China’s Unfinished Ownership Reform: Privatization and a Fair and Competitive Environment Remain to be Achieved

Chi Hung Kwan
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Chi Hung Kwan: Senior Fellow, Nomura Institute of Capital Markets Research

Public Policy Review, 2020, vol. 16, issue 3, 1-26

Abstract: The major objective of ownership reform in China is to enable different types of enterprises to realize their capabilities to the maximum by creating a fair and competitive environment and strengthening the corporate governance of state-owned enterprises. To that end, it is necessary to shift the center of gravity of the economy from state-owned enterprises to private enterprises by privatizing the former and promoting the growth of the latter, as well as to separate the government from business through restraining the involvement of the government in the management of state-owned enterprises. However, China has been retreating rather than making progress on both of these initiatives in recent years. Under the Xi Jinping administration, instead of privatization, mixed-ownership reform is being promoted in the form of injecting private capital into state-owned enterprises. However, in most cases, control by state-owned capital has been maintained, so that corporate governance, and by extension, the efficiency of the enterprises concerned, is unlikely to improve. Since China adopted the reform and opening-up policy in the late 1970s, private enterprises that started from scratch have ridden the tide of transition to a market economy and grown to surpass state-owned enterprises in terms of revenue and employment. However, the business performance of private enterprises has turned sluggish recently, thanks to the changing economic environment. Fundamental reform of state-owned enterprises requires privatization. However, if it is politically difficult to achieve, as the second-best option, China should create a fair and competitive environment by minimizing the government’s interventions in business activities. Doing so is also necessary to promote the development of private enterprises.

Keywords: China; reform of state-owned enterprises; mixed-ownership reform; private enterprises; competitive neutrality (search for similar items in EconPapers)
JEL-codes: P31 (search for similar items in EconPapers)
Date: 2020
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