Chinese officials take on restructuring of problematic state enterprises

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/21

China’s state media report the State Council decided at its May meeting to restructure 345 state-owned “zombie” companies which are distressed subsidiaries of 106 of key state-owned enterprises (SOEs) owned by the central government. The restructuring will be done over the next three years. Job cuts at these firms seem unavoidable as restructuring involves flattening organizational hierarchies from their current five to nine layers to four at maximum.

Making SOEs efficient and profitable is widely welcomed as they constitute a major drag on the economy and prevent more efficient use of resources. The restructurings announced this month only affect a small number of SOEs, however. If companies owned by local governments and all subsidiaries are included, China has roughly 150,000 SOEs in total. Indeed, some of the thorniest problems are believed to lie with firms owned by local governments. Local government officials are reluctant to restructure distressed firms due to production cuts and the loss of jobs that would ensue.

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