Fate of state-owned en­ter­prises lies in their own hands

China Daily (Canada) - - ANALYSIS -

The re­cently un­veiled blue­print on ex­tend­ing the re­form of state-owned en­ter­prises is a bea­con show­ing the way for the changes that lie ahead, and it un­der­lines how im­por­tant China’s SOEs are to the na­tional econ­omy.

SOEs are the stan­dard bear­ers of the coun­try’s econ­omy, its main source of tax rev­enue.

Although there are only about 150,000 state-owned en­ter­prises, just 1 per­cent of the to­tal num­ber of the coun­try’s en­ter­prises, they paid tax of 3.8 tril­lion yuan ($596 bil­lion) in 2013, which ac­counted for 34 per­cent of the coun­try’s to­tal tax and 29 per­cent of its state rev­enue. That trans­lates to rev­enue of 2,794 yuan for ev­ery man, woman and child.

Most SOEs are large and medium-sized en­ter­prises. Like large pri­vate en­ter­prises in Western coun­tries, SOEs in China are sup­ported and pro­tected by the gov­ern­ment be­cause they serve as eco­nomic pil­lars, in­no­va­tion cen­ters and the main sources of state tax and fi­nan­cial rev­enue.

The dif­fer­ence be­tween SOEs in China and large en­ter­prises in Western coun­tries is that the for­mer are state-owned as­sets, be­long­ing to and serv­ing the peo­ple, while the lat­ter are pri­vate as­sets, serv­ing the in­di­vid­u­als or share­hold­ers of such en­ter­prises.

It is dif­fi­cult to imag­ine what it would be like for a coun­try with a pop­u­la­tion of more than 1.3 bil­lion not to have a fleet of re­li­able SOEs. That is why the goal in re­form­ing China’s SOEs is mar­ke­tiz­ing them rather than pri­va­tiz­ing them, which means mak­ing them in­de­pen­dent in the mar­ket. The goal is to di­ver­sify them rather than to de­na­tion­al­ize them, and that means pro­mot­ing mixed own­er­ship.

The aim is also to let all that the SOEs have be­come more com­pet­i­tive, in­no­va­tive and pow­er­ful in re­cent years. China has opened up to the world and be­come more com­pet­i­tive, and the def­i­ni­tion of “big­ger, stronger, and bet­ter” needs to be looked at and quan­ti­fied.

To do this, it is in­ter­na­tional stan­dards rather than do­mes­tic ones that come into play. We have to judge China’s SOEs by com­par­ing them with large en­ter­prises in the West.

Only nine com­pa­nies from the Chi­nese main­land were on the list of For­tune 500 com­pa­nies in 2000, and they were all state-owned; in 2010 the num­ber grew to 43, of which 41 were state-owned; and last year there were 95, of which 84 were sta­te­owned, For­tune said.

The to­tal as­sets of en­ter­prises in the US were 7.8 times the to­tal as­sets of China’s SOEs in 2000, but that had fallen to 1.1 times by last year. The to­tal as­sets of en­ter­prises in the EU was 11.2 times those of China’s SOEs in 2000, and that had fallen to 1.6 times by last year. Com­pared with Ja­panese en­ter­prises, the num­ber used to be 6.1 times more in 2000, but it was only half the to­tal by last year.

Chi­nese busi­nesses, es­pe­cially SOEs, have played an im­por­tant role in in­ter­na­tional com­pe­ti­tion over the past 10 years or so, as China has sur­passed Ja­pan as the sec­ond-big­gest econ­omy and is on the way to over­tak­ing the EU and the US.

Whether fur­ther re­form of China’s SOEs can suc­ceed and whether these en­ter­prises will be big­ger, stronger and bet­ter de­pends largely on what they do to help China over­take the US and the EU to be­come the big­gest econ­omy.

The au­thor is di­rec­tor of the Cen­ter for China Stud­ies at Ts­inghua Univer­sity

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