China, despite most appearances, is still a mixed economy. While there are many modern and private elements in the Chinese economic landscape, a sizable chunk of that landscape is still dominated by state owned enterprises. Many of these are in very sensitive industries which impact consumers daily lives like energy. Just like any other government-run bureaucracy, the challenge for these enterprises is the simple fact that they are government-run.
If you have ever stood in line at the department of motor vehicles or tried to deal with government inspectors, you’d know how slow, inefficient, and wasteful the government can be. China is no exception to this sad rule. Since many state owned enterprises cast such a long shadow on the overall Chinese economic picture, it’s easy to see why it is imperative for the Chinese government to finally whip these behemoths into shape.
Much of the anti-corruption drive currently in full swing in China seems to be focused on the twin goals of rooting out growth-stifling corruption and boosting the overall efficiency and management competence of state enterprises. It remains to be seen whether China’s anti-corruption drive can succeed in changing the corporate culture of state enterprises enough that they match US capacity utilization.
The US’ capacity utilization is 78% while China’s is 72%. A 6% improvement can mean quite a bit-especially now that the Chinese GDP growth rate is sagging. Much of the success of the effort to reform state owned enterprises will also turn on how well the anti-corruption crackdown can stay focused on actually cracking down on corruption instead of simply carrying out political vendettas. Given the heavy impact of state owned enterprises on the Chinese economy, full reforms will probably take longer than the 2 year period given by Chinese officials at Davos’ World Economic Forum.
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