【IMIWorkingPaperNo.1906[EN]】State-OwnedEnterpriseReform

【Abstract】
Tackling the rising vulnerabilities and low efficiency of state-owned enterprises (SOEs) is crucial to China’s transitioning toward a more sustainable growth path. The need now for bold SOE reforms is similar to the reforms at the end of the 1990s, which, after steadfast implementation, helped unleash the country’s growth potential and secure rapid development in the early 2000s. Successful SOE reform can improve resource allocation, create space for the private sector to flourish, and address major vulnerabilities. SOEs continue to play a large role in the economy and cover a wide range of sectors, including heavy industries and utilities, financial institutions, media, and cultural services. Of the 10 largest companies listed on the Shanghai stock exchange, eight are SOEs, ranging from banks to energy and infrastructure sectors.1 This chapter focuses on nonfinancial and non-cultural SOEs. Although their share in output and employment has declined over the past decades, China still has some 150,000 nonfinancial SOEs. The urgent need to implement reforms is reflected in significantly less-efficient SOE performance compared to their private counterparts, while rising leverage and deterioration of repayment capacity adds to increasing vulnerabilities. Unlike reforms in the financial, monetary, and fiscal areas, SOE reform has been lagging, reflecting the magnitude and complexity of the problem and strong interest groups resisting change. For example, less than half of the provinces have completed the classification of SOEs for respective reforms. Current draft proposals still lack sufficient detail and are not always consistent with maximizing potential economic benefits. The chapter examines current proposals and identifies key elements of SOE reforms that can improve resource allocation and facilitate China’s transition toward sustainable growth. It then provides an illustration of the role and recent performance of SOEs, analyzes vulnerabilities emanating from high and rising leverage, and estimates the implicit support to SOEs that has contributed to resource misallocation. The chapter summarizes the government’s SOE reform initiatives and current progress and presents policy recommendations and assesses potential growth benefits from SOE reforms based on international good practices.

【Authors】

W. Raphael Lam, Former IMF Deputy Resident Representative for China.

Alfred Schipke, Senior Resident Representative, IMF; Member of IMI International Committee.