China Takes On State-Owned Firms

A little-noticed statement last week could portend the next big battle in China's effort to control its debt. On Aug. 2, the finance ministry issued directives that state-owned companies improve returns, control risks and make sure that "projects are financially viable before decisions are made."

That the government feels the need to spell out such obvious goals tells you the depth of the problem. China's sprawling array of state-owned enterprises -- with millions of employees across all sectors of the economy -- may be the biggest obstacle to its broader effort at financial reform. Previous attempts to rein them in have largely failed. But if the government has any hope of real deleveraging, this time will have to be different.