Senior Fellow Jianmin Jin
As the increase in the number of Chinese companies entering the ranks of the Fortune Global 500 shows, Chinese SOEs are on the rise. Within China’s borders, criticism of SOEs grows as they carry out the ideology of“the state advances as the private sector recedes”, which oppresses private sector companies. Beyond China’s borders, many question whether the government’s ulterior motives are not in fact behind SOEs’ economic strategies, and the concern that they are being used as Trojan horses to skew the market has taken root as well.
However, the development of economic markets in China has led to advancements in: privatization of government-run companies; diversification of capital relations; corporate governance reform based on market mechanisms; introduction of objective and transparent economic performance evaluation systems, such as Economic Value Added (EVA) evaluation; promotion of building and activation of innovation systems; and globalization of corporate systems through introduction of capital, human resources, and systems from multinational corporations. These corporate systems reforms have led to not only improvements in growth and profitability, but the strengthening of a technology-minded and innovative essence in some SOEs.
However, the limits of SOE reform can be seen in the existence of public ownership-fixated capital regulations, the prevalence of the principle that the Party controls cadres, and the meddling in SOE operations by the State-owned Assets Supervision and Administration Committee as a stakeholder. Of course, there are as many interpretations of “public ownership” as there are people in China: some say that maintaining public ownership should not be equated with maintaining state economics, while others say that the term “public ownership” has been used by those looking to protect their vested interests.