China / News

Plan too broad to brush out problems

By Ed Zhang (China Daily Europe) Updated: 2015-09-20 12:13

Efforts to reform state-owned companies try for balance, but implementation would take years

Beijing recently released joint guidelines on the next round of reforms for state-owned enterprises. SOE reform has been one of the central tasks of the economic reform, but for over a decade, since former premier Zhu Rongji was appointed economic czar and oversaw massive restructuring of the SOE system from the planned economy era, there hasn't been a central program charting the reform's progress.

Not having a central program for an important part of the reform was disappointing. Vested interests inevitably grew in the vacuum of overarching principles. Those interests tended to grow fast, considering that many SOEs, after the first round of reform made them stronger, became de facto monopolies in their industries.

And in at least some of these industries, customers (meaning the people) cannot get the best value for their money unless there is competition.

The stifling effect of having large banks (all state-owned) lending only to large companies (mostly state-owned) and squeezing the overall credit supply to society was a notorious case in economics, and the consequence has been obvious in the economy's lack of "biodiversity", or a lack of the various services that a rapidly industrializing and urbanizing nation would need.

The relatively slow and narrow development in privately owned services is part of the explanation of China's low consumer power (in consumer spending's contribution to the GDP compared with other developing economies).

It is also part of the explanation of the massive industrial pollution and low quality of life in the existing industrial cities - because an excessive amount of resources has been used to feed an overcapacity of big smokestack industries that have no competitive edge in the future.

But a few years ago, few people, except future-minded independent economists, were really disappointed. They were misled by the astonishing short-term growth figures from simple manufacturing and the cheap goods they shipped to the overseas market.

Even for a short period immediately after the world financial crisis in 2008, China could still manage to report a growth record close to 10 percent year-on-year.

It is only when consumers in North America and Western Europe were no longer buying as much, and when domestic pollution had reached an unbearable level, that people came to realize the nation really can't have sustainable development without a new round of SOE reform.

China now has got one central reform program for its SOEs. Yet the program is so comprehensive and so general, if not philosophical, that putting it into practice would still require a series of subsidiary programs, such as in dividing specialized capital investment companies and operational level companies, in defining innovation in equity restructuring, in remuneration and executive recruitment systems, in performance measurement, and in profit-sharing with the public (because the SOEs' starting funds are in theory from the people).

Some business commentators have pointed out, quite rightly, that the new SOE program is still an effort to balance the interests and political concerns of different authorities. Its implementation would indeed take years.

Nonetheless, having a central SOE reform program can be practically useful because, first of all, no SOE is supposed to run counter to the program. Top SOE executives will have to behave carefully, especially when the reform program is tied to the anti-graft campaign.

Gradually, large SOEs will sever some parts of their monopoly interests and turn them into publicly listed independent companies with diverse shareholders.

At least, in the areas now without predominant influence from the SOEs, it would be hard for them to establish new monopolies.

More importantly, perhaps, the would-be slow implementation of a centrally defined SOE reform would benefit the economy in an indirect, if not inadvertent, way. It would create a larger and better-defined space for more private enterprises, which tend to grow much faster, to flourish in the next few years and form a larger share of the overall economy.

The author is editor-at-large of China Daily. Contact the writer at


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