Abstract
A new round of State-Owned Enterprise (hereinafter “SOE”) reform contains the clear purpose of integrating SOEs into the market while maintaining their strength in contributing to the economic development of China. This raises the question of how the reform will utilize relevant legal instruments and what changes in legal arrangements can be expected. Regarding the internal market, the reform may deeply incorporate SOEs into the market and devise the ways in which the state manages SOEs to be more market-oriented. As for the global market, the changes in the domestic market can further coordinate China’s state sector with the existing international economic order.

I. Introduction

It is now more than three-and-a-half decades since China launched its ambitious program of undertaking economic reform. Central to China’s economic reform has consistently been the reform of state-owned enterprises (“SOEs”). Undeniably, SOEs have contributed remarkably to China’s economic development, as they have been able to pursue long-term goals in line with public interests. However, SOEs must be subject to progressive reforms in order to overcome their inherent weakness and meet the requirements of constantly changing economic and social surroundings. After entering the second decade of the twenty-first Century, SOEs are currently faced with new challenges, highlighting the urgency of a new round of reform.

From a purely economic perspective, the major economic concern of the new round of reform is the economic efficiency and the capacity of innovation of SOEs. Since China first launched its economic reform in the late 1970s, the economic efficiency of SOEs has increasingly improved. However, according to various economic indicators, SOEs are still characterized by their underperformance in productivity and innovation compared with some non-state actors. While the concern of the competitiveness of SOEs is mainly purposed at a micro level, the demands of reform can also be observed at a macro level. In the current stage of economic development, the optimization of the structure of national economy is recognized as being of vital importance to the further development of the Chinese economy. Besides, the unoptimistic circumstances of the external market, namely the global economic recession since 2008, further dictates the urgency of China to find a solution to existing and potential difficulties.

Besides the aforementioned economic incentives, the necessity of deepened reform is augmented by several regulatory and legal concerns. Because China’s economic reform has been policy-oriented, laws and regulations have been introduced under certain policies to meet specific needs. Therefore, rules governing SOEs and other market entities are rarely codified but are generally separately stipulated in different laws and regulations. This calls for coordinating and unifying laws and regulations. From the angle of the outside world, successful reform may help Chinese SOEs and Chinese economy to be further coherent with the international economic order. For example, because of the extensive state sectors, China and Chinese companies have frequently been subject to contingent measures under the WTO, including anti-dumping duties and countervailing duties. In addition, further SOE reform is also urgent because of social and political reasons, such as the necessity of fighting against corruption and the abuse of managerial power.

Several important documents have been issued under such historical circumstances. In September 2015, the Central Committee of the Communist Party of China, along with the State Council, released a long-awaited literature entitled Guideline for the Deepened Reform of State-Owned Enterprises (“the Guideline”). The Guideline proposes a series of relatively comprehensive initiatives for further invigorating Chinese state-owned enterprises, integrating them into the market economy, whilst striving to maintain the advantage of SOEs. Following the release of the Guideline, the Several Opinions Concerning the Reform and Completion of State-Owned Assets Administrative System was issued by the State Council in November 2015. The Thirteenth Five-Year Guideline, which was passed by the Fourth Session of the Twelfth National People's Congress in March 2016, further confirmed the initiatives that were formulated in previous documents.

Both the mass media and scholars are concerned with whether the new round of SOE reform will mark a significant change in China’s economic development, but mainly focus on purely economic issues. However, the purposes of SOE reform cannot be achieved absent certain legal mechanisms. The question of how the reform will utilize relevant legal instruments, and what changes in legal arrangements can be expected is thereby raised.

This paper intends to answer this question through observing both the internal and the external markets. It respectively explores the impacts on the legal framework of China’s internal market and the legal implications of China’s participation in the global market. The paper argues that, regarding the internal market, the newly proposed reform has the potential to deeply incorporate SOEs into the market and make the ways in which the state manages SOEs to be more market-oriented. In terms of China’s participation in the global market, the changes in the domestic market can help protect SOE competitors and the Chinese government from being questioned and challenged by other countries.