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What is SOE

Updated: Sep 15,2015 11:39 AM

When people think of Chinese state companies, they often have its giant banks or oil companies in mind. But there are many more. So what are China’s State-owned enterprises and what roles do they play in the national economy?

There are over 100 SOEs that report directly to the central government and are managed under the State-owned Assets Supervision and Administration Commission, or other central institutions. They are usually big market players like PetroChina, StateGrid and China Mobile.

Then there are also those owned by provincial and municipal governments. And those are varied in size.

China’s SOEs have been the key drivers of the national economy. They’ve been tasked to focus on the country’s strategic sectors such as power, telecoms, aviation, machinery, and electronics. The dominance of SOEs in these sectors has been deemed necessary by the government to maintain control of an increasingly complex economy.

For years, SOEs have been propped up by the government. They’re given subsidies and easier access to credit than private companies.

And precisely because of government subsidies, they’ve also been found to lack innovation. The result has been poor competitiveness in the market. Both revenues and profits of SOEs have seen slower growth over the years.

In all of 2014, SOE revenues grew only 4 percent year-on-year. Profits were up just 3.4 percent. But the SOEs still dominate the 2015 China Top 500 Enterprises list. Close to 60 percent are SOEs, 40 percent are private. And of those 500 companies, revenues from SOEs account for almost 80 percent. Tax contributions, nearly 90 percent.

Internationally, some of China’s largest SOEs have solidified the going out strategy. Their names have been heard in big-time mergers and acquisitions. On the 2014 Fortune Global 500 list, there are 100 Chinese companies. 92 of them are State-owned.