Opinion

SOEs' growing obligations 

(China Daily)
Updated: 2011-02-22 15:50

As a major force driving the national economy, the fast expansion of State-owned enterprises (SOEs) has contributed significantly to China becoming the world's second largest economy in 2010.

However, as the country prioritizes improving people's livelihoods instead of the speed of economic growth, SOEs need to play a bigger role than merely serving as powerful growth engines.

Given these enterprises' remarkable profitability, it is high time for Chinese policymakers to tap deeper into this source of government revenue to fund public welfare.

Latest statistics from the Ministry of Finance showed that the SOEs made an aggregate profit of about 2 trillion yuan ($303 billion) in 2010, up 37.9 percent over the previous year.

Undoubtedly, at a moment when the world is yet to find a solid footing for a lasting recovery from the worst recession in many decades, Chinese policymakers can take some comfort from the SOEs' strong performance.

However in 2010, SOEs needed to pay only up to 10 percent of their profits to the government as dividends.

The reason why they pay so little is simple: Historically they did not make much profit, if any. Many of them were on the verge of bankruptcy just a decade ago and it would have been like killing the hen to get the eggs if policymakers had demanded large dividends when SOEs were just beginning to make profits.

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But things are quite different now after the reform of SOEs has rendered many of them top players in the domestic and international markets. The current size and high profitability of SOEs now means that there is no justification for paying the government a dividend of only 44 billion yuan ($6.7 billion) out of their record profits last year.

The endeavors of the SOEs to transform themselves from loss-makers into cash cows are commendable. Yet, all the favorable tax, fiscal and industrial policies that the government has adopted to facilitate their reform and development are not meant to merely boost their bottom lines. It is more than obvious that SOEs should serve as the backbone of the national economy. But ultimately, they should also serve the people with the ever-growing profits they make.

Admittedly, SOEs will generally be required to pay a slightly larger share of their profits as dividends to the government this year. But the robust growth of their profits and the dire need for more government expenditure on education, healthcare and social security justifies greatly increasing the SOEs' contribution to public funds.

Asking SOEs to pay more dividends to the national coffers would kill two birds with one stone: lowering the share of GDP that goes to the corporate sector while raising the share that goes to the people.