COSCO Group has developed from a small company with merely four ships with 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 been benefited from updating of development strategy and innovation of management system," said Wei Jiafu, President and CEO of COSCO Group at a meeting of Boao Forum for Asia (BFA) Annual Conference 2006 here Sunday. "We used to be followers of the advanced management system, but now we are the inventor," he said.

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

    Large state-owned enterprises (SOEs) are both responsible and able to play the leading role in technological upgrading and innovation as well as reformation of 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 level," Wang said.

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

    He said that innovation, which poses as the most important element in the economic growth of a country 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 of the infrastructural telecommunication service and majority of added value service 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 product is the key for 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 the same view. He owed his company's success to the core principle of incessant innovation that the company has always been following. 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 international large companies, we are younger and quicker to introduce innovation in management, marketing and technology," said Pan, adding that it is very important for SOEs to adopt new standards and new conceptions.

    In the past, the reform of China's SOEs was launched by the government with an emphasis on restructuring to allow 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 even become bankrupt while a large group of SOEs have entered the stage of sustainable development, said Wang.

    In 2005, China's SOEs produced 6700 billion yuan (about 837 billion US dollars) of sales volume, up 19.2 percent over the previous year, with combined profits of 904.7 billion yuan (about 113 billion US 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. Enditem