China’s State Economy Restructuring Reform: Grasping the Large and Releasing the Small?

Amid China’s transition to a market economy, the persistence and consolidation of a massive State sector remain a defining feature of its political-economic model. This chapter asks whether the latest round of State economy reforms, framed as ‘Grasp the Large and Release the Small’, signals a retreat from State ownership or a strategic recalibration of it. It investigates how these reforms restructure the distribution of SOEs across critical and non-critical sectors, and how this evolving configuration shapes Chinese SOEs’ role in outbound investment. The analysis shows that China has not pursued genuine privatisation at any stage of SOE reforms. Instead, it has advanced a dual-track strategy: reinforcing SOE monopolies in industries tied to national security, while withdrawing State ownership from peripheral sectors through managed competition, asset consolidation, and internal reorganisation. This approach strengthens centralised control and enhances the global competitiveness of a select group of national champions. By clarifying the ideological, institutional, and policy foundations of China’s State economy, the chapter reveals how these reforms recalibrate the structure and motivation of SOE-led outbound investment. It provides a critical basis for understanding why host States view such investments as both commercially significant and strategically sensitive in international legal governance.