Chinese State Firms: From Rags to Riches

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Last updated at: (Beijing Time) Saturday, December 22, 2001

Chinese State Firms: From Rags to Riches

Is it possible for a debt- ridden enterprise to shake off poverty and reestablish itself in five years? A state firm in northeast China that emerged unscarred from some knuckle-down reforms says yes.

Is it possible for a debt- ridden enterprise to shake off poverty and reestablish itself in five years? A state firm in northeast China that emerged unscarred from some knuckle-down reforms says yes.

Based in the northernmost Heilongjiang Province, Sida Paper Mill reported a 36.67 million yuan (4.4 million U.S. dollars) deficit and a 400 million yuan (48 million U.S. dollars) debt at the end of 1995.

The painstaking efforts of its new management team since 1996, ranging from the separation of non-performing assets, the establishment of a joint venture company, technological renovation and the implementation of information management, have paid off this year, turning Sida into one of the country's top 100 light industrial enterprises, with its sales volume hitting 225 million yuan (27 million U.S. dollars) during the first eleven months.

The rags-to-riches story of Sida, known in China as "the Sida model," gives a vivid picture of the tenacity of many state-owned enterprises (SOEs), the majority of which faced unprecedented obstacles in the country's transformation from a planned to a market economy.

In 1997, nearly 40 percent of China's 16,000 large and medium- sized SOEs reported deficits. At the end of the year, the Chinese government set a goal for these enterprises to climb out of poverty and establish a modern corporate system within three years.

By the end of last year, two-thirds of the large and medium- sized SOEs had started to make a profit. Meanwhile, 80 percent of them had built up a better corporate system.

But their efforts did not end there.

Most state firms have recorded further breakthroughs this year, thanks to their sustained efforts to improve efficiency and competitiveness.

Latest figures released by the National Bureau of Statistics ( NBS) show that the composite index of the economic efficiency of China's industrial enterprises rose to 119.4 in the January- October period, 3.9 points higher than the corresponding period last year.

The total sales output and profits of these enterprises stood at 7,379 billion yuan (890 billion U.S. dollars) and 364.6 billion yuan (44 billion U.S. dollars) respectively, up 11.8 percent and 9. 3 percent on annual basis, according to the NBS figures.

Meanwhile, it is estimated that some 460 mergers will be carried out with bankrupt enterprises by the end of the year. Some 51.5 billion yuan (6.2 billion U.S. dollars) of non-performing debts will be written off after verification, and more than 700, 000 laid-off workers will be reemployed.

Now that the World Trade Organization has opened its door to China, management of many state firms, including those in the once monopolistic railway, civil aviation, power, tobacco and gold industries, know that survival now depends on their competitive strength.

In another development, China has nurtured over 20 giant corporations and conglomerates that have proven competitive in the international market. Elite Chinese enterprises such as Baoshan Iron and Steel Group, Haier, Sinochem and Sinopec are known around the globe.

"The SOEs, against the backdrop of the global economic slowdown, have withstood the test and contributed to the national economic growth," said Vice Premier Wu Bangguo at this year's national conference on economic and trade work.

However, SOE reforms will, in the foreseeable future, remain the core of China's overall economic restructuring, said top officials attending the recently concluded central economic working conference, including President Jiang Zemin and Premier Zhu Rongji.

"The reform of state firms should be a far-ranging and profound one," said a commentary recently carried by China's leading newspaper, the People's Daily.

In the post-WTO scenario, challenges and opportunities coexist for the state firms, who should move to turn the pressure into impetus for their further reform and development, said the commentary.

Experts here have also voiced confidence that Sida's success represents a development trend for the state firms, most of whom will turn from rags to riches through better corporate management and further technological renovation.

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