Strongly pushing forward system reform in rust belt

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Last updated at: (Beijing Time) Wednesday, October 15, 2003

Strongly pushing forward system reform in rust belt

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The Chinese government has determined to unleash the vitalizing force of the used-to-be industrial base in the northeast China with unprecedented efforts through systematic reform. It is expected that when this "last stronghold of planned economy in China" breaks down and merges into the surge of the national market economy, it will become a "pole for new economic growth" in China.

The decision-makers in Chinese government have realized that the strategic measures to adopt at present for enlivening the old industrial base in northeast lies in the thorough breakthrough of planned economy clouts and system barriers.

The industrial base in northeast China was the "Cradle of industry in New China" that the Chinese government established in the 1950s and 1960s by pooling in an fixed assets worth of RMB30 billion yuan with energy, raw material, and equipment manufacturing as its leading industries there. However, in the recent 20 years the area has been hobbling with its industrial output to plummet 9.7 percentage points in the national gross industrial products.

Prof. Xu Chuanchen, director of China State-owned Economy Research Center with Jilin University holds that the fundamental reason behind the situation is the lagging market economy and the slow system reform here. He said, "for the old industrial base in northeast China to go out of the woods the only way is to switch from its ideological and operational dependence on the planned economy over to a speedy reform into a market system. In this way it is to achieve the market-oriented disposition and free flow of productive factors including property rights, capital, technology and human resources and means of production and what not."

Authoritative statistics shows that the general indicator for the market-oriented operation in northeast China is far behind that in the coastal areas. For example, in 2000 Liaoning province ranked the 10th in the 31 provinces in this aspect, with Jilin province ranked at the 18th, and Heilongjiang the 21st place. As regards the index for market-based relationship between the government and the market, the above three provinces stood respectively at the 15th, the 20th and the 27th place that year.

In recent years, there still exists government intervention in SOEs' corporate operation either in their investment or annual industrial output in this area. In addition to that, the ratio of state-owned capital in enterprises here still occupied around 70 percent. This is why this area is dubbed as " the last bulwark of planned economy in China".

According to local officials, the central government has hammered out plans and arrangements to remove the systematic barriers retarding the market reform in the industrial base in northeast China. The package includes separate government functions from corporate management, strategic adjustment for state-owned economy and the restructuring of SOEs, unloading SOEs' historical burden, establishing a mechanism for efficient national assets management, introducing a system of corporate governance by corporate body, motivating participation of non-public capital in SOEs' reform and reshuffling, and building up a perfect social insurance framework.

It is released that enterprises will be the real player in the market competition in this area where the separate of government from the capital and enterprises will be realized, items for administrative approvals be reduced, procedures be streamlined, and government interference on corporate operation be stopped.

Board members in state-holding businesses will be subject to shareholders' voting while the executives will be engaged by the board in line with the market competition mechanism. The key problem to solve is the share of state on a dominant position. In this aspect, limited voting power of state shareholders (the government) is in consideration to solve the problem of mixed government and corporate function originated from entangled property rights.

In the future, the state-owned capital in northeast China will be geared to our national economic lifeline ranging from crucial trades and key fields to advantageous industries, whereas SOEs in competitive industries and trades will have to expose to all the market risks. Foreign and non-government capitals are encouraged to participate in SOEs�� system reform. Strategic reshuffling is to be implemented in key industries such as iron and steel, petrochemicals, automobile, and heavy-duty equipment manufacturing, etc. To realize market-oriented free transfer and flow of SOEs' productive factors like property rights and human resources, the central government will take additional measures including: favored and taxation policies to alleviate the SOEs heavy burden of debts and superfluous personnel due to historical problems, better social insurance system, financial aids, and write off some apparently insolvent corporate debts from history.

By PD Online staff member Lijia

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