ASSESSMENTS

State-Owned Enterprises Are a Hard Habit China Doesn't Want to Break

Nov 7, 2018 | 09:00 GMT

People walk into a subway station in Beijing on Oct. 19, 2018. China's economy grew at its slowest pace in nine years in the third quarter, as a campaign to tackle mounting debt and trade friction with the United States took their toll. The world's second-largest economy expanded 6.5 percent in July-September, National Bureau of Statistics figures showed, marking its worst performance since the height of the global financial crisis.

(GREG BAKER/AFP/Getty Images)

Highlights

Beijing's apparent favoritism for the state sector has contributed to the strain on the country's private sector, which is already suffering from a slowing economy.
U.S. pressure on China to trim its support for state-owned enterprises (SOEs), along with Beijing's need to keep private businesses afloat, is pushing the government to deepen its SOE reforms.
Beijing may gradually open some selected industries – finance, high-tech and telecom – to private and foreign capital, but it won't bend to outside pressure over easing support for key industries.

China is again looking toward its state-owned enterprises (SOE) to help it navigate its economic course. In the decade since the 2008 global financial crisis, Beijing has increasingly relied on these businesses to drive its economy. As it faced sweeping unemployment and scrambled to prop up growth after that meltdown, it saw no better option than to pump up its state-owned giants with infrastructure, transportation and real estate projects. The stimulus ended in the early 2010s, but Beijing has continued to turn to the SOEs to lead the country's economic transition, raising fears of favoritism among its private businesses. It has also sought to strengthen the SOEs through consolidating industries, cutting output capacity and trimming the amount of debt in the economy; these moves have resulted in greater government control over many private businesses, as well as uncertainty and anxiety in the private sector and in society at large. The...

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