CHINA’S STATE-OWNED ENTERPRISES (SOES) have been the subject of much interest in recent times, partly because of their economic importance, and partly because of the ongoing reforms that have been introduced in China. This article examines various issues concerning SOEs, including their evolution, how they are defined and regulated, their unique features and the impact of recent reforms.
What are SOEs and how have they evolved? SOEs first emerged in China in the 1950s after the 1949 Revolution. They were initially the product of the nationalisation of private enterprises and private assets, including foreign companies. Until the implementation of the “open door” policy in the late 70s, SOEs dominated the economy. They were not companies in the modern sense, but instead operated as basic production units of the government and performed a broad range of functions, including commercial and social functions. They provided social benefits to employees, who stayed with them from cradle to grave as part of China’s so-called “iron rice bowl”.
Major reforms to SOEs occurred after 1992, when Deng Xiaoping made a tour to Shenzhen and reportedly said “to get rich is glorious”. In particular, SOEs began a process of corporatisation, a process that was formalised in the 1993 Company Law and subsequent amendments to the Company Law in 1999 and 2005. This was part of the establishment of the ‘modern enterprise system’ in China.
This article is based on a presentation the author delivered at the Australian Restructuring Insolvency and Turnaround Association (ARITA) in Melbourne on 28 March 2017.
A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal‘s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia.com.