Meng Jie: A Brief Analysis of State-Owned Capital in the Socialist Market Economy
After more than 40 years of reform and opening up, China’s state-owned economy has successfully achieved symbiotic development with the non-public economy, and through this symbiosis, it has continuously consolidated and strengthened its own dominant status. Since the advent of the New Era, the reform of state-owned enterprises (SOEs) and the reform of the state-owned assets management system have entered a new stage. The themes explored in this article include how to understand the relations of production under socialist ownership by the whole people within a socialist market economy; in what sense state-owned capital constitutes a transformedSafeguarding form of these relations under market conditions; the significance of the classification-based reform of SOEs and the subsequent "managing capital" (guǎn zīběn) reform since the 18th Party Congress; and the new characteristics of the relationship between the state and the enterprise—as the decisive dimension of the relations of production in state-owned capital—in its current form of realization.
I. State-Owned Capital as the Transformed Form of Socialist Relations of Production Under Ownership by the Whole People in a Market Economy
(1) Socialist relations of production under ownership by the whole people are jointly constituted by two links: the state and the enterprise.
Socialist public ownership is a relation of production in which laborers jointly own the means of production, labor together, and share the fruits of their labor. Article 6 of the Constitution of the People's Republic of China stipulates: "The basis of the socialist economic system of the People's Republic of China is socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working masses." Socialist relations of production under public ownership occupy the leading position in the economic structure of the primary stage of socialism and constitute the essential provision that distinguishes the socialist market economy from the capitalist market economy. The socialist economy under ownership by the whole people—namely, the state-owned economy—is the primary form of the public economy and was formed through the socialist revolution led by the Communist Party of China. In the 1950s, through the expropriation of bureaucratic capital [1] and the socialist transformation of national capitalist industry and commerce [2], socialist relations of production under ownership by the whole people were established and came to occupy the dominant status in China’s economic structure. Since 1978, in order to build a socialist market economy, these relations of production have undergone a series of reforms, eventually achieving an organic integration with the market economy.
In the history of socialist economic thought, the concept of the "One Country, One Factory" [3] model of the planned economy was once prevalent. This refers to the idea that the entire social production is like a single large factory or syndicate that can be managed from the top down via administrative orders. In this planned economy model, the socialist relations of production under ownership by the whole people contained only one link: the state. As the representative of the association of social members, the state possessed the power to implement planned management and coordination of the state-owned economy; this planning was primarily manifested as command-style planning through administrative orders. Although enterprises were production units, because they lacked any operational autonomy, they essentially lost their significance as an internal link within the relations of production under ownership by the whole people. While the "One Country, One Factory" theory did not perfectly coincide with China’s socialist planned economy model prior to reform and opening up, the status of the enterprise as a basic link in the relations of production was indeed far from being fully recognized at that time. In the traditional planning model, enterprises usually possessed the power to independently carry out simple reproduction and sometimes the power to independently allocate depreciation funds, but profits were basically turned over to the state; thus, the power of accumulation was held in the hands of the state.
Socialist relations of production under ownership by the whole people are composed of two basic links: the state and the enterprise. Because the state represents the social association formed by all the people in possessing the means of production, the investigation of these relations of production cannot focus solely on the micro-level—that is, the individual enterprise—but must first treat them as a set of holistic relations of production involving the entirety of social production. These holistic relations of production mean that the state, as the representative of the association of social members, possesses the power of unified management, coordination, and disposal over the state-owned economy, and that state-owned assets possess the attribute of indivisible social property. In China, the exercise of this power relies on people's democratic politics—namely, whole-process people's democracy—and its purpose is to implement the people-centered principle and realize the socialist purpose of production: that is, to continuously satisfy the growing material and cultural needs of the whole society by liberating and developing the productive forces. In a socialist market economy, this unified management, coordination, and disposal by the state are not primarily achieved through administrative orders, but rather through a multiplicity of economic and legal means adapted to market mechanisms.
The other link in the socialist relations of production under ownership by the whole people is the enterprise, which acts as an association of practitioners directly occupying the state-owned means of production. The existence of the enterprise is linked to the current level of development of the social productive forces and the division of labor. Although the laborers of the entire society have formed an association through the state and endowed state property with the character of indivisible social property, under existing conditions of the division of labor, laborers can still only combine with locally occupied means of production through countless specific associations of practitioners within the various branches of the system of social division of labor. Consequently, the laborers themselves possess a dual character: on the one hand, as members of the association of social members, they are co-owners of indivisible social property; on the other hand, they are practitioners in a specific association, namely, the enterprise.
The contradiction between the state's social ownership (representing the whole) and the enterprise's group-based occupation of the means of production is the internal contradiction of socialist relations of production under ownership by the whole people. In terms of legal relations, this contradiction manifests as a dual ownership structure: on the one hand, the state’s ultimate ownership of the means of production; on the other hand, the enterprise’s ownership of the means of production it directly occupies, which excludes other enterprises. The distinction—and even contradiction—between the enterprise as a specific link and the state as the representative of the association of social members means that the relations between SOEs, and between SOEs and enterprises of other ownership types, can be transformed into commodity exchange relations through reform.
In the reform of SOEs and the state-owned assets management system, the relationship between the state and the enterprise has constituted the focus of reform. However, what is to be changed is not the state’s relative position of advantage in this relationship, but rather the way in which the state performs its function—that is, the administrative interference of the state in the enterprise should be reduced as much as possible and replaced by economic and legal means that interface with the market economy. At the same time, it must be recognized that there is a limit to the enhancement of SOE operational autonomy through reform. As long as the relations are those of socialist ownership by the whole people, the state necessarily constitutes an internal link therein, and must therefore retain the power to manage, coordinate, and dispose of the state-owned economy in some form. This means that the state and the enterprise, as two concurrently existing internal links, set a limit on the "separation of two powers" (ownership and managerial rights) in SOE reform; this separation can only be in a relative sense, not an absolute one. SOE reform aims to reach a certain "equilibrium" of power between the state and the enterprise within the relations of production under ownership by the whole people. In reality, this equilibrium must be subject to continuous dynamic adjustment according to the needs of the stage of economic development, rather than being a relationship that can be fixed once and for all or remain immutable.
(2) The Three Dimensions of State-Owned Capital
State-owned capital is the transformed form of socialist relations of production under ownership by the whole people under market economy conditions. It contains a three-dimensional set of relations: the relationship between the state and the enterprise, the relationship between capital and labor, and the relationship between capital and capital. The latter two dimensions are common to any capital relation and reflect the general nature of the concept of capital. In Capital, Marx investigated capital as a relation of production from the dimensions of capital-labor and capital-capital. The specificity of state-owned capital is first manifested in the first dimension—the relationship between the state and the enterprise. This dimension is the decisive relationship among the three; it influences or determines the other two dimensions, giving them characteristics distinct from the private capital analyzed by Marx.
The fact that the state and the enterprise are two distinct yet interconnected internal links in the relations of production is likewise reflected in the state-owned capital relation; what changes is merely the state’s mode of managing the state-owned economy. State-owned capital must adapt to the market economy: on the one hand, it must help SOEs transform into independent market entities; on the other hand, it must help the state implement national development plans and strategies through SOEs to realize the socialist purpose of production. In SOE reform, it is precisely this management mode—the concrete realization of the relationship between the state and the enterprise—that has become the primary object of reform. What must be emphasized here is that state-owned capital as the transformed form of ownership by the whole people means: first, the connection between these two internal links (state and enterprise) determines that the SOE is a tool for the state to perform its economic functions under market conditions; second, in a socialist market economy, the state does not function from outside the market but from within it, using state-owned capital as a medium to exert its regulatory role. For this reason, the strict institutional dichotomy between economy and politics advocated by liberalism is not, and can never be, a feature of the socialist market economy. Therefore, regarding the reform of SOEs, the propositions of "separating government from enterprise" (zhèng-qǐ fēnkāi) and "separating government from capital" (zhèng-zī fēnkāi) [4] must be understood in a relative sense rather than an absolute one.
Like non-public capital, state-owned capital includes the dimensions of the capital-labor relationship and the capital-capital relationship. Marx analyzed these two relationships with respect to private capital. From the perspective of the capital-labor relationship, capital is a relation of wage-labor, predicated on wage-workers who have lost the means of production and the commodification of their labor-power; it constructs a relationship of control over labor in the production process to serve the production of surplus value. From the perspective of the capital-capital relationship, capital manifests as the competitive relationship between "many capitals"; through this competition, the nature of capital in pursuit of surplus value gains outward expression. State-owned capital in a socialist market economy not only manifests its specificity in the state-enterprise dimension, but also possesses characteristics in the capital-labor and capital-capital dimensions that are fundamentally different from private capital. Under the premise of private ownership, capital and labor fall into an antagonistic zero-sum game in the creation and distribution of value; Marx used the inverse relationship between the value of labor-power and surplus value (where one increases as the other decreases) to explain this. Under the premise of socialist public ownership, however, the relationship between capital and labor in value creation and distribution more closely reflects the principle of "distribution according to work," [5] achieving a dialectical unity between the collective interests of the association of laborers and the individual interests of workers, and between long-term interests and local interests. Consequently, the meanings of concepts such as the value of labor-power (necessary value) and surplus value undergo corresponding changes; they are essentially transformed into "individual necessary value" and "public necessary value." The public necessary value can be used as a public consumption fund and a public investment fund for all laborers to satisfy the holistic and long-term interests of society. Correspondingly, the competition inherent in the capital-capital relationship within state-owned capital is also fundamentally different from competition under purely private ownership; this competition is not disordered or purely profit-seeking, but is conducted under the guidance and regulation of the state, playing a leading and coordinating role in the development of the market.
Capital, as a relation of production, is always embodied in specific objects such as means of production, products, and money. Marx said: "Capital is not a thing, but a certain social, belonging to a certain historical social formation, relation of production, which is embodied in a thing and lends that thing a specific social character." These things are the forms successively assumed by capital in its process of movement; capital is value in motion, and it realizes valorization through this motion. Marx expressed this characteristic of capital using the formula for the circuit of money capital: M—C…P…C'—M'. [6] This formula indicates: first, the behavioral motive of capital is to realize valorization in the form of money—an existence of value that has cast off its use-value form; second, the production process here is merely an intermediate link or means for capital to achieve this goal. Marx noted in this regard that this formula "expresses most unequivocally that the motive and the determining purpose of capitalist production is money-making. The production process appears simply as an unavoidable intermediate link, as a necessary evil for the sake of money-making. [All nations with a capitalist mode of production are therefore seized periodically by a feverish attempt to make money without the intervention of the production process.]"
Marx's analysis of the circuit of money capital under capitalist private ownership is insufficient to summarize the objectives and behavioral patterns of public capital (including state-owned capital) within the socialist market economy. The relationship between the three dimensions of the internal connotation of state-owned capital determines that its objectives constitute a multi-dimensional and layered system. First, this objective system includes both value objectives and use-value objectives. Like any other capital, state-owned capital must take profit as a value objective; simultaneously, however, it emphasizes use-value objectives. The latter refers to state-owned capital's role as a tool of national economic governance, tasked with fulfilling the requirements of national development plans and strategies—satisfying the material and cultural needs of society by developing the productive forces. Between these value and use-value objectives, the use-value objective should occupy a relatively dominant position. Second, the value objective of state-owned capital is not merely the pursuit of higher profits. Because state-owned capital embodies the unity of opposites between the collective long-term interests and the individual immediate interests of the workers, the income and employment of laborers in state-owned enterprises (SOEs) are better guaranteed. Consequently, expanding the per capita value-added (which includes both individual necessary value and public necessary value) can be regarded as another value objective of state-owned capital and incorporated into the performance evaluation targets set for enterprises by the government or state-owned asset regulatory departments.
In recent years, the enterprises supervised by China’s state-owned asset management system have established a high-quality development objective management system known as "Two Profits and Four Rates" [7], focusing on net profit, total profit, operating margin, all-employee labor productivity, R&D intensity, and the debt-to-asset ratio. At the meeting for heads of central enterprises convened by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) on January 5, 2023, the "Two Profits and Four Rates" indicator system was adjusted to the "One Profit and Five Rates" system, replacing net profit with return on equity (ROE) and operating margin with the operating cash flow ratio. Among these indicators, all-employee labor productivity is simply the per capita value-added calculated at constant prices. By the end of 2021, the total assets of enterprises supervised by the national state-owned assets system reached 259.3 trillion yuan, an increase of approximately 2.6 times compared to the end of 2012. The total profit of central enterprises stood at 2.4 trillion yuan and net profit at 1.8 trillion yuan, both nearly doubling since 2012. The operating margin was 6.8% and R&D intensity was 2.5%, increases of 1.8 and 0.8 percentage points respectively over 2012. All-employee labor productivity was 694,000 yuan per person, an 82% increase from 2012. Furthermore, investment by central enterprises in strategic emerging industries grew from 690 billion yuan in 2017 to 1.3 trillion yuan in 2021, with an average annual growth rate exceeding 20%. In fields such as next-generation information technology, new energy, and high-end equipment manufacturing, completed investment accounted for 80% of all strategic emerging industry investment. Central enterprises participated in over 3,400 Belt and Road construction projects with high quality, successfully launching a batch of major projects and landmark engineering works. As Xi Jinping has pointed out, "State-owned enterprises must be the vanguard in implementing the New Development Philosophy, the vanguard in innovation-driven development, and the vanguard in implementing major national strategies." He further noted that "Central enterprises and other state-owned enterprises must courageously shoulder heavy burdens and dare to lead the charge, striving to become the 'source' of original technologies and the 'chain leaders' of modern industrial chains." These important discourses further clarify that SOEs are a vital force for promoting high-quality development, constructing the New Development Paradigm [8], and achieving high-level self-reliance and self-strengthening in science and technology.
The multi-dimensional objectives of state-owned capital and their internal connections are the concrete manifestation of the purpose of socialist production under market economy conditions. In the traditional planned economy, the purpose of socialist production—developing production to meet the material and cultural needs of society—was primarily manifested through various use-value targets. In the socialist market economy, use-value objectives remain, but because SOEs are market entities with operational autonomy, these use-value objectives (reflecting national development plans and strategic requirements) must be integrated with value objectives. Thus, the purpose of socialist production is expressed as the organic unity of use-value and value objectives. This organic unity does not preclude conflicts or opposition between the two types of objectives in specific instances; should such cases arise, the role of the state-owned asset regulatory system must be fully utilized. By reforming and improving the corresponding regulatory and evaluation systems, the behavior of state-owned capital can be guided and standardized, ensuring the effective realization of the purpose of socialist production.
II. Understanding the Reform of State-Owned Enterprises and the State-Owned Asset Management System in the New Era
Since the 18th National Congress of the CPC, the CPC Central Committee with Comrade Xi Jinping at its core has united and led the whole Party and the people of all ethnic groups in embarking on a new journey of reform, opening up, and socialist modernization. The Third Plenary Session of the 18th CPC Central Committee, held in November 2013, made systematic arrangements for comprehensively deepening reform, initiating a new stage in the comprehensive deepening of SOE reform. Reforms in this stage primarily included: promoting the classified reform of SOEs based on functional categories; improving the state-owned asset management system with a focus on "managing capital," reforming the authorized operation system of state-owned capital, and reorganizing or establishing state-owned capital investment and operating companies; further promoting mixed-ownership reform to make it an important realization form of the basic economic system in the primary stage of socialism; and strengthening the Party’s overall leadership over SOEs by integrating Party leadership into all aspects of corporate governance, defining and implementing the legal status of Party organizations within the corporate governance structure, and ensuring the implementation of the principles, policies, and major decision-making arrangements of the Party and the state.
(1) The Functions of SOEs and Classified Reform A significant feature of comprehensively deepening SOE reform in the New Era is the effective advancement of classified reform. In 2013, the Third Plenary Session of the 18th CPC Central Committee passed the Decision of the Central Committee of the Communist Party of China on Several Major Issues Concerning Comprehensively Deepening Reform, which proposed the classified reform of SOEs. In August 2015, the CPC Central Committee and the State Council issued the Guiding Opinions on Deepening the Reform of State-Owned Enterprises, putting forward specific ideas and guidelines for classified reform. Based on the strategic positioning and development goals of state-owned capital, and considering the role, current status, and development needs of different SOEs in socioeconomic development, SOEs are divided into "commercial" and "public interest" categories. Commercial SOEs are further divided into Category I and Category II: Category I commercial SOEs are those whose main business is in industries and fields characterized by full competition; Category II commercial SOEs are those whose main business is in important industries and key fields related to national security or the lifelines of the national economy, primarily undertaking major specialized tasks. The classified reform of SOEs is of great significance: it facilitates the optimization of the layout of state-owned capital and the strategic adjustment of the state-owned economy; it aids in building a state-owned asset management system centered on "managing capital" and accelerates mixed-ownership reform; and it promotes the establishment of a modern enterprise system with Chinese characteristics. Classified reform can be seen as the prerequisite for SOE reforms, including "managing capital."
What is the basis for classifying SOEs? Why carry out such reforms, and what goals should they achieve? These questions hide profound economic theoretical issues. Regarding the basis or standards for classification, the following popular views exist: first, advocating classification according to market structure or the degree of competition, implying the existence of SOEs in competitive versus non-competitive industries (the latter including public interest enterprises); second, classifying according to whether the enterprise aims for profit, distinguishing profit-oriented SOEs from non-profit-oriented ones, where the latter's primary goal is to provide public goods and meet public needs. These methods have the following drawbacks: first, they do not fully consider the particularity of SOEs in a socialist market economy, relying more on the general experience of modern market-economy states; second, they set the profit goal against other goals, assuming an SOE can only have a single objective; third, and most importantly, they do not fully consider the unique functions shouldered by SOEs in a socialist market economy. It must be emphasized that the functions of SOEs are to a significant extent derived from the economic functions of the state in a socialist market economy; they are a component of the state's economic functions. Existing research on SOE classification has not yet formed sufficient theoretical consciousness on this issue. In a socialist market economy, SOEs are tools of national economic governance through which the state performs the following vital functions: first, providing public products and services to meet social needs; second, serving supply-side and demand-side macroeconomic management to improve the structure of the national economy and overcome market failures marked by overproduction or insufficient effective demand, thereby achieving economic stability and full employment; third, in strategic and foundational industries, constructing and leading market development through strategic investments with long-term horizons—a function that also encompasses the efforts of late-developing countries to achieve economic catch-up and maintain national economic security; and fourth, implementing the principle of distribution according to work and regulating income distribution. Although these functions differ, they are ultimately unified within the purpose of socialist production. This purpose means developing production to satisfy society's material and cultural needs. Realizing this purpose is the fundamental tenet of both national economic governance and socialist SOEs, and it reflects the essential difference between the functions of socialist SOEs and capitalist SOEs.
(2) "Managing Capital" and the Reform of the State-Owned Asset Management System In 2013, the Third Plenary Session of the 18th CPC Central Committee proposed improving the state-owned asset management system, strengthening regulation with a focus on "managing capital," reforming the authorized operation system, and establishing state-owned capital investment and operating companies. These companies exercise shareholder duties in the enterprises where they hold stakes, protect the legal rights of shareholders, and bear limited liability based on their capital contribution. In accordance with the principle of aligning responsibility with authority, they effectively undertake responsibilities such as optimizing the layout of state-owned capital, enhancing the efficiency of capital operations, and realizing the preservation and appreciation of state-owned assets.
The so-called "managing capital" (guǎn zīběn) is contrasted with "managing enterprises" (guǎn qǐyè). It means that government agencies responsible for supervising state assets should further reduce administrative interference in the operations of SOEs, shifting their direct regulatory focus to the value-form of state-owned financial capital that can be operated in capital markets. "Managing capital" applies to the aforementioned Category I commercial enterprises and some Category II commercial enterprises. Its essence lies in utilizing the laws of modern financial capital operations to reform and improve the state-owned asset regulatory system, advance SOE reform, and make the state-owned economy bigger, stronger, and better.
From the perspective of political economy, financial capital is a special form resulting from the fusion and growth of the capital of financial institutions and functional capital (industrial, commercial, and platform capital, etc.). In the relationship between these two types of capital, the capital of financial institutions occupies a superior or dominant position. The rise of financial capital takes joint-stock companies and capital markets as its prerequisite. Stocks are not only certificates of entitlement to a portion of profit but also certificates of capital ownership; stock trading is the trading of capital as a commodity—the commodification of capital—which gives rise to capital markets. By investing in capital markets, financial institution capital is able to merge with functional capital. The primary characteristic of this fusion is that financial institution capital treats functional capital as a type of financial asset, incorporating the latter into its own circuit of M-M'. Thus, financial capital represents both a power relationship dominating social production and an economic process.
Managing state-owned assets through "managing capital" helps achieve the following goals: first, promoting the rational flow of state-owned capital, optimizing its investment direction, and driving the adjustment of the state-owned economy's layout and structure to better serve national strategies; second, reducing administrative interference in enterprise operations, realizing the separation of capital ownership and enterprise management rights, and giving full play to the decisive role of the market in resource allocation; third, promoting the development of mixed ownership, as state-owned capital can be invested in both state-controlled enterprises and enterprises controlled by non-public capital, thereby facilitating cooperation between the state-owned and non-state-owned economies and consolidating the basic economic system of socialism.
It must be pointed out that while we draw upon and utilize the laws of modern finance capital operations to promote the reform of state-owned asset management through "managing capital," we must simultaneously guard against and resolve the new contradictions and problems this may entail. One of the most prominent issues in the operation of finance capital is that the circuit of functional capital, such as industrial capital ($M—C...P...C'—M'$), is subsumed within the circuit of finance capital ($M—M'$), where the former becomes a mere means for the latter. In such circumstances, driven by the need to achieve returns in capital markets, finance capital may focus on increasing the short-term profitability of functional capital at the expense of its capacity for long-term collective learning and innovation, which is detrimental to the realization of national strategies and socialist production goals. Consequently, it is necessary to guide and regulate the behavior and target models of state-owned finance capital to ensure it effectively serves the objectives set forth by national development plans and strategies.
(3) The General Governance Structure of the State-Owned Economy State-owned capital in the socialist market economy encompasses three dimensions of the relations of production, the most primary of which is the relationship between the state and the enterprise. An investigation into the state-enterprise relationship within state-owned capital cannot focus solely on individual enterprises or individual units of capital; rather, it must view this as a systemic, "totality" relationship covering the state-owned economy as a whole. The concrete realization of this totality relationship defines the general governance structure of the state-owned economy. The governance structures of individual enterprises take this general governance structure as their premise and simultaneously constitute its component parts.
At the current stage, the general governance structure of the state-owned economy, as the concrete realization of the state-enterprise relationship, consists of the following three levels:
First is the top-level governance of state-owned assets. As the owner of state-owned assets, the state represents the interests of the whole people. It guides and regulates the behavior of state-owned enterprises (SOEs) in terms of developmental direction and strategy and coordinates the distribution and use of state-owned capital returns, thereby implementing national strategy and achieving socialist production goals. This power of top-level governance held by the state is predicated on the perfection of the political structure of people's democracy and the democratization of basic national economic decision-making. In our country, people's democracy is manifested as whole-process people's democracy. Government agencies, such as state-owned asset supervision and administration institutions, serve as the "personified" representatives of state ownership; they fully perform the duties of the contributor [9] and the responsibilities of state-owned asset supervision, while also bearing responsibility for Party building work within SOEs. The national budget system is a crucial link in the top-level governance of state-owned assets. Within the national fiscal budget system, the state-owned capital operations budget—the revenue and expenditure budget that arranges the spending of state-owned capital returns—is one of the four types of national budgets.
Second is the authorized operation of state-owned assets. The government and state-owned asset regulatory departments, as representatives of state ownership, do not directly engage in the management of state-owned assets, nor do they directly bear the responsibility for maintaining and increasing the value of state-owned capital. To resolve the contradiction between unified state regulation and the decentralized decision-making and operation of enterprises, China has established a system of authorized operation for state-owned assets. This system entrusts the operation of state-owned assets to specific state-owned asset operating entities. The latter act as agents for the contributor's functions within the scope of state-authorized assets and directly assume responsibility for maintaining and increasing their value. These special operating entities include state-owned enterprise groups, state-owned capital investment companies, and state-owned capital operating companies; they are the direct objects of government or regulatory agency supervision, assessment, and evaluation. State-owned capital investment and operating companies occupy an intermediate level in the general governance structure: on one hand, they provide a relative separation between the government and the SOEs subordinate to these two types of companies, meaning the government, in principle, cannot directly interfere in the production and operations of these enterprises; on the other hand, they serve as the intermediary linking the government and enterprises, acting as the key link through which national plans and development strategies—which embody socialist production goals—are transmitted to the enterprises. Thus, they occupy a position of vital importance.
Third is the governance of state-owned capital investment companies, operating companies, SOE groups, and their subsidiaries. SOEs are the operating subjects of state-owned assets. Whether the state-owned economy is efficient and whether it can fulfill its specific techno-economic and social functions is closely related to the governance structure of the SOEs acting as these operating subjects. The so-called enterprise governance structure refers to various institutional arrangements related to the internal distribution of power, responsibility, and interests. According to the requirements of the modern SOE system with Chinese characteristics, these investment companies, operating companies, and enterprise groups must standardize their corporate governance structures and establish sound mechanisms for decision-making, execution, and supervision characterized by the alignment of rights and responsibilities, coordinated operations, and effective checks and balances. They must fully leverage the leading role of the Party organization, the decision-making role of the board of directors, and the managerial role of the executive level.
III. How to Understand the Principal Status and Role of State-Owned Capital and SOEs
(1) How to Judge the Principal Status of State-Owned Capital and SOEs In a socialist market economy, whether the state-owned economy occupies the principal status [10] must be judged based on the entire economic structure, rather than on localized indicator systems. In the Manifesto of the Communist Party, Marx and Engels proposed measures to be taken after the proletariat seizes power to transform ownership and bourgeois relations of production: "1. Abolition of property in land and application of all rents of land to public purposes... 5. Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly. 6. Centralization of the means of communication and transport in the hands of the State. 7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan." Here, Marx and Engels expounded the scope that socialist public ownership should cover: first, the state ownership of land (which in economics also encompasses appended natural resources); second, the state ownership of banks or major financial institutions (as finance capital can exert systemic influence on the entire economy, the nationalization of the financial sector is of exceptional significance); and third, the state ownership of strategic sectors affecting the national economy and people's livelihood (Marx and Engels specifically mentioned transport).
Turning to China's reality, based on data from the Fourth National Economic Census Yearbook, in 2018, the total assets of state-controlled enterprises nationwide amounted to 474.7 trillion yuan, accounting for 56.3% of the total corporate assets of 859.6 trillion yuan. Within this, the assets of non-financial state-controlled enterprises were 219.8 trillion yuan, or 41% of the total; financial state-controlled enterprises held 264.3 trillion yuan in assets, accounting for 82% of the total financial sector assets of 321.8 trillion yuan. Referencing the aforementioned criteria, the state-owned economy undoubtedly maintains its principal status within China's socialist market economy.
SOEs and state-owned capital are the result of the state's resource allocation on a society-wide scale—that is, large-scale concentrated investment. Most of these enterprises are situated in industries or fields vital to the national economy and people's livelihood. Within the network of the social division of labor, they act as "nodes" [11], influencing or even constraining the production and operations of enterprises under other forms of ownership within the "mesh" of the net, thereby transmitting the tasks prescribed by national plans and strategies throughout the national economy. This characteristic of SOEs and state-owned capital as tools of national economic governance helps shape the different ownership economies, which are linked via market ties, into an intrinsically connected and coordinately developing organic whole.
The socialist market economy is a market economy in which large enterprises play a dominant role; within the cluster of large enterprises, SOEs and state-owned capital occupy a clear position of advantage. According to the 2022 Fortune Global 500 rankings, including companies from Taiwan Province, a total of 145 Chinese companies made the list, 99 of which were SOEs. These large enterprises include not only industrial firms but also financial entities such as banks and insurance companies, as well as transport and telecommunications firms. The superior position of the state-owned economy within the domestic large-enterprise cluster is the fundamental basis for our judgment regarding its leading role.
(2) How to Evaluate the Economic Efficiency of State-Owned Capital and SOEs At the turn of the 21st century, the view that the state-owned economy lacked efficiency was once prevalent. This view is one-sided. First, it adopts a single-factor perspective, simply blaming ownership for the performance decline of SOEs during a specific historical period, rather than seeking causes from multiple angles such as lagging institutional reform or industrial structural adjustment. Second, this view lacks a long-term historical perspective. The relative decline in the efficiency of the state-owned economy occurred mainly during the first 20 years of Reform and Opening-up, particularly in the mid-to-late 1990s. Facing the rapid development of the non-public economy during this period, the state-owned economy suddenly encountered powerful pressure from market competition, exposing issues such as its own lagging reform and maladapted management methods. However, with the gradual deepening of SOE reform, the situation began to shift in the 21st century. Not only did SOE profit rates grow, but if we further examine productivity (measured as per capita value-added at constant prices), the performance of SOEs has outperformed non-state enterprises.
Third, this view assumes that SOEs and non-public enterprises follow the same behavior and target models, and thus uses the same indicators (primarily profit indicators) to compare their efficiency. While such an approach has reference value, it ignores the unique nature of SOEs as tools of national economic governance. When judging their efficiency, one must consider not only the rationality of resource allocation at the micro level but also the contribution of the state-owned economy to the rationality of resource allocation for the entire economy—that is, social (or macro) economic rationality. As noted earlier, as tools of national economic governance, SOEs and state-owned capital undertake a series of special functions, including overcoming market failure, stabilizing economic cycles, achieving economic catch-up, promoting technological progress and diffusion, and safeguarding national economic security. By fulfilling these functions, SOEs and state-owned capital enhance the efficiency of the entire social economy.
(3) Consistently Upholding Party Leadership to Make State-Owned Capital and SOEs Stronger, Better, and Bigger In the New Era, to make state-owned capital and SOEs stronger, better, and bigger, we must consistently uphold the leadership of the Party. Xi Jinping emphasized: "Upholding the Party's leadership over state-owned enterprises is a major political principle that must be consistently maintained; establishing a modern enterprise system is the direction of state-owned enterprise reform, which must also be consistently maintained." In the reform of SOEs and the state-owned asset management system, we must unify the strengthening of Party leadership with the perfection of the general governance structure of the state-owned economy. In particular, Party leadership must be integrated into all links of corporate governance, and the Party organization must be "embedded" [12] into the corporate governance structure. This requires clarifying and implementing the statutory status of the Party organization within the corporate legal person governance structure, fully exerting the Party organization's leading role, and ensuring the implementation of the principles, policies, and major decisions of the Party and the state. The organic integration of Party leadership and corporate governance structures is a vital feature of the modern SOE system with Chinese characteristics and an important institutional foundation for the Party's leadership over national economic governance.
Xi Jinping pointed out that "state-owned enterprises are an important material and political foundation for socialism with Chinese characteristics, and a key pillar and reliable force for the Party’s governance and national rejuvenation; they must be made stronger, better, and bigger." The report to the 20th CPC National Congress further noted: "High-quality development is the primary task in building a modern socialist country in all respects. Development is the Party’s top priority in governing and rejuvenating the country. Without a solid material and technological foundation, it is impossible to build a great modern socialist country in all respects." To this end, we must "build a high-level socialist market economy. We will persist in and improve the basic socialist economic system, unswervingly consolidate and develop the public sector, and unswervingly encourage, support, and guide the development of the non-public sector. We will give full play to the decisive role of the market in resource allocation and better play the role of the government. We will deepen the reform of state-owned assets and SOEs, accelerate the optimization of the layout and structural adjustment of the state-owned economy, promote the strengthening, improvement, and expansion of state-owned capital and SOEs, and enhance the core competitiveness of enterprises." We firmly believe that under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, state-owned capital and SOEs will surely play their vital role as "pillars" and "vanguards" in the new journey of advancing high-quality development and achieving Chinese-path modernization.