W e view state owened enterprises(SOEs)as a contract between the state and human capita1．There exists an unequal contractual relationship between them because the state adopts unilateral governance of the human capital by the contract．The appearance and existence of the contractual relmionship are relevant to the monopoly state ownership economy and the“catching—up”strategy enforced by govern ment．Although the unequal comractual relationship reduces the external transaction cost of SOEs largely,it increases its interna[transaction cost．Because the high internal transaction cost is the m ain reason for SOEs getting into diffieuhy in the transitional period the reform of the contractual relationship can not be delayed any longer．