SOEs need support for successful reform

Chinese Vice Premier Ma Kai, who is also head of the Leading Group for State-owned Enterprises Reform under the State Council, presides over the 18th plenary session of the leading group in Beijing, capital of China, April 8, 2016. [Photo/Xinhua]

The ongoing State-owned enterprises' reform has a key role to play in the country's comprehensive economic transition, but it would not be right to overdo it, especially because the SOEs and society are not yet ready.

In other words, owing to the ongoing economic downturn, SOEs in the competitive market should be given time and financial support to recover their losses, if any, instead of being told to contribute more to the country's fiscal revenue.

In fact, it will cost more to press ahead with the SOEs' reform than in the past. Also, the risk of causing further economic turbulence is high if the authorities push for mergers and bankruptcies of enterprises suffering from overcapacity. The top priority at the moment should be to replace the obsolete development model with one that would be sustainable.

Despite the difficulties associated with the ongoing reform, the SOEs still have great potential to make a difference, as the country's service industry is expected to grow by 10 percent or more a year in the coming years. That may allow some SOEs to focus on innovation, not just basic manufacturing, to develop in a service-oriented manner.

For that to happen, the central government also needs to implement the hukou (household registration) reform and put in place a residence permit system as promised. The 2015 Central Urban Work Conference, the first of its kind since 1978, laid out plans to increase the urbanization ratio to 60 percent and speed up the assimilation of migrant workers into the urban population by 2020. Urbanization on such a scale would inevitably need huge amounts of investments from the SOEs.

In general, Chinese people are spending more to get services, and domestic consumption contributed to more than 66 percent of China's economic growth last year. For urban dwellers, it is estimated their spending on services will account for about half of their total consumption by 2020, rising by 2 percent year-on-year since 2014.

To meet their increasing demand for user-friendly services, traditional State-owned manufacturers should put in more efforts to make service-oriented products, such as housekeeping robots, which, in turn, can help expedite the SOE reform during the 13th Five-Year Plan (2016-20) period.

China also has to raise the proportion of the service sector in the country's foreign trade, which is expected to rise from 12.3 percent last year to more than 16 percent in 2020, as well as break the monopoly that exists in the service sector.

It will take time and forward-looking policies to deal with the structural contradictions and challenges facing the SOE reform. The implementation of certain proposals, such as recruiting managers in a professional manner and according to market norms, is of equal importance to the SOE reform.

The Fifth Plenum of the 18th Central Committee of the Communist Party of China last year made clear the central government's ambition to develop a mixed-ownership economy by involving State-owned market players. To break fresh ground in this regard, the SOEs need more financial and institutional support to "go global" following the implementation of the Belt and Road Initiative.

The author is president of the China Institute for Reform and Development in Hainan province.