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SOEs Reform Goal within Reach, but Deeper Issues Remain Unsolved
The central government's goal to turn most of the money losing SOEs around within three years is in sight. But, stopping the red ink isn't the ultimate goal. But deeper problems in the SOEs, caused by years of delaying reforms, have tied up the current SOE reforms.
52.5% of China's state owned and state holding enterprises have moved out of the red and into the black, according to recent reports from China's media.
According to the newest statistics, of the 6599 large- and mid-sized SOEs and state holding enterprises losing money, 3463 have stopped losing money. SOEs from twenty-two provinces, autonomous regions and cities have already started to turn a profit while eight provinces' SOEs continue to lose money. Out of fourteen major industries, only the coal and military industries remain unprofitable. From January to May, SOEs and state holding enterprises earned 69.2 billion yuan, up 3.1-fold from the same period last year.
In the end of June, the 519 major enterprises chosen by the State Council earned a total profit of 85.7 billion yuan, a 100% increase from last year. Money losing SOEs chosen by the State Council decreased by eighteen companies to 116. Losses dropped 22.3%. Money losing SOEs lost a total of 8.22 billion yuan, down 19.8%.
Turning around money losing SOEs on schedule would be good news for China's economy because it would provide a better environment for SOEs reforms. But there is another consensus in China's economic circles, that is the "three year goal" is only a phase. There are many problems with the SOEs, such as bad debts, separating the government from the enterprise, injecting new management, etc. that have accumulated over the years, which remain unsolved.
The SOEs which have already started to turn profits cannot rest easy either. The level of profits in many SOEs is not high. Economists have warned that some of these SOEs will fall back into the red due to a lack of a strong management foundation and a changing environment.
The state's policies to reform SOEs have basically been put into effect. The SOEs will undoubtedly get less leeway from the state policies in the future. Han Kang, director of the State Administrative Institute pointed out that a very regulated environment due to government policy cannot be maintained for a long time. The government has already given it its fullest support. Competition in the market, especially after China joins the WTO, will become more complicated and fiercer.
Although many policies such as the government setting up financial management companies to handle bad debts have helped SOEs a little, some of the trickier problems or vital reforms have been put off. Economist Wu Jinlian said, many problems with the SOEs are a result of delaying reforms too long.
Economists say that compared with foreign large-scale enterprises, China's SOEs lack the essence of competition. Thus, SOEs desperately need innovations within the system to foster competition.
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