The answer probably lies in new public infrastructure challenges－the kind that the advanced economies are already facing－including issues related to information security and competition. If SOEs shift their business models to provide platform and regulatory services at low cost, taking advantage of economies of scale, they can help, for instance, to manage the use of information by the large private platforms.

State-owned banks, for their part, might be able to provide multi-tiered financing for the millions of small and medium-sized enterprises that are eager to shape and enrich the new economy.

Finally, SOEs can enter into public-private partnerships with local businesses to handle the construction and management of transport and traffic systems, urban drainage, and bodies responsible for food safety, pollution control and public security.

The good news is that the central as well as local governments have plenty of assets with real value, amounting to more than 140 percent of GDP. Those assets can help to smooth the transition to this new SOE business model, such as by plugging the holes in the social security system and addressing legacy liabilities, including those arising from past corruption, non-performing loans, and inadequate provision of public goods and services.

China's SOEs are at a crossroad. Given the high stakes of reform, the country's leaders are right to take some time to assess their options. Whichever route they take is sure to be challenging. But those challenges pale in comparison to the problems that would arise from sticking to the old SOE model.

Andrew Sheng is distinguished fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, and Xiao Geng, director of the IFF Institute, is a professor at the University of Hong Kong and a fellow at its Asia Global Institute.

Project Syndicate