(Blog Admin note: please be aware that Gao Xu is no longer working for the World Bank and cannot follow up on new questions or comments on his posts.)
In my last blog post on Chinese State Owned Enterprises (SOE), I showed that although SOEs—enterprises with the state as their biggest share holder—only make up less than 5 percent of total enterprises in China, they control almost 1/3 of total enterprise assets due to their big sizes—on average, SOEs are about 14 times larger than their non-SOE peers. Now, I turn to another key question: How profitable are they?
Views on the profitability of Chinese SOEs are usually diverse. Some people believe they are not very efficient, lagging far behind their non-SOE counterparts, while some others think they are gold mines, generating tremendous profits. In fact, there is much to be said on both sides. AsI’ll show you next, there is a great variety among Chinese SOEs. Those in the sectors monopolized by the state generally have very good profitability, while those in the sectors with small entry barriers for non-SOEs generally record poor performance. Hence, both sides are partially right. To better understand the profitability of Chinese SOEs, one should dig deeper into the individual sectors.
