The Role of SOEs in the Chinese Growth Miracle: A “Pancake Theory”

As the economic extension of the political institutions, the SOEs have contributed both directly and indirectly to the growth miracle since 1978, but a continual government-led reform is conducted to adapt the SOEs to the new challenges and opportunities. The extent to which the reform can improve the efficiency and competitiveness of the SOEs largely determines how far China can continue its domestic economic growth and achieve its international strategies such as AIIB and “One-Road-One-Belt”. Some recent academic publications also discuss the complementary role of public capital versus private capital [1,2]. Apart from the “direct effect” of SOEs through their contributions to GDP growth, there is also an “indirect effect” by providing public capital and public goods, which would not have been developed so fast if relying on the “invisible hand” due to externalities. The “visible hand” can accelerate the growth of the “pan” and therefore the growth of the whole economy if the SOEs are not competing with but complementing the private enterprises.