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Reforming China’s State-Owned Enterprises (Page 3 of 3)

Last October, SASAC director Wang Yong commented on reform plans, specifying the railway, postal, salt, power, telecommunications, oil, and petrochemical industries. He noted that enterprises would be encouraged to go public or to restructure, and that supervision would be tightened, particularly in regards to locally managed SOEs, about which he noted, “We have seen a tendency for some local governments to meddle in the everyday operations of state-owned enterprises.”

The question is what the nature of reform will be. China Economic Review cites experts as saying that “feasible reform wouldn’t significantly restructure SOEs but would rather change the way they are governed and regulated. Moves that could include changing the way SOEs appoint leadership or cutting subsidies that allow for high profits despite inefficiency.”

Keith Bradsher of The New York Times cites a political adviser as saying “public support for economic reform makes it impossible for the incoming team simply to do nothing” but that reforms may be limited to “the privatization of some state-owned manufacturers, like steel mills, which do not have monopolies and are plagued by problems like overcapacity, ferocious competition and heavy financial losses.” Industries such as “telecommunications, banking, health care and electricity distribution” will most likely not be targeted for reform.

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One official at the Development Research Center, Chen Qingtai, suggested that the government “become essentially an investor in state-owned enterprises,” rather than “actively managing them.”

There have been some concrete steps toward reform: The Financial Times notes that there have been some openings for private investment in energy and finance, including “blocks for shale-gas exploration,” and that a pilot project in 2012 allowed for private groups to form lending institutions in Wenzhou.

Even these modest steps are facing significant resistance, including reluctance from SOEs themselves to change, and from local governments, which are often dependent on the profits of their local SOEs. Moreover, SOEs are a major source of employment, and the government is loath to create a cohort of angry, unemployed citizens.

The key will be to move reforms ahead quickly enough to mitigate economic distortions but slowly enough to avoid structural instability. Clearly, this will be a daunting but crucial task for new leaders Xi Jinping and Li Keqiang. 

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