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Liu Zhiqin: Stability of State role in business critical for China’s continued economic success


By Liu Zhiqin    Source: Global Times    Published: 2016-3-31

Illustration: Luo Xuan/GT

In the past 36 years of China`s opening-up, restructuring of the country`s State-owned enterprises (SOEs) has consistently been a prominent topic of debate. It has become the best excuse for all parties whenever they were talking about the challenges that China has faced during the process of reform. Requests for SOE reform have frequently been repeated by experts, economists and the media.

The major request now is to ask for SOEs to change their "ownership" from "State" to "private."

Some Western governments pay particular attention to company ownership, and block deals or acquisitions by Chinese firms if they are State-owned.

But the fact is that SOEs are vital players in any country`s economy, including developed nations. SOEs have made great contributions to economic development in the US and major European countries.

So it is not surprising that a country like China with such a huge population and such a rapid transition from a farming culture to a commercial culture has had to rely on SOEs to develop its economy.

Only SOEs could absorb so much labor and create widespread affluence. The development of new China has shown that SOEs have been and will remain the main driving power for China`s economy.

Foreign governments often have double standards in dealing with China`s SOEs. On the one hand they are suspicious about deals in their own countries that involve Chinese SOEs. But on the other hand, when they come to China looking for business opportunities, their priority in choosing Chinese partners is whether the Chinese company is an SOE, because they see SOEs as more reliable than private firms.

It`s the same in banking. All foreign banks are willing to do business with Chinese State-owned banks. Any letter of credit issued by a State-owned bank would be well accepted by foreign banks, but a letter of credit issued by a local or private bank would need to be reconfirmed by a State-owned bank in order to be accepted. So we have no reason to underestimate our own SOEs in terms of their importance to economic growth.

Developed countries like Switzerland also have SOEs as the foundation of their economic system. There are more than 20 "landesbanks" in Switzerland and in Germany as well.

These banks have local governments as their major shareholders, and if you were to ask the local people if they would agree to change the nature of the landesbanks, most of them would say "no."

This shows that people in Western countries also think of SOEs as vital forces for maintaining economic development.

Some foreign observers have said China is at risk of a "hard landing." But this will not happen because our economic system has SOEs as the basis for stable growth. This is the key advantage that China has, and it helped China to cope with stern challenges during the period of the Asian financial crisis in the 1990s.

So we have to treat our SOEs as national treasures and make every effort to ensure their proper development.

One friend of mine in a foreign financial institute told me that if China had no more SOEs, he and his partners would leave the country, because SOEs are so vital for confidence and faith in China.  

In 2014, we had 155,000 SOEs in China, which employed more than 30 million people and contributed 34 percent of the country`s total GDP. In 2015, the total assets of SOEs reached 119 trillion yuan ($18.36 trillion), and their total profits amounted to 2.3 trillion yuan.

We have met some difficulties in dealing with the slowdown in the economy, but SOEs are not the reason for that. Actually, SOEs can help keep our economy stable in the next 10 years.

We must work out more measures to support the SOEs and help them through difficulties they encounter, such as the hard times being experienced by SOEs in the former industrial base of Northeast China.

But we have to point out that SOEs are not exactly competing with private companies. They are linked together like brothers, and there is no reason to separate them. But which kind of company should play a larger role in different situations depends on the specific conditions.  

The author is a senior fellow at the Chongyang Institute for Financial Studies at the Renmin University of China.

Key Words: SOEs   China   stability  

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