Since 1978, with the deepening of China's rural economic system reform, the reform of state-owned enterprises, as the central step of the whole economic system reform, is also continuously progressing. It has undergone four stages: the decentralization and profit sharing, the separation of ownership and management, the establishment of a modern enterprise system and the strategic adjustment of state-owned economic layout.

From 1979 to 1984, the first step of state-owned enterprise reform, “the decentralization and profit sharing” was taken. This stage was mainly to increase enterprises’ enthusiasm of fulfilling plans and increasing production, through expensing enterprise autonomy, introducing profit-retaining, profit contract and other measures. However, due to lack of effective property right constraint, market competition and market-oriented pricing system, the increase in the output value of enterprises often relied on huge capital investments.

From 1985 to 1993, the second step of state-owned enterprise reform, the separation of ownership and management, was carried out. This phase was mainly to separate the responsibilities of the government and enterprises, the ownership and management of state-owned enterprises, through the implementation of management contract responsibility system and other measures, so that the state-managed enterprises became the state-owned ones. The contract system enhanced the vitality of state-owned large and medium-sized enterprises, however, functions of government and enterprises could not be really separated when national ownership was not in place yet, and the problem of enterprise vitality therefore couldn’t be fundamentally solved.

Over the same period, under the guidance of separating ownership from management, the shareholding system was initiated. To the end of 1991, there were over 3,200 shareholding pilot enterprises of all types, of which 89 issued stocks to the public. The experience of the pilot enterprises proved that the shareholding system was conducive to the fundamental transformation of the management mechanisms of enterprises, and made enterprises an independently operating and self-financing market entity. However, the pilot enterprises were also confronted with some problems, including lack of standardization and legal supervision, on the part of government, of the organization and operation of shareholding enterprises and the stock market.

Since 1994, the third step of state-owned enterprise reform, “the establishment of a modern enterprise system” had been taken. The full implementation of The Company Law of the People's Republic of China marked the entry of enterprise reform to the new phase of establishing modern enterprise system with "clear ownership, well-defined power and responsibility, separated management and ownership, scientific management”. In 1995, 100 pilot enterprises were confirmed to carry through a system innovation according to the “Company Law”.

Through pilot enterprises, the basic framework of modern enterprise system was initially established and the state’s unlimited liability for the enterprises was changed to the limited liability, and consequently a corporate governance structure was formed. However, due to the absence of owners for the property rights of state-owned assets, problems in separating government and enterprises and straightening out the relation between property and right still existed.

Over the same period, state-owned enterprises sped up share holding system reform. Up to August 1997, there were around 9,000 shareholding enterprises all over the country altered from former state-owned ones.

In 1999, "the CPC Central Committee‘s decisions on several major issues about the reform and development of state-owned enterprises" was adopted, which marked the entry of state-owned enterprises to the new phase of “the strategic adjustment of state-owned economic layout”. The goal of phase was to enhance the control, influence and driving force of state-owned economy, to focus state-owned capital on the fields concerning national security and national economic lifelines, and to realize the diversification of state-owned enterprises’ property rights through the share-holding system reform, introducing strategic investors, restructuring and listing.

In 2003, the State-owned Assets Supervision and Administration Committee of the State Council (SASAC) was set up to directly supervise 196 central enterprises on behalf of investor of state-owned assets. The establishment of the SASAC brought the state-owned economy distribution and structure adjustment into a new phase of unified planning and market-oriented operation. The representatives of investors were gradually put in place, which, to a certain extent, promoted the perfection of the state-owned large corporate governance structure.

In December 2006, the SASAC for the first time nailed down the specific sectors and fields in which the state-owned economy should play their control, influence and driving force. According to the arrangements, state-owned enterprises having no hope to gain profit should have basically quitted by 2008. By the year of 2010, central enterprises should have been restructured into 80 to 100, of which 30 to 50 should have become internationally competitive large companies and enterprise groups.