The State Advances as the Private Sector Advances: How Does the Development of the Non-state Economy Affect the Performance of Local State-owned Enterprises?

Since the Reform and Opening-up, the non-state economy has injected new momentum into China’s economy with its flexibility and innovation ability. Rooted in the traditional perception of the zero-sum competition between the state and non-state sectors, some views suggest that the rapid development of the non-state economy may exert challenge to the state-owned economy. How the development of the non-state economy affects the performance of local state-owned enterprises (SOEs) has been a critical issue worthy of in-depth study. This paper systematically examines the impact of non-state economic development on the performance of local SOEs and its underlying mechanisms. The findings indicate that: (1) The development of the non-state economy significantly and positively influences the performance of local SOEs; (2) The positive impacts is potentially realized through mechanisms such as innovation spillovers and the flow of advantageous factors; (3) The positive effect of non-state economic development on the performance of local SOEs is more pronounced in high-tech industries and commercial SOEs; (4) The development of the non-state economy helps enhance the financial stability of local SOEs and reduces their probability of falling into financial distress. The paper proposes the following recommendations: optimize the policy environment to encourage the development of the non-state economy; deepen mixed-ownership reforms to improve the ownership structure of SOEs; and strengthen strategic cooperation between non-state enterprises and SOEs to foster their symbiotic and mutually beneficial development, thereby providing robust support for China’s sustained and high-quality economic growth.