Business / Policy Watch

Deepen SOE reforms

(China Daily) Updated: 2012-10-25 07:50

A booming State sector, as a result of painful reforms in the later 1990s, has contributed significantly to China's remarkable growth over the past decade.

However, further reforms of State-owned enterprises have become more urgent than ever if the country is to speed up economic transformation while tackling income inequity effectively.

On Wednesday, the State Council delivered a report on the latest development and reform of SOEs at an ongoing session of the National People's Congress Standing Committee.

At a time when the Chinese economy has slowed for a seventh straight quarter between July and September and the Chinese government has vowed to come up with an income reform plan by the end of this year, such a comprehensive review of these "national champions" is more than needed.

The price paid to overhaul the State industries, most of which were struggling on the brink of bankruptcy in the later 1990s, was a necessary investment, which made SOEs the undeniable backbone of the Chinese economy.

Domestically, SOEs saw their net profits increase from 320 billion yuan ($51.2 billion) to 1.9 trillion yuan, up 25.2 percent annually between 2003 and 2011, underpinning a decade of sound and stable economic growth for the country.

Nevertheless, while recognizing the noteworthy progress of SOEs' development, policymakers and lawmakers should make a case for more market-oriented reforms in the State sector, not the other way round as some people have argued.

The ongoing transformation of China's growth model from export and investment-led expansion to consumption-driven growth will require more competition in the key sectors that are currently dominated by State firms to provide consumers with better services and products. All the suggested benefits of State monopolies in helping stabilize the market must be carefully weighed against the interests of consumers.

The need to narrow the country's income disparity means that State firms sitting on fat profits should shoulder their responsibilities in reducing the widening wage gap between those sectors they've monopolized and the rest of the economy.

Given the huge improvement in their performance since reforms in the later 1990s, there is no need for SOEs to worry about such market-oriented reforms.

Chinese authorities should also make it clear to these domestic corporate champions that only deepened reforms, not monopoly, can guarantee their future success, which is crucial to the country's long-term economic development.

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