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By Charlie Zhu and Lucy Hornby
BEIJING Nov 9 Bosses of Chinese state-owned
enterprises (SOE) argued for continued expansion on Friday,
defending themselves against charges that their firms are in
urgent need of reform and saying they are vital to economic
security while struggling with the legacy of the planned
Chinese reformers and Western governments have taken aim at
the state sector in recent years, saying it gets the lion's
share of preferential loans and policies. The calls for reform
had built up as factions manoeuvred ahead of a once-in-a-decade
Critics say that without further reform of the state sector,
China's growth will stagnate. They call for further
privatisation of the sector and equal opportunity for private
firms, which provide most new jobs in China.
In his address to a Communist Party Congress on Thursday,
outgoing President Hu Jintao called for increased state
investment in industries crucial to national and economic
security, as well as further development and reform of the state
sector that should be the mainstay of the economy.
"The direction of the SOE reform should be: SOEs must be
more market oriented and they must keep strengthening their
vitality and influence," Wang Yong, director and communist party
secretary of the State-owned Assets Supervision and
Administration Commission (SASAC), which oversees the country's
largest state enterprises, told reporters on Friday.
"Scholars may have different view, but that's the
development need of the enterprises and the state."
Indeed, state bosses emphasized their importance to what
they called "national economic security" in their gathering on
Friday, laying out plans for further investment and overseas
Many leftists in China believe the survival of the party and
the state lies in continued control of strategic sectors,
particularly natural resources, banking and telecommunications.
"SOEs - especially central government-owned enterprises -
have not only aided the administration of the Party's policies
to establish a strong economic foundation and guarantee the
country's economic security, but also pushed forward industrial
transformation, upgrading, and revitalization," said Ren
Hongbing, head of China National Machinery Industry Corp.
The state-owned enterprises have gone from controlling nearly
100 percent of the economy in the 1970s, to less than half the
economy as market reforms and widespread bankruptcies in the
1990s knocked out many underperforming firms. Their share has
stabilized under Hu's administration, which saw a consolidation
of state power.
In a major push to boost the state sector in 2003, Beijing
set up SASAC as a watchdog to expand and strengthen large
Their combined assets ballooned to 28 trillion yuan in 2011
from 7.13 trillion yuan in 2002, while their revenue soared to
20.2 trillion yuan from 3.36 trillion yuan. After-tax profits
tripled to 917 billion yuan.
SOEs have grown so dominant that economists accuse them of
stifling innovation and restricting opportunities for private
companies, which now account for almost all employment growth,
according to government figures.
The oligopoly of major SOEs and state banks also threatens
the interests of foreign companies, critics say.
With SOEs dominating China's foreign investment, they are
attracting increasingly scrutiny from foreign governments
concerned that preferential funding and subsidies give these
companies unfair advantages.
A recent analysis by Unirule, a think-tank run by liberal
economist Mao Yushi, a sharp critic of the state sector, stung
its backers and emboldened those who believe vested interests
benefit from the cozy relationship between industry and the
The state-owned sector absorbed 7.5 trillion yuan in
subsidies including preferential land and interest rates from
2001 to 2009, according to the Unirule study.
Once those subsidies are considered, the reported profits of
5.8 billion yuan over those years actually results in a negative
average return on equity of 6.3 percent, Unirule found.
Now, competing visions for the direction of the economy
include a joint report from China's state council and the World
Bank that calls for the state to cut its presence in many
State backing allowed the SOEs to invest in power, rail and
telecoms at a rate that matched China's breakneck development of
the past two decades, avoiding the crippling blackouts and
bottlenecks common to most developing countries, Mao conceded.
"They have been very useful in supporting economic
development ... This has been their greatest contribution, not
so much the employment they generate or their support of
SASAC's Wang countered on Friday that subsidies to the state
sector, and charges of low return on investment, reflected the
legacy of the planned economy, when state-owned enterprises ran
schools, hospitals and other services normally undertaken by the
"The cost structure of state-owned enterprises is totally
different from that of private or foreign-invested firms," Wang
said, estimating the costs of supporting these "social
enterprises" at 200 billion yuan ($32.04 billion) a year.
"If you only look at the operational returns of SOEs, not at
the economic plus social returns, they are not at all below
other types of firms, and in some cases are better."
Although some of those functions have been taken over by
local governments, 8,300 such institutions have yet to be spun
off. There are plans to streamline SOEs as part of a policy of
reforming quasi-public "social enterprises," announced this
Despite radical reductions in workers as part of 1990s
reforms to the near-bankrupt state sectors - some of the biggest
firms carved off more than 100,000 people each - SOE employees
still number 30 million people, Wang said, including 16 million
($1 = 6.2429 yuan)
(Additional reporting by Gabriel Wildau; Editing by Robert