Open and frank, premier Wen Ja Bao gave a list of problems China has to face on its way to modernity. His speech at the National People’s Congress was both realistic and pragmatic.
Few days back, and independent report gave him some ideological ammunitions. The Unirule Insitute of Economics – a highly reputed Chinese think-tank – released a study which points its finger at SOEs’, State-Owned Enterprises. They seem to be privileged in comparison with private companies and this explains their apparently good results.
An old bastion of China’s structure is accused, with a strong analytical vigour, to dissipate or misuse national funds. SOEs’ pay lower interest rates to banks for their loans, 30% of their private competitors. The market distortion have repercussions on the economic system, since it forbids the best use of limited resources. In addition, SOEs’ pay lower taxes; their tax burden between 2007 and 2009 was on average 10% of their income, against 24% of other companies. Land and utilities are supplied at a preferential rate. Finally, subsidies are still used to help them, with licenses and privileges.
The disparity has also a social side, because an identity exchange still exists: more than 30% of government officials at ministerial level have had previous working experience with SOEs’. Would SOEs’ consistent profits have been possible without State help?
SOEs’ return on equity (ROE) was yearly 7,7% from 2001 and 2008. According to Unirule, without the preferential treatment, ROE could land in negative territory: – 6,2%. The criticism is reinforced if profit distribution is further taken into consideration. Wages, salaries, and benefits are higher than the Chinese standards. SOEs’ invest in residential buildings and sell the properties to their staff. Also, the dividends are internally distributed, even if they could be given to the citizens in the effort to sustain private consumption.
In conclusion, SOEs’ look less profitable and little generous. They receive immense funds but create less wealth and employments than private companies. So, what future lies ahead for them? At the beginning of China’s economic transition, they were essential to growth and stability.
Now, after an initial success, market economy requires transparency, competence and an end to monopolies. Wen Ja Bao has a final, difficult task: to start reforming the backbone of his country, a still mighty giant which should be carefully led to change its nature and face the uncertainties of a competitive arena