State-owned enterprises adapt in a changing world

Most of China's largest state owned enterprises or SOEs were established in the 1950s and 1960s. They cover core industries like energy, aviation, telecom and construction; each playing a pivotal role in the nation's development. Decades after the reform and restructuring of these SOEs, some of these firms have managed to claw out from the depths of financial doom to join the Fortune 500 list of companies.

Innovating with products while being aggressive in business strategy. Not an easy balancing act for a company. Leave alone a government owned one struggling to keep up with the market.

But for state-owned NHI Group with an annual turnover exceeding 10 billion Yuan, merger and acquisition in a short period of just 7 years was the way to achieve that balance. And doing so, saved the business.

Cao Baichao, Workshop Supervisor, Northern Heavy Industries Group Co.Ltd, said, "The most difficult time was before the merger of Shenyang Heavy Machinery Group and Shenyang Mining Machinery Group. Both were struggling in the market at the time. The revitalization of the old industrial base pushed our company from being more dependent on government support to becoming more market-oriented."

During the transition, the country's top leaders had been frequent guests and gave advice on tapping the company's potential and adapting to the new market environment. The importance of these state owned enterprises or SOEs cannot be overstated. They exist, not for profit, but as a backbone of the nation's economy. It was the mission they were created for that was important.

Su Pengcheng, Senior Engineer, Northern Heavy Industries Group Co.Ltd, said, "Take one of our products as an example: the tunnel boring machine. The core technology wasn't in our hands for many years. So we had to rely on foreign firms to do the job. Some of the country's sensitive and confidential geographical information could be leaked during such a project. That's why as a stated-own company, we had to protect the state's interests and develop these products on our own."

When these SOEs were first established, the entire nation's economy relied on them. It was all good for a planned economy; but when the market grew from national to international, their poor performance and meager social contribution didn't match the resources they consumed. Compared to private companies, the SOEs shouldered a lot more.

Su Pengcheng, Senior Engineer, Northern Heavy Industries Group Co.Ltd, said, "Since the central government has already poured huge amount of money into the SOEs for acquiring assets and carrying out research and development, it doesn't make sense to re-invest these efforts into the private sector. So, just like any other kind of investment, what counts are the actual returns."

And in today's fast growing economy, the share in the global market is there for these SOEs to grab.

The country's economic rise began in the 1980s when the central government started dismantling inefficient state-owned companies and expanding the private sector, allowing for greater scope of entrepreneurship. Now the pendulum has begun to swing the other way: many of China's SOEs have grown into giants. The reform and restructuring was once painful, but it has pushed these companies to stand out in the global market and the days of being over-reliant on government help are long gone.