As the Chinese economy posts its slowest growth in six years, major reforms to China’s state-owned enterprises are now in the final planning stages. The Xi Jinping administration has pledged to overhaul and consolidate the state-owned economy to tackle widespread inefficiency and corruption.
A wave of mega-mergers among state-owned firms has already been announced in railways, nuclear power and other industries. Consolidation may be easier politically than market reforms, but it’s not the right way forward. China’s crown jewel firms don’t need to be bigger; they need to be better.
State-owned enterprises are a relic of China’s communist past, but they remain critically important to the Chinese economy today. They still contribute nearly a third of China’s GDP and continue to enjoy preferential access to domestic credit. The central government itself owns more than a hundred firms, concentrated in strategic sectors like defense, petroleum and power.