China's SOE reform on the right track and to make headway

China's reform on its state-owned enterprises (SOEs) is extensive and fundamental, said the State-owned Assets Supervision and Administration Commission of the State Council in an article published on September 29. It vows to push the reform at its critical stage forward on the way directed by the central government.

Status quo of China's state-owned economy

In 2003, SOEs and state holding companies generated profits of about 495 billion yuan and paid taxes of about 810 billion yuan, up 30.8 percent and 16.7 percent over the previous year respectively. This means they contributed half of the total profits and taxes by the industrial and commercial businesses in the whole nation.

The number of state owned and state holding businesses reduced to 150,000 in 2003 from 238, 000 in 1998. But profits they made were 22.2 times as much as that in 1998. The 147, 000 of them in small and medium size increased their profits to 196.8 billion yuan in 2003 from less than 2.3 billion in 1995.

The gross state-owned assets rose to 19.7 trillion yuan in 2003 from 14.9 trillion yuan in 1998. And net assets went up 8.36 trillion yuan from 5.21 trillion yuan. Last year 15 Chinese companies nudged into the world's top 500, compared with 3 in 1998. And 14 of the 15 are SOEs.

In 2003, 56.7 percent of the state-owned assets of industrial and commercial enterprises in the whole nation was hold by enterprises under the control of the central government while 43.3 percent by businesses under the control of local governments.

In comparatively more developed areas in the country, the state-owned economy, though having higher value, share less in the local economy. The situation is opposite in less developed areas.

By the end of 2003, nearly 60 percent of the 4223 main SOEs diversified their shareholding structure.

An array of laws and regulations have been put into effect on the property rights registration, assets evaluation, assets transfer, and state-owned interest management. The Provisional Regulation of State-owned Property Rights Transfer promulgated on December 31 last year specifies very clearly about the whole process of property rights transfer.

An incomplete statistics of the three property rights transfer centers in Beijing, Tianjin and Shanghai for enterprises under the central government showed that there were 2363 transactions for the first eight months of the year, involving 46.76 billion yuan. Information on the planned transfer were available to the public and the prices of the deals were higher than the assessed asset value in most cases.

More steps

A fair playfield should be open also to SOEs in other sectors and fields which sharpen their competitiveness through restructuring.

Either an indiscreet rush of sales of state-owned assets at prices or any one-for-all method is never allowed. Neither will administrative orders to push SOEs into transformation work.

The leading role of the state-owned economy varies in industries and regions. There will be even less state-owned economy in the national economy with the reform deepening. But the gross value of the section will keep rising and its quality and distribution will also keep improving.

Experience of many places have proved that it is meaningful for local societies to get SOEs with comparative advantages stronger and bigger, and make influential main SOEs better.

The restructuring of ownership and shareholding reform should go side by side in local areas. The blueprint of state-owned economy should be integrated into the overall planning of the local economy and social development so that the it will play a better leading role and extends its influence.

Practices have proved how important it is to reform the shareholding system of SOEs, especially get them go public in overseas market, which is an important step toward the strategic adjustment of the distribution and structure of the state-owned economy, as well as toward the success of the reform of SOEs.

So it is absolutely necessary to firmly push the reform on the shareholding system of SOEs forward and develop economy with diversified ownership.

However, it is not time to conduct management buyout for large scaled state owned or state holding enterprises in China now. There is lack of an effective pricing system for state-owned assets. Laws and regulations governing the buyout and the exterior and interior monitoring system need improving. And there are no enough rational financing channels. In addition, the combination of ownership and management in the MBO goes against the way toward which SOEs build modern corporate governance system and reform their shareholding system. Generally, the management is hardly afford the costs normally needed in a buyout case of large-scaled SOEs.

Small and medium sized SOEs can try management buyout in line with the instructions on the reform of shareholding system of SOEs issued by the State-owned Assets Supervision and Administration Commission of the State Council at the end of last year. The process must be fair.

The Provisional Regulation of State-owned Property Rights Transfer must be strictly observed to standardize transactions of state-owned property rights of enterprises .

Firstly, deals must be made fairly, honestly and openly at the places designated by the watchdog of the state-owned assets.

Secondly, the information on transfer must be disclosed in specified content, way and time to attract dealers extensively.

Thirdly, transaction process must be up to the standards. The key is the bidding.

Fourthly, institutions for such transfers and organizations involved in the activity should be put under close watch to ensure the fairness and transparency of the deals.

By People's Daily Online