Key sources of SOE profitability and their implications for social welfare

HAN Chaohua1(韩朝华) and ZHOU Xiaoyan2(周晓艳)
1Professor, Department of Economics, Chinese Academy of Social Sciences
2Associate Professor, School of International Business, University of International Business and Economics
Abstract:
An analysis of the sources of profit growth for China’s state-owned industry since 1999 indicates that the key source of profit growth is not the high productivity of state-owned enterprises (SOEs) but rather their monopoly position and pricing power in some basic industries. From an overall social perspective, such high profitability means an inefficient allocation of industrial resources and a potential loss of social welfare. Therefore, further expanding and deepening the reform of SOE property rights, encouraging the development of non-SOEs and boosting the competitiveness of basic industries will significantly improve the resource allocation efficiency of the Chinese industry and enhance overall social welfare.
Key words:
source of profit growth, low competitiveness, pricing power, potential welfare losses

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