China must shrink state-owned enterprises if it wants reforms to succeed, says former WTO chief
But view is disputed by China’s lead manager of state-owned enterprises, who says that they remain the core of “our economy and they need to become bigger and stronger”
China needs to shrink its state-owned sector as a proportion of its economy if it wants the next wave of reforms to succeed, according to Pascal Lamy, the former director general of the World Trade Organisation.
Lamy said more privatisation of SOEs should be carried out “carefully” to reduce, what he considered, an overly big state ownership that has “distorted” the competition landscape.
He noted some 40 per cent of China’s manufacturing industry is state-owned, citing figures from the International Monetary Fund, and 70 per cent of the capitalisation of China’s listed firms is attributed to SOEs.
“China will not succeed in this next wave of economic opening without shrinking the state-owned sector,” he told a panel discussion on SOE reform at the Boao Forum for Asia on Wednesday.
“China has done a great job of opening its economy in some areas, in removing some obstacles and tariffs … [but] in some cases, SOEs have benefited from the privilege of a very low cost of capital.”
Such “privilege” has resulted in too much capital allocation to SOEs, constraining the availability of funds for the growth of privately owned companies and a lack of level playing field, including foreign ones.
His comment came a day after President Xi Jinping pledged to further open up China’s economy, including lowering barriers for foreign participation in financial services and car manufacturing.