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Why is China reforming State-owned enterprises?

Today, China has over 150,000 State-owned enterprises (SOEs) at the national and local levels, playing a major role in both domestic and global markets. In 2015, the country unveiled a document outlining SOE reforms in key industries.

The aim of the reforms was to enable market forces to play a decisive role in the country’s economy.

Why is China carrying out SOE reforms?

Zhou Fangsheng, vice director of the China Enterprise Reform and Development Society, told CGTN’s “Closer to China with R. L. Kuhn” that the lack of a sound corporate mechanism and institution remains a serious problem.

Michael Pettis, professor of finance from Guanghua School of Management at Peking University, argued on the program that China’s SOEs became very sloppy about their capital.

Liu Yuanchun, vice president of Renmin University, said that natural and administrative monopolized industries taken up by a large amount of SOEs should also allow the private sector to participate.

Background: History of China’s SOEs

After 1949, SOEs gradually undertook all the nation-building tasks and provided livelihoods for many workers.

Since China’s reform and opening up began in 1978, rounds of SOE reforms have increasingly opened up industrial sectors to competition from non-State enterprises, and the relative economic weight of the state sector has declined substantially.