Reform of State-owned Enterprises in China: The Chinese Communist Party Strikes Back

Abstract

ABSTRACTState-owned enterprises (SOEs) play an important role in the Chinese economy and are also crucial instruments for implementing the Party-state’s policies and strategic initiatives. SOE reform is not only crucial to China’s transformation from an economy overly dependent on exports and investment to one more driven by domestic consumption, but is also a test of the political will and capability of the Chinese authorities to develop a market-based domestic economy. Despite the Chinese government’s commitment since 2013 to forging ahead with the SOE reform process, little real progress has been made so far. Reform of the SOEs is a central component of the government’s agenda for sustaining domestic economic growth and tightening the political control of the Chinese Communist Party over all aspects of the nation. The current wave of SOE reform has, however, focused on the state’s push for consolidation through mergers and acquisitions, rather than pursuit of improving corporate governance. Far from being in retreat, the state is marching in and the market is retreating. This SOE reform process appears to contradict the state’s proclaimed commitment to deregulation and development of a market-based competitive economy in China by allowing “the market to play a decisive role”.