State-owned enterprises (SOEs) have been the pillar of the Chinese economy for decades. In 2013, they pulled in a combined 46 trillion yuan ($7.4 trillion) in revenue, up 10.1 percent over the previous year and representing more than 80 percent of GDP growth.
But deep-seated risks loom below the surface. Take Aluminum Corporation of China - also known as Chalco - as an example. Last year, the pacesetter in China's aluminum industry was forced to sell a raft of assets to reverse from an 8.2 billion yuan loss in 2012.
Blind expansion and excessive management costs represent the main causes of Chalco's difficulties. Expensive and unnecessary capacity upgrades drove the company deeply into debt. Moreover, despite its tattered balance sheet, Chalco paid out 5.1 billion yuan in wages in 2012.
Policymakers must continue with SOE reforms, including those which promote mixed ownership, property rights and transparent human resource management. Conflicts of interest in terms of recruitment and salary distribution will only hamper reforms. At the same time, State monopolies must be broken to promote competition.
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