10 Proposals for Further Deepening Reform: SOE Reform

Shenzhen Innovation and Development Institute (SZIDI) released the China Reform Report 2017 in May 2018. Entitled Reform on Route, this year’s report evaluates twelve major aspects of the reform process in 2017, concludes reform experiences from the past five years and makes predictions on the future trend of reform in 2018 with ten policy recommendations. The report identifies 2017 as a crucial year during which series of planning and design culminate into implementation, and historical breakthroughs and periodical progresses rise to the surface.

Some improvements have been achieved in the reforms in state-owned enterprises and capital while impressive progresses still lacking, as seen in

l the stalemate in the decision-making, regulation, incentive mechanisms within SOEs

l the still large number of zombie SOEs in competitive sectors as a result of high leverage

l the monopoly of SOEs in oil, telecommunication, electricity, railway, military and finance industries

Therefore, the report suggests that state-owned enterprises and capital reform should focus on making breakthroughs in the mixed-ownership reform, in order to systematically advance the three-in-one reform of the mechanism, structure and monopoly of state-owned enterprises and capital. Three policy recommendations are as followed,

l make property rights reform the paramount through mixed-ownership reform, establishing monitoring and incentive mechanisms, and diversifying property rights

l balance between the share of private and state-owned enterprises in national economy

n facilitating and urging the exit of overcapacity SOEs in coal, steel and construction materials industries

n urging the exit of less competitive SOEs in competitive industries such as commerce, logistics, trade and manufacturing

n encouraging the exit of SOEs in industries that do not serve national long-term strategic goals such as real estate and high-tech industries

l encourage and nurture the participation of private enterprises in industries monopolized by SOEs such as telecommunications in order to create a marketplace for fair and healthy competition