Opinion | Reform of state-owned enterprises crucial to improve quality of Chinese economy

A new round of state-owned enterprise reforms is gaining traction. On July 15, the State-owned Assets Supervision and Administration Commission (Sasac) unveiled four reforms to be implemented in six central-government-controlled state enterprises: reshuffling their constituent state-owned capital investment firms, encouraging mixed ownerships, changing board powers and having discipline inspection teams stationed in their midst.

At local levels, SOE reform plans have been introduced in about half the provinces across the country. Those unveiled in Beijing city have been rather progressive. On the stock markets, shares of the state-owned enterprises included in pilot reform plans are soaring.

However, the actual extent of these reforms has been far less than those announced during the third plenum of the 18th Central Committee.

This round of SOE reforms is being rolled out against a particular economic backdrop. The mainland economy is entering a transition period after more than 30 years of rapid growth. Therefore, it is a top priority to improve the quality as well as the efficiency of the economy.

Academic studies domestically and abroad have shown that productivity in China has been lower than other economies. One of the reasons is a mismatch in resources between state-owned and non-state-owned sectors in the manufacturing industry.

Based on fixed targets such as return on equity, state-owned enterprises are not performing very well. Some studies have even found that, if there had been no direct and indirect subsidies, many of them would be running at a loss as a whole. The future of China's economy now lies in how resources can be redirected from inefficient state-owned sectors and companies to efficient ones.

Therefore, it is not some impromptu or merely cosmetic move on the part of policymakers to implement mixed ownership and lift the non-state shareholding parameters in state-owned enterprises. In the near term, accelerated SOE reforms - instead of printing more currency or boosting investments - would be a better way to stop economic growth declining too quickly or to gain the biggest reform bonus for the economy. In the long term, focus should be put on whether reforms can go further and the goals, such as building China into an innovative country, can be achieved.