Sieren′s China: Difficult reforms in store | Asia| An in-depth look at news from across the continent | DW | 17.09.2015
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Sieren's China: Difficult reforms in store

Despite the current economic problems, Beijing wants to overhaul China's state-owned companies. It won't be easy, says DW's Frank Sieren.

The Chinese government has outlined plans to overhaul over 100 state-owned enterprises to make them more efficient. "Underperforming assets will be sold and the money will be used by companies that need it more," said Zhang Xiwu, deputy chairman of the State-Owned Assets Supervision and Administration Commission (SASAC).

He admitted that this would not be easy as the state remains the driving force behind economic development. Its investments alone comprised a third of growth in the first half of this year. They were carried out by state-owned firms that would have gone bankrupt a long time ago without the government contracts.

So how can the bloated state industries be reformed without China's growth coming under even more pressure? On the one hand, it is an almost insurmountable task. On the other, the time is right for putting pressure on companies using an argument along the following lines: Sorry, not everyone will get through this difficult period - a time when China's economy continues to slow down and investors on the Shanghai and Shenzhen stock markets are very unsettled. For the time being, the original plan to allow state-owned companies to go public and thus generate capital for the clean up can be seen to have failed.

Paralysis caused by the anti-corruption campaign

Now for the most important measure: To spend as little money as possible. Beijing froze budgets of about 1 trillion yuan (about 139 billion euros) and parked the money in the provinces for big projects. However, because of President Xi Jinping's anti-corruption campaign many local officials did not dare call attention to themselves with mega-sized projects. They planned to wait until the campaign flagged. Last year alone, the provinces did not spend 3.8 trillion yuan worth of state-guaranteed project funds for fear of Beijing. This year, it was 139 billion euros. It's all worked out, however, because the money will now be used for more urgent projects in other parts of the country.

Those who are worried that the economy could slow down even further because of the delays on the projects are told that only 6 percent of the annual budget for investment comes from Beijing. But this means that the government measures against the dissipation of state assets are not as sweeping as they appear at first glance. One thing is certain: In general, medium-sized enterprises and the private sector are not strong enough in China to make a mark on state-owned industry. In the end, it's Beijing that picks up the tab. It can still afford to do this as long as it is not forced to make debts abroad. If this happens, it will get really serious.

DW columnist Frank Sieren has lived in Beijing for 20 years.

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