China to Push SOE Reform with Bolder Measures

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Last updated at: (Beijing Time) Wednesday, November 27, 2002

China to Push SOE Reform with Bolder Measures

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China is mulling to take bolder measures to speed up its State-owned enterprise (SOE) reform.

After a division with the Central Government of SOEs' property right, local governments will be granted much more leeway, if not a complete franchise, in SOEs disposal.

"We should give full play to the initiative of both the central and local authorities on the precondition of upholding state ownership," said Jiang Zemin, Chinese president and the general secretary of the 15th Chinese Communist Party's Central Committee, to the Party's 16th National Congress held on November 8 to 14 in Beijing.

"The state should make laws and regulations and establish a state property management system under which the Central Government and local governments perform the responsibilities of investor on behalf of the state respectively, enjoying owner's equity, combining rights with obligations and duties, and administering assets, personnel and other affairs."

Apart from "large state-owned enterprises, infrastructure and important natural resources that have a vital bearing on the lifeline of the national economy and state security", local governments will be, as investors of SOEs, entitled to deal with SOEs' reforming, according to Jiang.

Despite the emphasized "upholding state ownership", analysts think, local governments will now be able to invoke their rights as SOEs' investors to decide SOEs' auction, merge and acquisition, or bankruptcy.

Hailing it as a significant breakthrough in SOE restructuring, some commentators think the move will help clarify SOEs' property right, introduce into them multi-equity-owners and work out a standardized corporate governance.

Now more closely relevant with SOEs' reforming consequents, local governments will feel more motivated to push SOEs' reforming process, hence accelerating the reshuffle of the whole State-owned sectors.

Anyhow, with more SOEs at their disposal, local governments will have more financial resources to balance their local fiscal budget.

Some analysts are even predicting that the divided property right over SOEs between the central and local governments might change, in the long run, the existing administrative and economic relations between the two with the latter gaining more economic clout.

But there are two issues worthy of re-consideration.

First, where is the demarcation between SOEs that should go to the Central Government and those that should belong to the local authorities?

Theoretically, now that the state is the eventual owner of all SOEs, each of the 1.3 billion Chinese population should be allowed a slice of the SOEs' property right.

Moreover, since the early 1980s, the ownership and administration of most SOEs have been transferred repeatedly from the Central Government's hands to the local governments', and vice versa, throughout which process both have input more money into them.

So, how to divide?

China's choice of a gradualist economic reform has excluded the way taken by Russia following the former Soviet Union's disintegration -- to divide the total State-owned property by the whole population and then turn each share into a bond or security to be sold freely.

So, finally, the government, central or local, will proceed the SOEs' disposal as a proxy of the true owner -- the whole people.

Then, the other problem: Who will supervise the proxy, guaranteeing their full representation of the people's interests? And how?

Or in other words, has China had a democratic and legal procedure transparent and effective enough to ensure the justice and fairness in the process?

As a matter of fact, the above-mentioned two issues have been impeding in the past nearly 20 years the deeper SOE reform in China, for which policy-makers hope to find a third way to circumvent.

It turns out to be very hard, if not impossible.

Sources with the State Economic and Trade Commission said that the Central Government and each of the provincial authorities are now formatting their respective State-assets management institutions and meanwhile unifying their policy in the next round of SOE reform.

The specific blueprint will be submitted next March to the National People's Congress, China's parliament, for approval.

What might come out? -- We can only wait and see.

Jiang's speech has offered just a general line. But the direction seems quite clear.

By PD Online Staff Forest Lee

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