State Owned Enterprises During the Reform.

17 Feb

After three decades of reform within China, State Ownership of Enterprise remains an important player in the Chinese Industrial sector. Chinese industry has grown at unprecedented rates over the last 30 years, and has affected not only China, but also the rest of the world. This growth, it is argued, is a direct result of the privatisation of industries that has occurred within China since 1979, however despite mass privatisation, the role of Chinese SEO’s in both the domestic and international market is significantly important.

During the quarter of a century of reform and change that has occurred within China, the nature of SEO’s has been constantly evolving. In 1980, SEO’s accounted for 76% of gross industrial output, during the years of reform undergone with mass privatisation however this number fell. Despite this fall in numbers, in 2004 38% of industrial output was still produced by firms classified under ‘State-Owned Enterprises’ thus illustrating the continued importance of SEO’s within the Chinese industry.

Between 1979 and 1992 China’s SEO’s were ‘objects of experiment in market socialism’. In this period the state owned enterprises moved their focus away from targets and plans and instead focused upon markets and profitability. This therefore allowed the SEO’s to respond to market forces of demand and supply, thus increasing competition and growth. During this period the financing of enterprises also underwent change, from state controlled government grants, to bank loans with a repayable interest in the hope to produce increased capital. Competition for jobs was also increased during the time period, with contracts decreased from ‘life time’ to short-term contracts of 5 years. This it was argued would increase competition between managers, and would improve work force potential.

In 1994 the adoption of the Company Law and the policy ‘grasping the large and letting go of the small’ in 1997, was seen to be a ‘turning point’ for the role of the state and the state sector. By ‘letting go of the small’, loss making enterprises were able to be removed by lower-level governments. Between 1995 and 2000 almost 82% of small- and medium-sized SOE’s were restructured, which in most cases involved a process of privatisation. In contrast to this enterprises which were viewed as significantly important to the government were put under supervision of the State Asset Supervision and Administration Commission. These industries included electricity, military industry, petroleum and telecommunications.  Those large firms that were not deemed significantly important to the State were not privatised completely, but instead a number of shares were sold off to investors, whilst the government retained the majority share and thus majority control.

What is interesting to note about the changes in SEO’s is that despite a reduction, particularly in small-sized firms, the role of SEO’s in China’s economic and industrial growth is difficult to question. Although it can be argued that FDI, export-orientated industries and the growth of the private sector have together been accountable for a significant percentage of China’s growth, many of China’s largest and leading companies are still state controlled, therefore showing the importance of SEO’s. Although further privatisation in inevitable, for the next decade or so it can be argued that China’s SEO’s are still going to play and important and central role in China’s industry and economy.



Jefferson, GH and Singh, I. (1998) Enterprise reform in China: Ownership, Transition and Performance. Oxford University Press, New York.

Jefferson, GH., Rawski, TG and Zhang, Y. (2008) “Productivity Growth and Convergence across China’s Industrial Economy” Journal of Chinese Economics and Business Studies, 6, pp 121-140.

Weiye, L and Putterman, L (2008) “Reforming China’s SEO’s: An Overview” Comparative Economics Studies 50, pp 353-380. 


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