During the time of China's economic reform in 1978, with soft budget constraints and the requirement to implement the government's goal of full-employment, the SOE sector had substantial redundant labor and many state owned firms were operating at a loss. In 1995 and 1996, around 50% of the SOEs (mostly small or medium-sized) reported losses (Meng, 2003). The Asian financial crisis in 1997 exacerbated the situation.