>They already did this in the 1990s.
No, what I'm proposing is completely cutting away SOEs from the rest of financial system, and establishing a separate financial contour for SOEs.
Defaulting on debts obviously means an end to borrowing in capital markets, because nobody would lend them capital anymore.
>They don't want to do this to avoid micromanagement, thus giving provincial governments the vague target of GDP.
This is one of the lessons from the soviet union: you need in kind targets, gross monetary targets lead to waste, or at least gross monetary maximization targets lead to waste, not so sure about monetary minimisation targets.
>They are already doing this, it has become a problem because many legacy firms are no longer competitive in export and have insufficient demand without excess government spending.
Then make them competitive by tariffs on competive goods and taxes on private sector.
How painfull this process would be really depends on the degree of self-sufficiancy of the complex of chinese SOEs, if they have full production cycle covered then maybe they can do it without another tyananmen