China’s State-Owned Enterprises and Competitive Neutrality

The growing size of Chinese state-owned enterprises (SOEs) and closer global linkages mean whether China can achieve competitive neutrality in creating a level-playing field is key for the world. Our results support the view that China’s competitive environment is poor with conditions tending to favour SOEs with lower interest burden and tax rates in most sectors. The lack of competitive neutrality in China has significant consequences for global firms at home, especially as Chinese firms operating in the ICT, industrial and auto sectors earn a relatively high proportion of their revenue overseas but operate in a subsidised environment in their domestic market. A working measure of competitive neutrality applied in China could help level the playing field for foreign companies in China and even be introduced in a potential reform of the World Trade Organization.