China to collect more earnings from SOEs

10:29, May 15, 2010      

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China is planning to raise the proportion of profits it collects from major State-owned enterprises (SOEs) in a move to balance income distribution, but analysts said the move should be bolder and the collected profits used to improve public well-being.

The Ministry of Finance said on Tuesday that it might raise the ratio of profits of SOEs to be submitted to the State coffers.

According to existing rules, monopoly enterprises under the administration of the central government in sectors like tobacco, oil, petrochemicals, power, telecommunications and coal mining should submit 10 percent of their post-tax profits, while the ratio for those in the iron and steel, transportation, electronics and trade sectors should be 5 percent.

Financial corporations and companies in sectors like railways, transportation, education, culture, science and technology and agriculture are not included in the profit submission framework.

The Ministry of Finance did not reveal by how much the ratio would be raised.

"It should be raised properly, and even if it were raised by 10 percentage points, it doesn't matter too much for those central enterprises, given their high profit level," said Zhang Wenkui, researcher with the State Council's Development Research Center.

Central enterprises have been criticized by the public for having taken advantage of their monopoly or market predominance to make excessive profits. Some of them have further fueled public anger as they bid to purchase land at high prices, which is believed to have pushed up home prices.

The central government collected profits of 14 billion yuan ($2 billion), 44.4 billion yuan and 98.9 billion yuan respectively in 2007, 2008 and last year from SOEs. In 2009 alone, however, the enterprises made profits totaling 965.6 billion yuan.

"Even if all the profits were collected, it is reasonable," said Zhong Jiyin, economist with the Chinese Academy of Social Sciences. The monopoly status of those enterprises has barred entry of private firms and jeopardize the health of the overall economy, he said.

"The collection of their profits should weaken their ability of monopolizing the market," he said.

But the most crucial matter is how to use the collected money, Zhong said.

The money must be used to improve the well being of the public, for example, in subsidizing tax cuts and increasing income of the poor to promote social equality, said Zhong.

Source: China Daily


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