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Title SOE Reform in China: Performance and Prospects
Author LEE Sang-hun
Date 2017-07-19
File KIEP opinions_no112.pdf 

China has rapidly grown since 1978, and its economy has leaped to a status on par with the U.S. as it continues this growth. In the process of China's growth, state-owned enterprises (SOEs) played an important role in various sectors and areas of the economy, contributing to growth. Also since the 2000s, SOEs have also made quantitative progress through restructuring and initial public offering.
However, as the Chinese economy enters a period of the so-called "New Normal" era, where growth is slowing and the growth engine and economic structure are changing, structural problems that have been stalling high-speed growth have recently emerged. In particular, the excessive supply and inefficiency of SOEs, caused by over-investment and dismal management, have been pointed out as the most critical problems. The Chinese government is aware of the problem of chronic deficits and inefficiency in the operation of SOEs and has continued to carry out reforming measures since 1978 to solve these problems.
As the reform of SOEs has been promoted in a relatively consistent manner, it has achieved certain results in areas such as corporate integration, governance, and management systems. Recent reforms of SOEs have been actively pursued through M&A among central SOEs. In particular, unlike how in the past large corporations acquired small and medium enterprises, very large global companies are created by merging large corporations. This expansion of M&As can be attributed to accelerated reform of SOEs by the Chinese government, and the necessity to strengthen global competitiveness of SOEs and restructure the industry to keep up with supply-side reform. With the Chinese government planning to reduce the number of central SOEs to 100 within the short term and to 40 - 50 in the mid to long term, it is expected that M&As will be promoted even more actively in the future. In particular, as the Chinese government clearly states that the goal of its SOE reform is to strengthen market competitiveness and global influence, we can expect the rise of very large SOEs to continue in the world market for the time being.  

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