State-owned Enterprise Reforms in the New Era: The Recentralization Reform of Chinese High-speed Railway Industry

Abstract

Chinese economic development has undergone significant changes in the past several decades. When China first joined the WTO and announced its “Going out” policy in the early 2000s, increasing the role of the market was Beijing’s major goal. In line with this objective, Chinese State-Owned Enterprise (SOE) reforms focused on how to improve domestic market competition as well as company profitability. After a decade of double-digit GDP growth and the ramping up of export-oriented economic policies and projects, China entered a “New Era of the Chinese Economy,” which emphasized the importance of Chinese overseas investment and presence. With support from industrial policies and government subsidies, Chinese SOEs dramatically increased their overseas commercial activities. The result of these trends is that SOEs paid less attention to their political duties and focused more on revenues. Malicious overseas competition among Chinese SOEs appeared more frequently and raised questions about the Chinese government’s ability to control SOEs. In order to avoid cutthroat competition and better manage resources, the Chinese government launched a series of recentralization reforms, aimed at the leading SOEs in several strategically important industries. The 2015 merger of two large high-speed rail SOEs demonstrated the Chinese government’s effort to centralize large SOEs and strengthen industry’s global competitiveness, while capital markets played a more influential role in the process. The paper will enrich the current discussion about Chinese SOE reforms and provide practical evidence to explain the role of government in the reforms.