YANG Ruilong | Progress in State-Owned Enterprise Reform and the Path to Marketization

       YANG Ruilong   Vice President of the China Research Society of Urban Development

l  The following views are compiled from YANG Ruilong’s remarks at the 13th Biweekly Policy Analysis Meeting.

YANG Ruilong, Vice President of the China Research Society of Urban Development, argues that the reform of state-owned enterprises (SOEs), a long-standing systemic challenge, has faced a persistent core contradiction since the onset of market-oriented reforms: how to shape competent market entities while preserving the state-owned nature of these enterprises. Unlike private enterprises, which naturally possess the attributes of market players, transforming SOEs into truly autonomous, self-financing market actors poses a significant institutional challenge. This dilemma stems from the inherent tension in reform objectives—maintaining the foundation of public ownership while adapting to the logic of market operations. This dual mandate has shaped the complexity of over four decades of reform.

The reform process has gone through multiple stages of exploration:

In its early stages, policies focused on delegating authority and sharing profits, introducing market mechanisms, expanding operational autonomy, and progressing from profit remittance to taxation reforms, culminating in the separation of ownership and management rights. By the late 1980s, reform efforts shifted toward corporatization through shareholding reforms. In the early 2000s, emphasis was placed on building a regulatory framework for managing state-owned assets. After the 18th National Congress of the Communist Party, a strategic framework for classified reform was gradually established. Despite institutional breakthroughs at each stage, longstanding issues persist, such as the ability of SOEs to absorb profits but not losses, and short-termism in enterprise behavior.

The core obstacle to building a socialist market economy lies in macroeconomic institutional design conflicts. The theory of “optimizing the layout of the state-owned economy” provides crucial guidance. Its essence lies in establishing a dynamic adjustment mechanism that avoids overexpansion of state capital while maintaining control in critical sectors. This requires orderly structural adjustments that allow for strategic advancement and retreat, enhancing functional efficiency. However, in practice, this principle is hindered by ambiguous standards for advancement and retreat, and the lack of effective exit mechanisms, resulting in persistent structural imbalances.

The key to resolving these challenges lies in implementing a classified reform strategy. Research shows that the traditional shareholding transformation under the state ownership framework has systemic limitations. Reform should be tailored based on industry characteristics and the nature of products: The public goods sector should remain under state operation. Natural monopoly industries should undergo state-controlled shareholding reforms. In competitive sectors, full marketization should be pursued. This function-based classification approach can effectively address the mismatch between SOE governance mechanisms and the market environment, providing both theoretical guidance and a practical framework for deepening reform.

（This article is based on YANG Ruilong’s speech delivered on March 27, 2025. It is intended solely for academic exchange and does not represent the position of the National Academy of Development and Strategy at Renmin University of China.）