Why China collects earnings from more SOEs?

07:43, November 05, 2010      

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China is planning to collect profits from more State-owned enterprises (SOEs) and raise the proportion of profits it collects, the State Council, or the Cabinet, has said.

Beginning in 2011, 1,631 SOEs, up from about 120 previously, will pay part of their post-tax profits to the State coffers, the Cabinet decided at an executive meeting on Wednesday.

"This time the Cabinet has taken a big step forward. That will be a huge sum of money," said a person familiar with the tax change who asked not be named.

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

At present, resource-related companies under the administration of the central government in sectors such as tobacco, oil, petrochemicals, power, telecommunications and coal mining pay 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.

Also, 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 move reflects the central government's determination to protect owners equity as the SOEs are owned by all the people," said Liu Shangxi, deputy dean of the Research Institute for Fiscal Science at the Ministry of Finance.

"Of course, the SOEs' earnings should be submitted and used to improve the public well-being, otherwise they would be seized and used by a small amount of people," Liu added.

The central government collected profits of 14 billion yuan (2 billion U.S. dollars), 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.

The centrally-administered 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 even fueled public anger as they used their profits to purchase land at high prices, which is believed to have driven up home prices.

"The ratio of profits that the government collects from resource-related or monopoly enterprises and real estate companies should be raised significantly. But the most crucial matter is how to use the collected money," said Pi Haizhou, a free-lance financial writer, in a commentary.

The money should be distributed among all people to cushion rising inflation, Pi suggested.

"As enterprises are owned by the entire population, centrally-administered companies should make more contributions to the country," said Zhang Chunxiao, a researcher with the State-owned Assets Supervision and Administration Commission of the State Council.

"The government can use the money collected to increase social security funds and promote technical development in energy-saving initiatives and industrial restructuring."

In the Communist Party of China (CPC) Central Committee's Proposal for Formulating the 12th Five-Year Program for China's Economic and Social Development (2011-2015), the ruling party has vowed that the ratio of government expenditure on living standards and social programs would be raised. Social security coverage would be extended and the public service system improved to build positive public expectations.

Meanwhile, the income distribution system would be improved, especially for residents with middle and relatively low salaries, to expand their consumption capacity.

"By raising the proportion of profits it collects, the government will have more room to reform the income distribution system and ease public anger," said Wang Xiaoguang, a research fellow at the Policy Advisory Department at the Chinese Academy of Governance.

Source: Xinhua


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