China is embarking on a significant overhaul of its state-owned enterprises (SOEs) to enhance their efficiency and competitiveness on the global stage. As of 2021, SOE assets comprised nearly 60 percent of China’s total assets, and their revenues accounted for almost 70 percent of the nation's GDP.
Historically, SOEs have lagged behind private businesses in terms of returns on assets. However, leadership remains steadfast in the vision to make SOEs \"bigger, better, stronger.\" This initiative is driven by both economic and political motivations, aiming to bolster competitiveness in international markets.
SOEs are pivotal pillars of China’s economy, enabling the swift execution of government policies. This control facilitates accelerated industrial transformation and risk mitigation. Currently, there are 98 SOE giants under central government control.
The recent report to the 20th CPC National Congress highlights two unwavering principles: improving the core competitiveness of state-owned enterprises and optimizing the development environment for private enterprises. Specific policies aim to eliminate arbitrary fees, fines, and assessments, and address the issue of SOE accounts payable in arrears. These reforms are designed to instill a stronger sense of financial responsibility within SOEs.
Reform measures include enhancing board responsibility, incorporating private investors through mixed-ownership models, and encouraging enterprises to take bold investments and create new markets. Previous reforms since the late 1970s focused on managerial methods, corporate control systems, and the oversight of state-owned assets. Recent efforts emphasize key technologies, digitalization, corporate governance, employee incentives, profitability, and new valuation systems to boost SOE market competitiveness.
There is a growing preference for innovative SOEs that specialize in sophisticated technologies and produce novel, practical products. However, a challenge persists: in advanced industrial economies like the U.S., breakthrough technologies and transformative products often emerge from small and medium-sized enterprises. This contrasts with China’s reliance on large SOEs, which dominate the Fortune Global 500 list.
In the 2022 Fortune Global 500 Rankings, China surpassed the U.S. with 136 firms compared to 124, and outnumbered Japan, Germany, France, and the United Kingdom combined. Despite having the largest combined assets, Chinese firms exhibited the lowest profitability in terms of profit margins and returns on assets. Notably, 71 percent of Chinese firms in the rankings are state-owned, representing 78 percent of total revenue and 84 percent of total assets.
Monitoring SOE reform and profitability will be crucial in assessing and forecasting China's economic performance. As these reforms take root, they hold the potential to reshape the global economic landscape.
Reference(s):
cgtn.com
