Corporate reform has been looming heavily over China's state-owned enterprises (SOEs) for quite some time now, and investors and bankers are hoping that Beijing will finally give in to the demands of the times and begin the inevitable transition toward a meaningful privatization of state companies this year, according to analysts.

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Most experts agree that China's state-owned companies have -- over the past years -- proved to be the biggest, most spoiled dawdlers in the country's economy. They enjoy a host of privileges, including preferential policies to protect them against mismanagement and adverse economic situations.  They are also allowed priority on loans, often at lower rates. 

The Economist has estimated that the returns earned by Chinese SOEs in 2014 were just half of those of their peers in the private sector.  Yet, as a whole, their hulking presence in China's economy has skewed the scales so much that -- despite their rather pronounced inefficiencies -- SOEs account for around 40 percent of the national economic output. 

The Chinese government operates around 150,000 corporate enterprises.  Collectively, the SOEs control $17 trillion in assets and employ an estimated 35 million workers, reports the Financial Times.

With uncertainty pervading the global markets and slower economic growth waiting in the wings, the financial position of China's SOEs has begun to attract attention. 

Citing figures from Standard and Poor's Financial Services (S&P), the International Monetary Fund (IMF) said in a recent report that China's corporate sector has become the world's largest debt borrower, surpassing the US for more than two years running.  Over time, an increasing share of debt and liabilities are attributed to a few firms with high leverage ratios, according to the IMF.  China's private sector companies have scaled back their leverage ratio since the financial crisis, but the leverage of China's SOEs in real estate, construction, mining and utilities have seen a considerable increase.  The IMF says this makes some of China's state-run companies sensitive to any significant rise in interest rates.

"Central SOEs would experience the largest rise in debt at risk with an increase in interest rates," said the IMF report.

Sweeping changes are necessary, analysts say, to make the ungainly sector viable again.  Some, like the IMF's mission chief for China, Markus Rodlauer, say the Chinese economy stands to benefit from a leveling of the playing field between private corporations and state companies. 

"The challenge now is to take the next steps to a more open and market-based economy," Rodlauer told the IMF Survey Magazine recently.

But past reform plans have been stifled -- or else watered down -- by entrenched interests, according to the Financial Times.  Then there have also been indications of a disagreement among the country's top policymakers as to how China should manage its role as a major player in a liberalized global economy.  Shares climbed some months ago in anticipation of a government plan to merge SOEs into more efficient corporate synergies.  Six weeks later, however, the Communist party decreed that it was imperative that the party maintain control to ensure the socialist direction of the sector, says the Financial Times.   

If Beijing does decide to push through with its long overdue SOE reform agenda this year, then it will be done in manageable increments, say analysts. The government has implied its willingness to see to a more level corporate playing field, announcing recently a 2016 economic plan that highlighted, among others, the need for reforms to ensure greater corporate efficiency.  Given previous reversals, it is not surprising that some observers have regarded this official pronouncement with a measure misgiving.  But if the massive military reforms of earlier this week are any indication of what lies in store for China's struggling SOEs, then there are those who would say that bankers and investors have a good enough reason to hold out hope for the country's ailing state-owned corporations.

TagsChina SOEs, SOEs, state-owned-enterprises, China State-Owned Companies Reform