SOEs need sup­port for suc­cess­ful re­form

China Daily (Canada) - - LIFE -

The on­go­ing State-owned en­ter­prises’ re­form has a key role to play in the country’s com­pre­hen­sive eco­nomic tran­si­tion, but it would not be right to overdo it, es­pe­cially be­cause the SOEs and so­ci­ety are not yet ready.

In other words, ow­ing to the on­go­ing eco­nomic down­turn, SOEs in the com­pet­i­tive mar­ket should be given time and fi­nan­cial sup­port to re­cover their losses, if any, in­stead of be­ing told to con­trib­ute more to the country’s fis­cal rev­enue.

In fact, it will cost more to press ahead with the SOEs’ re­form than in the past. Also, the risk of caus­ing fur­ther eco­nomic tur­bu­lence is high if the au­thor­i­ties push for merg­ers and bank­rupt­cies of en­ter­prises suf­fer­ing from over­ca­pac­ity. The top pri­or­ity at the mo­ment should be to re­place the ob­so­lete de­vel­op­ment model with one that would be sus­tain­able.

De­spite the dif­fi­cul­ties as­so­ci­ated with the on­go­ing re­form, the SOEs still have great po­ten­tial to make a dif­fer­ence, as the country’s ser­vice in­dus­try is ex­pected to grow by 10 per­cent or more a year in the com­ing years. That may al­low some SOEs to fo­cus on in­no­va­tion, not just ba­sic man­u­fac­tur­ing, to de­velop in a ser­vice­ori­ented man­ner.

For that to hap­pen, the cen­tral govern­ment also needs to im­ple­ment the hukou (house­hold reg­is­tra­tion) re­form and put in place a res­i­dence per­mit sys­tem as promised. The 2015 Cen­tral Ur­banWork Con­fer­ence, the first of its kind since 1978, laid out plans to in­crease the ur­ban­iza­tion ra­tio to 60 per­cent and speed up the as­sim­i­la­tion of mi­grant work­ers into the ur­ban pop­u­la­tion by 2020. Ur­ban­iza­tion on such a scale would in­evitably need huge amounts of in­vest­ments from the SOEs.

In gen­eral, Chi­nese peo­ple are spend­ing more to get ser­vices, and do­mes­tic con­sump­tion con­trib­uted to more than 66 per­cent of China’s eco­nomic growth last year. For ur­ban dwellers, it is es­ti­mated their spend­ing on ser­vices will ac­count for about half of their to­tal con­sump­tion by 2020, ris­ing by 2 per­cent year-on-year since 2014.

To meet their in­creas­ing de­mand for user-friendly ser­vices, tra­di­tional State-owned man­u­fac­tur­ers should put in more ef­forts to make ser­vice-ori­ented prod­ucts, such as house­keep­ing ro­bots, which, in turn, can help ex­pe­dite the SOE re­form dur­ing the 13th Five-Year Plan (2016-20) pe­riod.

China also has to raise the pro­por­tion of the ser­vice sec­tor in the country’s for­eign trade, which is ex­pected to rise from 12.3 per­cent last year to more than 16 per­cent in 2020, as well as break the mo­nop­oly that ex­ists in the ser­vice sec­tor.

It will take time and for­ward­look­ing poli­cies to deal with the struc­tural con­tra­dic­tions and chal­lenges fac­ing the SOE re­form. The im­ple­men­ta­tion of cer­tain pro­pos­als, such as re­cruit­ing man­agers in a pro­fes­sional man­ner and ac­cord­ing to mar­ket norms, is of equal im­por­tance to the SOE re­form.

The Fifth Plenum of the 18th Cen­tral Com­mit­tee of the Com­mu­nist Party of China last year made clear the cen­tral govern­ment’s am­bi­tion to de­velop a mixed-own­er­ship econ­omy by in­volv­ing State-owned mar­ket play­ers. To break fresh ground in this re­gard, the SOEs need more fi­nan­cial and in­sti­tu­tional sup­port to “go global” fol­low­ing the im­ple­men­ta­tion of the Belt and Road Ini­tia­tive.

The author is pres­i­dent of the China In­sti­tute for Re­form and De­vel­op­ment in­Hainan prov­ince.

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