The author is an economist specializing in the study of China. What fo
llows is a personal view of the circumstances of state industrial ente
rprises that focuses on two key aspects of the present situation: low
returns to capital and the process of building market-supporting insti
tutions. The paper includes an initial overview, brief analysis of the
two key issues, and a series of possible policy choices for raising r
eturns to capital and accelerating the development of market-supportin
g institutions.