China's SOEs face poor profit prospects

"High expenses may be a source of corruption among high-level management," said Sun Lijian, a professor at Fudan University.

A manufacturing contraction that followed the slow growth of Chinese economy in the first quarter and concerns of a possible financial meltdown have all added to the uncertainty surrounding the SOES' profitability, Wen said.

He said SOEs should move more quickly to eliminate excess production capacity, increase the added value of their products and improve management in order to lower their costs.

"Most importantly, SOEs should find the drive to continue reforms and industrial upgrades to prevent themselves from sailing into stormy waters," Wen said.

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