China’s next big test: reforming state-owned firms

A Chinese woman walks past a sign for the Bank of China
State-owned companies dominate China’s personal and corporate banking system, and prop up many other failing state firms with cheap loans (source: dpa)
  • Inefficient, indebted state-owned firms are becoming a drag on China’s economy
  • Reforming them will cause significant short-term difficulties and cost millions of jobs
  • But nothing short of a deep, rapid reform of the system could lead to economic collapse

China’s state-owned enterprises dominate huge swaths of the economy, but their outlook is grim. Rapidly growing debts from politically driven loans, risky real estate deals and lower investment returns imperil their future and that of the entire Chinese economy. Many will be privatized, merged, or otherwise dissolved within the next few years. How this reform is managed will have a huge impact on China and possibly the world. It is difficult to overemphasize the role that roughly 150,000 state-owned enterprises (SOEs) play in the Chinese economy.

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