China’s state-owned firms advised to focus on tech bottlenecks, security
- Government research institution suggests state companies provide ‘certainty’ for economic development
- Massive firms enjoy privileged, even monopoly status in major sectors, but frequently criticised for perceived inefficiencies
China’s “national champions” – state-owned firms in decisive sectors that are among the country’s largest – have been advised to enhance their presence and pour more resources into loosening economic and technological choke points created by curbs levied from Washington.
“As our country’s economy faces major risks and challenges … state-owned enterprises (SOEs) should provide the greatest certainty for our country’s economic development,” per a report by the Chinese Academy of Social Sciences (CASS), a ministerial-level research institution under the State Council, China’s cabinet.
SOEs must play a key role in maintaining the security of industrial and supply chains, especially in the face of containment and suppression from some developed countries, the report asserted. The document was published in late September.
This role must be taken, CASS said, to “ensure that key industrial and supply chains can operate normally under extreme circumstances” and “effectively [support] the economy, society and national defence security”.
China’s state firms, despite criticism for low efficiency, slow market response and crowding out business opportunities for the private sector, have had a rising stake in the country’s economy in the past decade.
Total assets of China’s SOEs reached 308.3 trillion yuan (US$42.27 trillion) in 2021, according to data released by the Ministry of Finance. The figure for 2011 was 75.9 trillion yuan.
The biggest state firms, which usually enjoy monopoly status in major sectors such as energy, aviation, telecoms, banking, transport and shipping, include China National Petroleum Corporation, China Mobile Communications and rail giant CRRC.
Beijing began a new round of SOE reforms earlier this year, shifting from efficiency enhancement to technological innovations and breakthroughs, especially in sectors struggling with export restrictions imposed by the United States.
The report said the main goal of SOE reform is “absolutely not to ultimately eliminate SOEs through privatisation”, nor “just to pursue the growth of state-owned assets”. Rather, it is “to establish an effective institutional foundation to ensure the state-owned economy pursues a ‘national mission-oriented’ development”.
China should allocate more state-owned capital to boost high-level scientific and technological self-reliance, innovative development of the real economy, and the improvement of industrial and supply chain governance capabilities, the report said.
“First, focus on strategic security,” it said. “[It is necessary to] promote the concentration of the state-owned economy in important industries related to national security and the lifeline of the national economy, such as national defence, strategic material reserves, backbone networks, and major financial infrastructure.”
SOEs, CASS added, should collaborate with the private sector as the latter reacts quicker to market demand, especially in terms of the promotion of systematic breakthroughs and advanced deployment of cutting-edge technologies.
China should privatise some of its state-owned assets and allow private investors to have a say in how the companies are run – rather than merely provide silent capital – as part of concrete economic reform if it is going to dig its way out of its current economic hole, the two think tanks argued in their China Pathfinder Annual Scorecard report.
“The rising state role and unpredictable regulatory developments have badly damaged China’s domestic business environment,” they said.
“Business sentiment continues to be severely depressed as reflected in weak private business fixed-asset investment.”
