Gao Shangquan, vice-minister of the State Commission for Restructuring the Economic Systems, said that compared with foreign-funded enterprises, the strength of efficient state-owned enterprise does not lie in ownership but in operating methods. Quite a few state-owned enterprises show examples of vigor, such as the Shoudu Iron and Steel Corp. and the Shanghai No.2 Textile Machine Plant. This indicates that large and medium sized enterprises can be invigorated while insisting on public ownership.

Comparing general conditions of state-owned enterprises with those of others, however, we can uncover some problems. For instance, rural and foreign-funded enterprises in China are at full mettle, with clear property right relations. They are independent economic entities, responsible for business risks and profits and losses. Using flexible management methods, township enterprises can easily implement useful business decisions and eliminate those practices found to be detrimental. Over the past two years, over 600,000 (3 percent of the total) rural enterprises have closed down ; and 3 million farmer-turned workers returned to their villages to do farm work or become self-employed. This constant promotion of practices advantageous to business and the elimination of practices which prove detrimental has optimized enterprise structure and boosted production as well. State-owned enterprises, however, lack such flexibility. Even when enterprises suffer losses, workers and staff members still receive wages and bonuses. Moreover, lack of profits does not deter factory directors and managers from travelling on official business and staying at luxury hotels.

Many foreign publicly owned enterprises also have done a good job, proof that not only privately owned enterprises can be efficient and profitable. The World Bank once issued a report entitled Decisive Factors in the Success of publicly Owned Industrial Enterprise. The report quoted 500 of the largest US companies listed by the Fortune magazine, 71 of which are publicly owned industrial enterprises. The sales volume of these publicly owned enterprises accounted for 19 percent of the 500 companies' total sales volume and their total value of assets and total employees made up 21 percent and 21.4 percent, respectively, of the total. The report holds that the main factors behind their success include ; "a fiercely competitive market environment at home and abroad"; "decision-making power and responsibility for their own financial affairs" ; "power to determine their own management" ; and right to determine enterprises strategy and management."

The foregoing proves that publicly owned enterprises can be profitable so long as the operating mechanisms are favourable and that without the right to manage their own affairs, enterprises cannot assume sole responsibility for their own affairs but do not assume responsibility for their own profits and losses.

Gao considered that this does not mean that all state-owned enterprises will complete their change in operating methods simultaneously. Any change must be in accordance with the current situation of different enterprises. Different guidance will be given to different types of enterprises in stages in order to attain specified goals according to different grades.

 - According to Gao, the change in management mechanisms in groups and stages can roughly divided into the following five types of enterprises :

 - State-owned enterprises in special economic and development zones, and shareholding enterprises whose shares are held by legally entitled persons, may be considered as the first group to complete the transformation of management mechanisms.

 - State-owned enterprises for which production and business activities are basically geared to the market may be second. 

 - State-owned enterprises for which production and business activities have not yet been geared to the market, but which have a balanced supply and demand for products, may be third.

 - A small number of key state enterprises with important, mandatory task and operating methods which cannot be changed quickly, may be fourth.

 - Enterprises of a monopoly nature and enterprises with restricted resources may not manage their own profits and losses. However, they should still be geared to the market and reform their managerial system and operational forms.