If China’s bloated and inefficient state owned enterprises were a nation, they’d make up the world’s fourth-biggest economy, Germany. And with private investment retreating, they may be growing still, according to fresh research from Bloomberg Intelligence economists Fielding Chen and Tom Orlik. That makes reforming a sector that accounts for about 40% of China’s industrial assets and 18% of total employment key to the nation’s economic future. In 2014, the latest year for which there’s solid data, return on assets for state firms was just 4% versus 11% for nimbler private firms. “That’s bad news for growth, as a high proportion of capital is allocated to a relatively unproductive set of firms,” Chen and Orlik wrote. It’s also bad for financial stability as capital still flows to these less-efficient firms.