China's slowing investment, which hit a 16-year low in May, has forced Beijing to press the country’s lumbering state groups into service, demanding that they ramp up spending in a bid to avert an economic hard landing. 

The move is a setback for Beijing’s efforts to make the country’s 160,000 state-owned enterprises more like their private sector peers. SOEs, which account for about a fifth of economic output, trail far behind private companies in terms of profitability. Despite their inefficiency, SOEs’ share of overall fixed-asset investment reached 35.4 per cent in May, the highest since 2011, official data showed last week. 

“SOEs are useful at the moment but it can’t go on like this forever,” said Larry Hu, head of China economics at Macquarie Securities in Hong Kong. “As returns get lower and lower, SOEs lose usefulness as tools of macroeconomic policy and become a burden on the state. You have to pour in more and more credit to get the same impact.”