Former WB chief warns of ballooning State sector

Former chief of the World Bank Robert Zoellick cautioned China on Sunday about the increasing size of State-owned enterprises (SOEs), according to a transcript on his talk published by domestic news site sohu.com, adding to an increasingly heated debate on the relationship between the public and private sectors in the Chinese economy.

The remarks, made during the China Development Forum Special Session, came at a delicate time in China, as domestic debate heats up on how to evaluate the results of 40 years of reform and opening-up and the increasingly conflicting relationship between State-owned and private-sector companies.

An article published on news platform Jinri Toutiao by finance industry insider Wu Xiaoping caused an uproar by claiming that China’s private-sector economy had “completed its mission” and should fade away in favor of the State-owned economy to help China face a changing international landscape.

“Chinese private companies are without doubt the main force of China’s economic development. State-owned companies just don’t have the ability to replace this function,” Tian Yun, vice president of the Beijing Economic Operation Association, told the Global Times on Sunday.

Zoellick praised China’s 40 years of reform and opening-up, and he said that new initiatives such as the China-led Asia Infrastructure Investment Bank have been an example of corporate governance and transparency standards.

But Zoellick said that Stateowned companies in China are “pushing private companies away” and raising concern among foreign investors. He warned that assets held by centrally administered State companies are increasing, but their return on assets has decreased from 6 percent to slightly over 2 percent in recent years.

Tian noted that while there is no concerted attempt to reduce the role of the private economy, new challenges are indeed affecting Chinese private-sector companies.

“While many private entrepreneurs are feeling anxious at the moment, part of what is happening is the trade tensions initiated by the US, and part is that as China pursues a higher level of development, private companies are having to take responsibility for externalities they created, especially in terms of pollution and labor costs,” said Tian.

“The role of public companies is to operate in sectors of public interest, and withdraw from competitive sectors of the economy. This will protect the value of public assets, which is critical to face the coming challenge of a rapidly aging domestic population,” said Tian.