At the two Conferences (National People’s Congress and Chinese Political Consultative Conference) of 2014, the reform of State-Owned Enterprises (SOE) became a hot topic of discussion among the representatives. Since the start of reform and opening up, the reform of state-owned enterprises has been on the agenda several times. Why has the same issue again become a focus of opinion now?

In general, there are several reasons behind the fact that SOE reform has become a focus of the government:

I. With the international financial crisis going on, the external market environment has not shown any obvious improvement, so China’s (FXI, quote) economic growth has to shift from a reliance on external markets to a reliance on internal market development. To this end, economic restructuring is a necessary condition to keep economic growth going. State-owned enterprises exist as a force that the government can rely on and find easy to mobilize. As a Chinese saying goes, implementing the reform of SOEs to promote economic restructuring is “to skillfully achieve strong effect with little input.”

II．The key point in economic restructuring is to strengthen technological innovation and make technological breakthroughs, so as to guarantee the growth of return on investment. China has a typical “catch-up” economic structure, with very few original innovations and even fewer financing channels for innovation. In other words, lacking a venture investment mechanism restricts China’s ability to introduce new technologies in large numbers. However, in a “catch-up” economy, state investment often works as a substitution mechanism for venture investment. Targeting some industrial areas, the government can offer special preferential policies to encourage investment in these areas, while SOEs are usually the carriers of this type of investment. The reform of SOEs also involves finding methods to stimulate these enterprises for more technological innovation.

III．Several years ago, the Chinese government launched an economic stimulus of RMB￥4 trillion. State-owned enterprises undertook many infrastructure investment projects, outshining others in the plan. Although the SOEs have made great contributions to China’s economic growth at a time of global economic recession, they are often given a bad name for “getting profits by taking advantage of their monopoly position.” According to the 18th session of the 3rd plenary session of the Party Central Committee held at the end of 2013, the future economic reform would make the market play a decisive role in resource allocation. Therefore, the reform of SOEs is aimed at a partial withdrawal from the market, thus creating more growing space for non-state-owned enterprises.

VI. With the growth of the economy, people have started to demand an improvement in public service quality. However, there is a little or even no profit in public service, so it is undertaken by state-owned enterprises in most countries. Yet, how can public services be improved and provide better public services so that ordinary people can enjoy the fruits of economic development? This is a question to be considered by state-owned enterprises responsible for public service. It is only through the reform of these enterprises and even through the reform of government management of such SOEs that people can better enjoy public services.

Content Curiosity of China.org.cn