China has pledged to reform its inefficient state-owned enterprises, but recent backtracking and short-termism by authorities is a reminder that any changes will be gradual, says NAB.
NAB Group Economics senior economist for Asia Gerard Burg says from a purely economic perspective, further reform to state-owned enterprises (SOEs) is an “obvious” choice to improve China's economy.
The number of SOEs in China continued to consolidate in first half of the 2000s, with SOEs falling from more than 260,000 in 1997 to around 110,000 in 2009, Mr Burg said in a China Economic Update.
Today, there are around 155,000 SOEs in China, employing more than 60 million people (15 per cent of urban employment).
Mr Burg said the Chinese economy is suffering from the “inefficiencies, excess capacity and negative competitive impacts [created by the] preferential arrangements [SOEs have] with government and banks”.
“However, this overlooks the social importance of SOEs, as major employers, and their political influence – being able to directly influence economic activity at the government’s behest,” he said.
“These factors increase the likelihood that SOE reform will remain at best a slow and limited process.”
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