The Pros And Cons Of SOE Reform

State owned enterprises (SOEs) were, and still are the hallmark of Chinese Communist regime. Since the inception of Peoples’ Republic of China, they played a fundamental role in the country’s economy. After the economic reform and open-up policy since 1978, SOEs succumbbed to the competition of non-state sector and gradually descended into financial crisis. As a result the Chinese government decided to relinquish them and force them to be disciplined by market mechanism. However, on both ideological and practical grounds, SOE reforms from the outset faced numerous challenges. The essay will explain why SOE reform was a necessary evil, with details on the the hardship faced by the SOEs, obstacles preventing their reform, and how was the

Jobs in private market were deemed insecure, and they did not provide perks.

Lack of autonomy
Bureaucratic intervention became commonplace in majority of the SOEs. In order to establish their own credit, bureaucratic meddling often dictated decisions making, such as the merging of firm to achieve economies of scale, and cooperation between municipal government. Usually these actions did not cater to the need of the industry or the market, and resulted in poor performance. Also, as mentioned before, with heavy social obligations, SOEs needed to provide certain social services instead of raising profits.

Market

It is reported that half of the SOEs made losses, and the value amounted to tens of billions.

Government realised the potential burden of the SOEs and initiate the restructuring of SOEs. To put it into a sentence, the approach was called ‘Grasping the large, and letting the small go’. The largest and centrally controlled firms are reorganised into even larger and more competitive enterprises/conglomerates, and on the other hand restructure the small and medium firms through privatisation or even closing