Fixing China’s State Sector

The sheer size and scope of China’s state sector makes the country unique among the world’s major economies. According to its Ministry of Finance, China has more than 100,000 state-owned enterprises (SOEs), with combined assets of roughly $13 trillion. The business dealings and competitive practices of the most important of these Chinese SOEs have also frequently drawn scrutiny abroad and criticism at home. It is not uncommon for outside observers to urge China to carry out large-scale systemic privatization and to substantially shrink its state sector.

China’s government has the ability to improve the financial performance of its SOEs. And it can help them to fulfill their original mandate while also boosting the potential for future growth across the entire Chinese economy. This policy memorandum argues that the best solution is to return to the policy orientation of the 1997-2003 period, when the government encouraged the exit of underperforming SOEs. The memo also proposes some ideas for how to get China’s SOEs back on track and more closely aligned with their core mandates.

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