Large portions of China’s economy are dominated by state-owned enterprises (SOEs) and financial institutions that do not operate on the basis of market competition.  Recent official pronouncements make clear that any reforms that may occur in the Chinese economy during the Xi Jinping era will not include relinquishing government control over these SOEs.

A widely circulated article in the official journal Seeking Truth, published just before the 13th meeting of President Xi’s Leading Small Group on Comprehensively Deepening Reform in June, explains that SOE “reform” will consist of measures to “continuously develop and expand the state-owned economy {and} guarantee the state-owned economy’s control over the lifelines of the people’s economy.”  The article clarifies that, in the process of reform, China’s SOEs “absolutely cannot walk the ‘privatization’ road.”

According to other official media reports, President Xi has since emphasized several points that foreshadow stronger political oversight of SOE operations and an even more prominent economic and strategic role for SOEs:

  • Strengthening Communist Party Leadership: Stronger Party leadership will be adopted along with any other reform plans. This includes formalizing the legal authority of Party groups within the corporate governance structure of SOEs to ensure that SOEs operate in accordance with political discipline.
  • Preventing the Loss of State Assets: Stricter supervision will be implemented over the purchase or sale of state assets. While this is nominally a measure to prevent corruption and self-dealing among SOE management, in practice it will impose additional obstacles to the sale of SOE shares or other assets to non-state entities on purely commercial grounds.
  • Establishing the Market Status of SOEs: SOEs should be fully integrated into the market and respect market discipline, but they cannot follow “foreign experience” and must avoid “the blindness of the market.” This indicates that SOEs will not be permitted to use calls for reform to operate in a purely commercial, profit-oriented manner, without pursuing political and strategic objectives.
  • Becoming Big, Strong, and Superior: SOEs should be the most powerful firms in the Chinese economy and should lead key sectors like equipment manufacturing in global economic competition.
  • Maintaining and Increasing the Value of State Capital: SOEs should not only guard against the loss of state assets, they must also protect and increase the value of state capital. This means increasing the economic influence and control of SOEs to attract even greater capital and market share.
  • Safeguarding Workers’ Rights and Interests: Greater oversight will be implemented over reductions in benefits, reassigning workers, and other moves that may threaten “harmonious worker relations.” This implies that SOEs will be expected to guarantee social stability and welfare by maintaining high levels of production and retaining unnecessary workers.