China needs to reform large state-owned enterprises

According to a joint report issued by the World Bank and the State Council Development Research Center, China needs to reform large state-owned enterprises in order to avoid economic crisis. This report is expected be released as a headline of the Wall Street Journal.

 In the article, it is pointed that the World Bank in China is widely respected, and the State Council Development Research Center is to provide think-tanks to high-level officials of the government, therefore the report written by the cooperation of the two bodies is very authoritative. Allegedly, this report is intended to affect the power of the new term leadership.

 The report named “China 2030” noted that China should carry out deep economic reforms and  reduce the size of large state-owned enterprises, therefore to allow them to operate in accordance with the commercial mode, otherwise, there will be the risk that there will be economic crisis in China. And similar economic crisis in highly developed developing countries is the precedent.

 After the development of Brazil and Mexico reached certain levels, there has been what economists call a “middle-income country trap” phenomenon, that is to say, the economic growth rate suddenly slows down without not many warning signals. China is currently facing such a possibility. Once this happens, it will exacerbate the problem of China’s banking system and other industries, triggering the economic crisis.

 The report recommended that the large state-owned enterprises should accept the supervision of asset management companies. The report also urged China to reform the local government‘s finance and to promote competition and entrepreneurship. At present, some of the state-owned enterprises do not have strong competitiveness in the market and the investment put in by the government in some cases has been wasted. They need to make profound reform to make good use of the financial aid by the government in order to help promote the export as well as the employment.

 This article further pointed out that China’s economic slowdown would be inevitable. After all, the country has developed at an average annual growth rate of 10% for 30 years. However, the specific degree of China’s economic slowdown will be essential to the world economy.

When Europe and Japan are coping with economic recession and when the U.S. is experiencing a weak recovery, China’s economy has become the most reliable source for global growth. Commodity producers in…

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