Legal Implications of the Deepened Reform of Chinese State-Owned Enterprises: What Can Be Expected from Recent Reforms?

• Author: Che Luyao
• Pages: 172-190

172 TSINGHUA CHINA LAW REVIEW [Vol. 8:171

LEGAL IMPLICATIONS OF THE DEEPENED REFORM OF

CHINESE STATE-OWNED ENTERPRISES: WHAT CAN BE

EXPECTED FROM RECENT REFORMS?

CHE Luyao

Abstract

A new round of State-Owned Enterprise (hereinafter “SOE”) reform

contains the clear purpose of integrating SOEs into the market while

maintaining their strength in contributing to the economic

development of China. This raises the question of how the reform will

utilize relevant legal instruments and what changes in legal

arrangements can be expected. Regarding the internal market, the

reform may deeply incorporate SOEs into the market and devise the

ways in which the state manages SOEs to be more market-oriented.

As for the global market, the changes in the domestic market can

further coordinate China’s state sector with the existing international

economic order.

Keywords: State-Owned Enterprises (SOEs), SOE Reform, public

entities, out-of-country benchmarks, non-market economy (NME)

status

I. INTRODUCTION

It is now more than three-and-a-half decades since China launched

its ambitious program of undertaking economic reform. Central to

China’s economic reform has consistently been the reform of state-

owned enterprises (“SOEs”). Undeniably, SOEs have contributed

remarkably to China’s economic development, as they have been able

to pursue long-term goals in line with public interests.1 However,

SOEs must be subject to progressive reforms in order to overcome

their inherent weakness and meet the requirements of constantly

changing economic and social surroundings. After entering the second

decade of the twenty-first Century, SOEs are currently faced with new

challenges, highlighting the urgency of a new round of reform.

From a purely economic perspective, the major economic concern

of the new round of reform is the economic efficiency and the capacity

of innovation of SOEs. Since China first launched its economic reform

in the late 1970s, the economic efficiency of SOEs has increasingly

improved. 2 However, according to various economic indicators,

SOEs are still characterized by their underperformance in productivity

1 See How Can China Sell off Its Government-Owned Companies?, CHINA ECON. REVIEW (June. 10,

2014), http://www.chinaeconomicreview.com/SOE-reform-sale-ownership-japan-lessons-adapt-china-

context.

2 See e.g., BARRY NAUGHTON, THE CHINESE ECONOMY: TRANSITION AND GROWTH 3-8 (2007).

2016] CHINESE STATE-OWNED ENTERPRISES REFORM 173

and innovation compared with some non-state actors.3 While the

concern of the competitiveness of SOEs is mainly purposed at a micro

level, the demands of reform can also be observed at a macro level. In

the current stage of economic development, the optimization of the

structure of national economy is recognized as being of vital

importance to the further development of the Chinese economy.

Besides, the unoptimistic circumstances of the external market,

namely the global economic recession since 2008, further dictates the

urgency of China to find a solution to existing and potential

difficulties.

Besides the aforementioned economic incentives, the necessity of

deepened reform is augmented by several regulatory and legal

concerns. Because China’s economic reform has been policy-oriented,

laws and regulations have been introduced under certain policies to

meet specific needs. Therefore, rules governing SOEs and other

market entities are rarely codified but are generally separately

stipulated in different laws and regulations. This calls for coordinating

and unifying laws and regulations. From the angle of the outside

world, successful reform may help Chinese SOEs and Chinese

economy to be further coherent with the international economic order.

For example, because of the extensive state sectors, China and Chinese

companies have frequently been subject to contingent measures under

the WTO, including anti-dumping duties and countervailing duties. In

addition, further SOE reform is also urgent because of social and

political reasons, such as the necessity of fighting against corruption

and the abuse of managerial power.4

Several important documents have been issued under such

historical circumstances. In September 2015, the Central Committee

of the Communist Party of China, along with the State Council,

released a long-awaited literature entitled Guideline for the Deepened

Reform of State-Owned Enterprises (“the Guideline”). 5 The

Guideline proposes a series of relatively comprehensive initiatives for

further invigorating Chinese state-owned enterprises, integrating them

into the market economy, whilst striving to maintain the advantage of

SOEs. Following the release of the Guideline, the Several Opinions

Concerning the Reform and Completion of State-Owned Assets

3 See Langi Chiang & Victoria Ruan, Inefficient SOEs Lack Profit Focus: Earlier Reforms Failed to

Address the Core Problem of Low Productivity Among SOEs, S. CHINA MORNING POST (Apr. 04, 2014),

http://www.scmp.com/business/china-business/article/1464205/ inefficient-soes-lack-profit-focus.

4 See Liu Zhifeng (刘智峰), Guoyou Qiye Fubai Xianxiang de Sanda Weihai (国有企业腐败现象

的三大危害) [Three Major Harms of the Corruption of SOEs], QIAN XIAN (前线) (Mar. 3, 2015),

http://www.bjqx.org.cn/qxweb/n189763c637.aspx.

5 See Zhonggong Zhongyang, Guowuyuan guanyu Shenhua Guoyou Qiye Gaige de Zhidao Yijian

(中共中央、国务院关于深化国有企业改革的指导意见) [Guideline by the Central Committee of the

Communist Party of China and the State Council for the Deepened Reform of State-Owned Enterprises]

(promulgated by Cent. Comm. of CPC & St. Council, Aug. 24, 2015, effective Aug. 24, 2015)

(Chinalawinfo).