Introduction

Throughout China's economic reforms since the 1980s the central plank of the country's industrial policy has been the attempt to transform its giant state-owned enterprises into globally competitive firms. A large fraction of the world's leading firms were supported in one way or another by their national governments at some stage in their development (see, e.g., Ruigrok and Van Tulder 1995, table 9A, 239–68). The avenues of state support included full or partial state ownership, protection from international competition through tariffs and import quotas, government procurement policy, government support for research and development, and preferential loans from state-owned banks. China's planners studied the experience of other countries and adapted their policies to its own situation. The structure and operational mechanism of the country's state-owned enterprises have been comprehensively transformed since the 1980s. The results have been remarkable. China's state-owned enterprises have grown at high speed and are highly profitable. China now has a large group of state-owned enterprises in the FT 500 and Fortune 500 global rankings.

However, behind this apparent success, there are deep problems that are widely acknowledged within the Chinese government. The success of China's SOEs has been based heavily on their privileged position within the fast-growing domestic market.