Ascent of the Chinese Dragon

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Ascent of the Chinese Dragon

The Role of State-Owned Enterprises

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Lee Junxian (李俊贤)

12210690811Asia MBA ‘12

Professor Yin Xiangshuo

November 2012 |

Table of Contents

Introduction 1

Ascent of the Dragon: The Chinese Economy 2

10 years of Hu’s leadership 2

Signs of a Tiring Dragon 3

Real Estate 4

Labour 5

Capital Expenditure 5

Income Inequality 5

At the Heart of the Dragon: The Development of SOEs in China 7

1. Under the planned economy (before 1978). 7

2.Under the planned economy combined with market adjustment (1978-1992) 8

3. Socialist Market Economy (1992-2002) 8

4. SOEs under WTO frame (2001-current) 10

Reasons for SOE Failures 10

1. Increased competition. 10

2. Unclear definition of ownership, or agency problem. 11

3. Historical unfair treatment between SOEs and non-SOEs. 11

4. Immature macro economic environment. 12

5. Poor corporate governance. 12

6. Economic policy mistakes. 13

The current situation of SOEs 14

Where is the future: China’s SOE reforms 15

Possible Solutions to SOE issues 15

1. Privatization 15

2. Improve corporate governance 18

3. Reform the macro economic environment of SOEs. 19

China’s Economic Reforms 20

Rising to New Heights: The next 10 Years 21

Ascent of the Chinese Dragon

The Role of State-Owned Enterprises

Introduction

The past ten years has seen the meteoric rise of both the Chinese economy, as well as the ascension to the global stage of its Chinese leaders in terms of its international leadership. The number one task for any Chinese leader is this: securing fast enough economic growth to shore up employment and social stability. On that basis, the past ten years of the Hu Jintao administration has been a resounding success. The primary vehicle of choice for the Communist Party of China (CPC) were the State-Owned Enterprises (SOEs) and the role they played throughout the economic development of China, especially during the past ten years...