Service jobs, for one, could replace industrial ones. That is one long-term reform scenario. But in the short run, SOE troubles threaten other key components of the economy and social structure. In many troubled firms, the loans often go to meet payrolls and other operating expenses rather than to fund long-term investment that could one day reverse the losses. The SOE problem is almost certainly worse than the numbers suggest.
Hazy accounting obscures some big expenses and thus understates losses.
For example, while most enterprises still have to house, educate and provide medical care for employees and their families, some have spun off such responsibilities to separate, entirely loss-making subsidiaries. Others have simply eliminated such benefits. Currently, the social services bill for SOEs typically represents more than a third of total wages. On top of everything, corruption has mushroomed in SOEs as central government supervision has waned. The problem is especially acute where managers sell company assets and pocket proceeds.