A Dilemma of Success: The Reform Path of State-Owned Enterprises in China

Abstract:Beginning in the late 1970s in China, Deng Xiaoping shifted the Chinese Communist Party (CCP) line from revolution to reform, confining economic reform within the principles of socialism and communist party rule, with the political logic for party rule meant to prevail over the economic logic for economic development. However, as the reform proceeded, the CCP was led to concede to the economic logic. Even though the CCP set the building of a socialist market economy (SME) as the goal of economic reform, the actual reform path traversed not only marketization but also more importantly privatization. Throughout the shareholding reform of state-owned enterprises (SOEs), conversion of state-owned commercial banks (SOCBs) into stock companies, and the mixed ownership reform (MORs) of SOEs, the CCP had to accept the expansion of privatization for reasons of economic performance, despite the subsequent increase in ideological and political difficulties such would entail for regime identity and party rule, thus generating a political dilemma for the CCP.