State-owned enterprises and public finance: transformation of the relationship

Chunlin Zhang

Chapter 10 in Handbook of Public Finance in China, 2026, pp 210-246 from Edward Elgar Publishing

Abstract: Starting with a model in which the finance of state-owned enterprises (SOEs) was fully integrated with the budget, the relationship between public finance and SOEs in China has been transformed since the late 1970s into a new model centring on the State Capital Operations Budget (SCOB). The SCOB model allows a high rate of SOE profit retention that enhances the equity capital base of SOEs, thus strengthening the role of state capital in the Chinese economy. It also enables a greater degree of financial independence of SOEs from the budget since SOE losses are no longer financed by state budget subsidies. More recent changes in the Budget Law have enabled fund transfers from the SCOB to the Government General Public Budget, though the extent of profit submission has remained negligible. On the other hand, the small transfers imply that state assets in the form of equities in enterprises can be an important and additional source of fiscal revenue to bolster fiscal sustainability and this can be achieved through policy, should a need arise.

Keywords: Public finance and SOE relationship; State Capital Operations Budget; State-owned enterprises reform; State capital and assets; Fiscal sustainability (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035311705
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