China's third plenum

Analysts remain wary over efforts to reform China's state sector

PUBLISHED : Thursday, 14 November, 2013, 4:33am
UPDATED : Thursday, 14 November, 2013, 1:00pm

Analysts remain sceptical that the new mainland leadership will take substantial steps to end the privileged market monopolies of state-owned enterprises (SOEs), despite the party's pledges to implement bold reform.

The party's key third plenum ended on Tuesday without any fresh statement on the long- anticipated overhaul of the enterprises.

The Communist Party has offered conflicting indications about what role it wants state-owned companies to play in the economy moving forward. In the communiqué released after the meeting ended, the party said it aimed to achieve "decisive results" in market reform by 2020 and, for the first time, put the private sector on the same footing as SOEs. But it also said state firms would remain the "mainstay" of the economy.

"The biggest disappointment is the lack of commitment to weaken the role of state-owned enterprises in the economy - long the centre of political debate - and which poses a test of the leadership's determination to build a true market economy," said Zhang Ming , a professor of political science at Renmin University.

Tao Wang, chief economist with UBS Securities, agreed with Zhang in his assessment of the party's statement, noting it used wording that was identical to that used after the 2002 meeting, which said the state-owned sector was the "foundation" of the "socialist market economy".

State-backed behemoths have drawn increasing criticism from the public, who say the companies exploit their market positions to reap excessive profits. The sector is also a hotbed of corruption, a natural playground for political patronage and the scene of political infighting because of the firms' profitability.

Economists argue state monopolies are often less efficient than private enterprises, hamper long-term growth and drive away foreign investment while stunting the private sector.

Jianguan Shen, chief economist with Mizuho Securities, said the apparent playing down of SOE reform likely "reflected pressure from vested interests".

Louis Kuijs, chief China economist with the Royal Bank of Scotland, agreed, adding that entrenched firms were a key factor behind the relatively slow pace of reform in the sector.

Even the Global Times, an influential tabloid published under the party mouthpiece People's Daily, yesterday warned of the risk some SOEs posed to market-based reform.

"With advancing reform, we should firmly oppose groups with vested interests," the newspaper said in an editorial.

Lu Zhengwei, the chief economist at Industrial Bank, said: "The most important thing would be to improve corporate governance at SOEs, allowing the public to supervise how they are run."