China's State-owned enterprises (SOEs) should be on a reform path to become more market-oriented.

The business model used by China's SOEs differs greatly from those used by multinational corporations or privately-owned companies. There are many institutions, such as schools and hospitals, under the management of China's SOEs. These affiliated institutions, which are meant to ensure the public good, are also an enormous financial drag for SOEs. If SOEs can transfer their responsibilities for managing these institutions, their operating performance would improve dramatically.

At the same time, SOEs should be encouraged to seek out investors and pursue public listings in domestic and foreign markets. In fact, some central enterprises which have tested such reforms in recent years have benefited greatly from them.

Efficiency is also a problem SOEs should confront. Many SOEs are currently bogged down by overcapacity and are searching for new areas in which to develop.

The author is Wang Yong, head of the State-owned Assets Supervision and Administration Commission.