What is an SOE? What is its importance in China?

What will be an ideal response?

The SOE is a unique entity that has represented the single most important type of company in China in terms of employment, as well as in problems for the country. The SOEs are not the future of the Chinese economy, however, nor have they been responsible for China's growth in the reform era. Economic growth has been fueled on the demand side by both domestic and export demand and on the supply side by foreign direct investment and local companies formed by entrepreneurs and local governments. Strong economic growth has been essential for China, since growth absorbed the unemployed as SOEs were forced to improve their efficiency. China has privatized many of the SOEs, but in 2008 there were still 154,000 SOEs. The SOEs held 44 percent of the assets in the industrial sector. With the consolidation of SOEs their average size has increased dramatically, in part because of continued government support and funding. The labor policies of the SOEs were the heart of the socialist economic system and gave SOEs a distinctive dual purpose. In addition to production, SOEs provided virtually all the major social services required by employees, their families, and retirees, including education, health care, and housing. Moreover, because many goods such as housing and food staples were rationed, workers could only receive necessities through enterprise-issued coupons. This set of services essentially served as China's social welfare system and became known as the "iron rice bowl." A major constraint on the Chinese government's willingness to take strong measures to reform SOEs has been the lack of social security and welfare systems for its citizens.