This article, written by Zeng Peiyan, Minister of the State Development Planning Commission, on what he has gained from the study of the Decision of the Fourth Plenary Session.

The Decision, adopted by the Fourth Plenary Session of the 15th Central Committee of the Communist Party of China (CPC), is a programmatic document on advancing the reform and development of State-owned enterprises (SOEs). The Decision makes major arrangements for strategically readjusting the distribution of the State-owned economy, regrouping SOEs and accelerating the pace of the establishment of a modern enterprise system, at the same time, it puts forward a series of policies and measures for resolving problems left over from history, that concern SOEs. Improving the SOEs' asset-liability structure is a major aspect of these policies and measures. Making conscientious efforts to do this field of work well will play a major, active role in promoting the reform and development of SOEs.

The high debt rate of SOEs is formed gradually in the process of historical development. Since the launch of the reform and opening program, the debt rate of SOEs has gone up gradually due to various reasons. Over the past few years, the State has adopted many policies and measures, such as "substituting investment for loan", intensifying efforts in checking and writing off SOEs' banking bad debts and enlarging SOEs' direct financing proportion, to solve the problems related to SOEs plagued by excessively heavy debts, these measures have produced positive results. However, taken as a whole, the present asset-liability ratio of SOEs remains overly high, enterprises sustain a heavy debt burden and have an acute shortage of potential for development, this has therefore led to the mounting non-performing assets of the bank. To deal with these problems, the Decision sets forth a series of policies and measures for implementing the conversion of debt into stock and increasing direct financing proportion.

The conversion of debt into stock is an important move for improving the SOEs' asset-liability structure. What we call conversion of debt into stock refers to turning the bank's creditor's right into the financial assets management corporation's stock right to the borrowing enterprise. The debt-to-stock swap is limited to some key SOEs which have market for their products and prospects for development but are landed in predicament due to overly heavy debts, it does not mean transforming all the debt they owed to the bank into the financial assets management corporation's stock right. Application of debt-to-stock swap in qualified key SOEs can reduce the interest outlay of these enterprises, lower their financial cost, help support large and medium-sized loss-making SOEs to get out of predicament and make further development. It can also make marked improvement in commercial banks' condition of assets and liabilities and improve their credit standing at home and abroad, it is conducive to solving the problems confronting the bank, pushing forward the bank's institutional reform, enhancing State-owned banks' ability to participate in competition on the domestic and international markets and accelerating the establishment of a new-type bank-enterprise relationship that meets the requirements of the socialist market economy.

The key to achieving actual results in the conversion of debt to stock lies in two aspects: First, selecting enterprises in which the conversion of debt into stock can be carried out strictly in accordance with the specified conditions. Concerned State departments should strictly ensure quality in accordance with the scope and condition stipulated by the State for the selection of enterprises for debt-to-stock swap and guard against a general rush action. At the same time, they should deepen reform of the financial system and strengthen management over State-owned commercial banks and financial assets management corporations. Second, Enterprises which carry out debt-to-stock swap must deepen reform and earnestly transform the operational mechanism. These are the fundamental tactics for solving the problems relating to loss-making SOEs. Increasing the direct financial proportion by making use of the capital market is another important move for improving SOEs' asset-liability structure. The Decision points out that "SOEs meeting the stock-listing conditions can raise capital funds in the capital markets at home and abroad and appropriately raise the proportion of public circulation stocks.

Conscientious implementation of these measures will further promote the healthy development of the capital market, help integrate the flow, reorganization and strategic readjustment of SOEs' assets with regrouping, and expedite the reform and development of SOEs.

In recent years, while undergoing fairly rapid development, China's capital markets have also faced many problems. These are manifested mainly in the mixture of good and bad listed companies, the irrational structure of stocks, the overly high proportion of State-owned shares and State-owned corporation shares. At present, China's listed companies' State share and State corporation share and public circulation share account for around one-third respectively.

Increasing the direct financial proportion will give a great impetus to the transformation of SOEs' stock right structure and the construction of the company's legal person management structure. Appropriately reducing the holding of State shares through the legal person's cross holding of shares, institutional holding of share as well as attracting residents' purchase of shares not only will not harm the interests of the State, but instead will enable the State and SOEs to grasp more financial resources which can be used in supporting the development of important trades, key areas and major enterprises that affect the lifeblood of the national economy.

Increasing the direct financial proportion by making full use of the capital market facilitates the collection of funds which are to be used in the construction of key projects and in improving the financial structure of the enterprises.

Increasing the direct financial proportion is conducive to enhancing the mobility of State assets. The poor fluidity of State assets currently is an outstanding problem facing the State-owned economy.

New listed companies appropriately increasing the proportion of the public circulation share, State-owned holding listed companies with good credit and great development potential properly reducing the holding of some State-owned shares, with approval, non-listed enterprises can transfer with compensation the State-allocated land-use right and some assets. These policies and measures help give full play to the capital market's role in the allocation of resources, enhance the SOEs' asset mobility, and promote the optimized allocation of State assets in the whole society. In recent years, particularly since the 15th National Congress of the Party, some enterprises have, by various forms, conducted assets conversion to reduce debt burden. This effort has effectively improved the product mix and industrial structure, cultivated new economic growth areas and enhanced market competitiveness. In the formulation and implementation of development strategy, great efforts have been devoted to main industries and enhancing market competitiveness, constantly increasing efforts in technological progress and innovation, actively expanding the market and thus rapidly bringing about more economic benefits. Some enterprises, particularly large enterprises and enterprise groups, have entered the capital market through listing and other methods, revitalized State assets, improved the efficiency of the allocation of resources, and accelerated the pace of the growth of enterprises. Facts show that the transformation of SOEs in line with the corporate system, appropriately reducing the proportion of State shares, encouraging State-owned corporations, non-State-owned corporations and institutions and residents to buy shares as well as turning part of State assets into cash not only will not affect the State-owned economy's leading role in the national economy, but also can enlarge the functions of the State-owned economy and enhance the controlling force of the State-owned economy.