Fate of SOEs lies in their own hands

Properly gauging the performance of government enterprises requires international benchmarks

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; 529 trillion euros) 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 denationalize them, and that means promoting mixed ownership.

The aim is also to let all the enterprises compete on an equal footing and flourish together rather than having SOEs as monopoly giants, so that enterprises of various ownerships can complement, benefit and learn from each other. In short, the purpose is to make the SOEs bigger, stronger and better.

Can such goals be achieved? There is no doubt 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 state-owned, 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 European Union and the United States.

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 EU and the US to become the biggest economy.

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

(China Daily Africa Weekly 10/01/2015 page8)