Atrophy of Chinese State-Owned Enterprises: Loss of Talents Seems Inevitable

Could the absence of one person lag China’s progress to reach the moon? According to a story posted by Zhang Xiaoping, he shoulders a crucial role for China’s moon project and his departure could drag behind the country’s plan to reach the moon. Yet such a person still cannot make ends meet.

According to his story, Zhang works for a state-owned enterprise as an entry-level aeronautic and makes only 120,000 RMB (about $17,470) a year. By contrast, Zhang said that he could accept an offer from a private corporation that pays him an annual salary of 1 million RMB. Zhang believes that his contribution and compensation have been very mismatched for long.

Moreover, Zhang further accused the lack of promotion opportunities in Chinese state-owned enterprises. In his post, Zhang believes he doesn’t have many opportunities to climb up the ladder and make real contributions in his field of expertise, which has led to an absence of sense of achievement.

The income gap between state enterprises and private firms and the lack of sense of achievement made Zhang decide to leave his job, according to Zhang’s statement.

Zhang’s story went viral online. Readers liked, commented and shared Zhang’s story, as many had similar tense feelings as Zhang does. For many, Zhang’s issue is like the tip of an iceberg, revealing the bureaucracy and rigidities of human resource strategies of China’s state-owned enterprises.

Although China has opened up its economy for four decades, the Chinese market cannot yet be considered a market economy in its true sense. Chinese state-owned enterprises still have very significant roles to play.

Landspace website
Landspace website

According to a 2017 The Economist report, Chinese state-owned enterprises are not retreating from the market, but advancing. Furthermore, state-owned enterprises are now receiving huge support from the Chinese government as Chinese president Xi Jinping vocally supported the state-owned enterprises in their dominant roles and positions in China in his recent public remarkss.

For the nation’s leader and government officials, Chinese state-owned enterprises are good showcases of the country’s developments and economic progresses. State-owned enterprises take up most of the tasks in China’s oversea initiatives such as the Belt and Road projects and perform various foreign aids to other developing countries.

However, for individuals working and living in China, the work of state-owned enterprises may not be very impressive. In a 2016 Financial Times article, Chinese state-owned enterprises are referred as “zombies”.State-owned enterprises are often seen as monopolies who act as an uncompetitive, outdated organization with bureaucratic structures, but not a corporation that serves to benefit taxpayers or clients, as well as their employees.

Working for a Chinese state-owned enterprise is often one-way. For many, the only chance to jump in is through graduate recruitment programs. However, if one decides to leave, one would be very unlikely to be able to come back, which makes those who have left a permanent “net loss”.

Then there’s a dilemma.

Salaries in state-owned enterprises cannot compare with that of private firms. Yet employees might receive better welfare or even financial advantages and easier access to key personal assets, such as buying a house at a very low price or free commodities. However, after President Xi Jinping started his massive campaign to combat corruptions, such so-called welfare dies out.

One has to acknowledge that working for a private enterprise is still imperfect, however. Lack of protection for labor rights and incompetence of governments to settle employment disputes can introduce more risks to working with private enterprises. Higher income, on the other hand, has always been accompanied by extra working hours and more pressure, as private enterprises face more fierce market competition.

One has to weigh between the two. Clearly, there is no right answer to this question. It all depends on the individual’s preference and offers on the table.

Human resource is often the most important asset for a company. Institutional barriers in hiring and human resource management, however, limits the abilities to grow and profit of state-owned enterprises. Rigid recruitment policies is often a result of bureaucratic systems and political agendas assigned to those state-owned enterprises.

Pascal Lamy, the former head of the World Trade Organisation, says China has done a great job of opening its economy, but more work needs to be done. Photo: Xinhua Eric Ng
Pascal Lamy, the former head of the World Trade Organisation, says China has done a great job of opening its economy, but more work needs to be done. Photo: Xinhua Eric Ng

Pascal Lamy, former Director General of the World Trade Organization, said earlier that China needs to decrease the influence of its state-owned enterprises in order to secure a successful economic reform. Sure it is bizarre to see that these enterprises fail to show interests in attracting more experienced professionals in the job market but only focus on new grads. Neither do they make sufficient efforts to retain their talents.

But it is certainly not the doom of the state-owned enterprises. As they do control key resources and have incomparable advantages in many sectors, state-owned enterprises will be attractive if they implement effective reforms to address the complaints filed by their employees, especially in terms of human resource management.

The only question is, are they be willing to make the changes, and how effective that would be?