Further SOE reform to build a good market economy

The State-owned Assets Supervision and Administration Commission began on October 8 to solicit advice for its proposed regime of big legal disputes settlement of enterprises under the direct control of the central government, which was made public on its website.

The legal framework is devised to prevent the draining away of state-owned assets. It makes it very clear that people found responsible for state-owned assets losses in cases involving enterprises under the direct control of the central government will face punishment or even court.

Erosion of state-owned assets did happen in the process of the reform of the property rights of state-owned enterprises (SOE) due to the lack of transparency and competition in the transfer of state-owned assets.

Guidelines for the systematic reform of SOEs and transfer of property rights of SOEs have been put into place by the State-owned Assets Supervision and Administration Commission, the watchdog of the state-owned assets. Specific instructions are given on the whole process of transfer of state-owned assets, ranging from assets evaluation, auditing, and transaction procedure to pricing and payment management. The fundamental principle of open deals at designated trading floors has been set. And there are rules about management buyout.

Mr. Zhang Wenkui, a researcher with the Development Research Center of the State Council, argued recently that SOE reform is an ordeal in any country in the world. He highlighted four stumbling stones emerging as a result and on the way of China's SOE reform.

The first is the drainage of state-owned assets. This is caused by sales of state-owned assets at much undervalued prices. The second problem is that the legitimate interest and rights of employees are not adequately protected. Creditors face the same situation. The last bad effect is that some new executives get healthy SOEs seriously ill or even collapsed because of their bad strategies and governance, incompetence, or financial problems.

The solution, Zhang affirmed, is to carry on with, instead of give a halt to, the reform. He thought in the international competition it was the system that counts most. This underpins the importance of the reform of the system.

He insisted that the old system must give way to the new system of which the loopholes had been fixed to much extent and were being further fixed. "We cannot throw the baby out with the bath water", said Zhang.

He also confirmed that the reform of property rights of SOEs was the fundamental as the result of more than 20 years of exploration and practice involving various sides of the whole nation. Since the 80s last century when the SOE reform was given the top priority in China's whole economic reform, the SOE reform has gone all the way from empowerment, system of contractual operation, and modern corporate governance experiment, to small and medium business for sale and joint stock holding structure.

Zhang stressed that the policies and principles set by the government on SOE reform, especially the reform of property rights transfer of SOEs, were systematic, consistent and careful. These policies and principles which were built on massive researches and discussions would not change, he assured.

He also mentioned the fact that in some cases of selling SOEs at a bargain price, the assets on their books valued hundreds of millions of yuan were mostly bad assets. So it is normal that these assets shrank much in the reform.

He added that in the reform China's SOEs were well aware of the significance of seeking to get stronger on one hand and ensuring the social security and proper arrangement for their employees on the other.

Zhang said in his conclusion that the reform was the right way to a "good market economy". Any problems can be solved only by further reform.

Recently, the issue of losses of state-owned assets has aroused much concern and heated debates. Some even criticized the reform was the reason for the problem. On September 29, the State-owned Assets Supervision and Administration Commission affirmed in its article that the policies of SOE reform adopted by the central government so far were right and effective and would be stuck to. It also mapped out further steps to be taken. In regard to the issue of management buyout which has sparkled most debates it makes it clear that it was not the time for large scaled SOEs to try this.

The State-owned Assets Supervision and Administration Commission predicts that profits of SOEs under the control of the central government would top 400 biliion yuan this year, a new record in the history.

By People's Daily Online