China's state-owned enterprises urged to reform

BEIJING, March 2 Wed Mar 2, 2011 8:15am EST

BEIJING, March 2 (Reuters) - China should reform its powerful and lucrative state-owned enterprises and force them to withdraw from profit-making sectors, a private Chinese think tank founded by former government researchers said.

China should break the administrative monopoly of SOEs and better regulate their behaviour, Zhao Nong, a researcher with the private Unirule Institute of Economics, told a forum on Wednesday.

"This will promote different economic main bodies to carry out adequate and fair economic competition, thus better realizing social justice and improving economic efficiency," Zhao said.

The call, though unlikely to be heeded by China's central planners, reflects a growing debate in China about the proper role for the country's biggest state-controlled enterprises, which include the likes of China Mobile (0941.HK)>, Bank of China <(601988.SS) (3988.HK) and China National Petroleum Company (CNPC).

Many of the firms, some of which have listed their shares but remain state-controlled, have prospered in recent years with the strong growth of the world's second-largest economy.

But critics level several criticisms at the companies.

One is that the performance of state-owned firms, adjusted to reflect the government subsidies they receive, is poor. Zhao estimated that between 2001 and 2008, the enterprises earned a -6.2 percent return on equity.

The enterprises also pay less in taxes than private companies -- an average of 10 percent from 2007 to 2009 versus a rate as high as 24 percent for private firms.

And they return little of the profit they earn to the government.

"State-owned enterprises did not turn over even a penny of profit from 1994 to 2007." said Zhao. "And in 2009, only 6 percent of profits were turned over."

The private sector has generated the bulk of new jobs in the Chinese economy over the past decade, but coal miners, property developers and a host of other businesses have been squeezed, compelled to sell stakes to state firms or priced out of bidding for assets by government-backed players.

Calls to a spokesman for the State-owned Assets Supervision and Administration Commission, created in 2003 with the aim of improving the value of state-owned firms, went unanswered. (Reporting by Benjamin Kang Lim, Coco Li and Terril Yue Jones; Editing by Jon Loades-Carter)