This article is written by Li Yizhong, general manager of the China Petrochemical Group Company, on studying the Decision of the Party Central Committee for the purpose of pushing forward the reform of State-owned enterprises (SOEs). The article reads as follows:

The Decision adopted by the Fourth Plenary Session of the 15th Central Committee of the Communist Party of China (CPC) clearly points to the need to comprehensively push forward the reform and development of SOEs, strategically readjust the layout of the State-owned economy, carry out the strategic regrouping of SOEs, boost the upgrading of industrial structure, and vigorously foster large enterprises and enterprise groups that have substantial strength and strong competitiveness, turning them into pillars of the national economy and the main force participating in international competition. This major reform principle has been proved correct in practice since the introduction of the reform and opening program, particularly since the reorganization of the petrochemical industry over the past year or more, it is of great importance of guidance to the further reorganization and restructuring of the petrochemical industry.

After the convocation of the Party's 15th National Congress, the Party Central Committee and the State Council decided to conduct major regrouping of the petrochemical management system. After a period of preparations, in July 1998 the China Oil/Natural Gas Group Company and the China Petrochemical Group Company were organized on the basis of the original China Oil/Natural Gas Corporation and the China Petrochemical Corporation. The two reorganized group companies laid particular stress on their business activities to maintain their superiority. The reorganized Petrochemical Group Company has become a solely State-funded company, an organization set up with State authorized investment, and a State holding company. Compared with the original petrochemical corporation, the Petrochemical Group Company has realized the separation of government administration from enterprise management and the integration of the upstream and downstream, internal and external trade and production and marketing. While retaining the petroleum refining and petrochemical superiority, its business scope has extended to petroleum prospecting and exploration and the wholesale and retail sale of finished oil, its market superiority and ability to resist risk have been enhanced.

The one-odd- year operation of the new system proves that the policy decision of the Party Central Committee and the State Council is very correct, it has helped solve the major problems cropped up in the development of the petrochemical industry and has withstood the tests of the market. Nineteen ninety-eight was a year in which the world petrochemical industry met with many difficulties. Due to the rampage of smuggle and the influence of other unfavorable factors, the market situation was very grim, the Petrochemical Group Company suffered a total loss of 2.4 billion yuan in the January-May period. In the face of the unprecedented difficulties and with the support of the State macro-control policy, the petroleum and the petrochemical group companies gradually strengthened cooperation, the Petrochemical Group Company, giving full play to the integration of upstream and downstream, internal and external trade and production and marketing, overcame many difficulties, quickly reverted the critical situation and scored fairly good business achievements at the end of the year. In 1998, it registered a sales income of 281.8 billion yuan, profits and taxes 26.5 billion yuan, including 3.49 billion yuan of profits. The China Petrochemical Group Company was selected and included in the US Fortune magazine 1998 world's top 500 enterprises, ranking 73rd among them.

Since the beginning of this year, the production and operation situation facing the Petrochemical Group Company has remained very grim. There was a drastic change in the crude oil price, with the price rising steeply after an end to the fall in the early year and then the emergence of stability. At the same time, the prices of both domestic onshore crude oil and offshore crude oil also rose by a big margin, causing a significant rise in processing cost. In the face of the grim situation, we conscientiously implemented the series of principles and policies of the Party Central Committee and the State Council for promoting economic development and successfully running SOEs, as well as the gist of the important written instructions concerning petrochemical industry given by leading comrades of the central authorities, steadily intensified work efforts to internally reduce cost and externally expand the market, and worked hard to improve economic efficiency. Thanks to these efforts, between January and October, the Petrochemical Group Company scored a total sales income of 321.73 billion yuan, up 32.5 percent over the same period of the previous year, profits and taxes 28.17 billion yuan, up 48.1 percent, on the basis of digesting the period potential deficit, it registered 5.95 billion yuan in profits, a big increase on the same period last year.

Although the Petrochemical Group Company has possessed the scale of an extra-large enterprise group, compared with large foreign companies, however, there still exist some deep-seated problems and gaps within it. Among these problems and gaps, the most fundamental one is that the current management system and operational mechanism still fall short of the requirements of the market economy.

In the process of studying and implementing the spirit of the Fourth Plenary Session of the 15th CPC Central Committee, we have deeply realized the importance and necessity of accelerating the strategic regrouping of SOEs and enhancing their competitiveness. Our short-term target is to speed up the further regrouping of the petrochemical group and the restructuring of the listing work, and to quickly establish a management system and operational mechanism suited to the requirements of the market economy. This is a major measure for the successful operation of SOEs and deepening the reform of these enterprises, it also provides the best opportunity for the petrochemical group to enhance its market competitiveness.

In the internal regrouping and restructuring of the petrochemical group, we clearly stress the need to give expressions to the following guidelines: First, for the petrochemical industry as the foundation of the national economy and the pillar industry, its regrouping and restructuring should be conducive to increasing the controlling force of the State-owned economy over the national economy. Second, actively exploring diverse effective and practical forms for public ownership and bringing about the diversification of the structure of ownership. Third, acting in accordance with the market economic law to ensure the updating of concepts, the change of mechanism, the promotion of the internal organic merger, forming a compact entity and establishing a modern enterprise system. Fourth, creating conditions for the direct raising of funds on both internal and external capital markets and promoting the reform and development of the Petrochemical Group Company.

In line with these guidelines, the Petrochemical Group Company has been carrying out the regrouping and restructuring work in five aspects. First, the regrouping of business. Introducing the separation of main work from secondary work, giving prominence and devoting main efforts to the key work, concentrating strength on the prospecting and exploration of oilfields, petrochemical refining, market sales, gradually forming key, superior vocational work. Second, the regrouping of assets. Introducing the separation of fine-quality assets from non-performing assets, concentrating fine-quality assets that have fairly good main economic and technological indexes, and a fairly strong profit-making capability and further enhancing market competitiveness; stripping non-performing assets; it is necessary to close down small refineries and small chemical works, suspend their production, merge them with other enterprises and switch them to the manufacture of other products, adopting active measures to transform some potential assets and gradually turning them into fine-quality assets. Third, The regrouping of creditor's right and debts. On the basis of the conversion of debts into stock rights and the reduction in the overall debt burden of the group company, rationally dividing debt burden in line with the principle of both enhancing the market competitiveness of the listed part and lightening the debt pressure on the non-listed part, and facilitating the company's subsistence and development. Fourth, the regrouping of organizations. The group company both keeps intact the nature of solely State-funded companies, organizations set up with State-authorized investment and State holding companies and becomes the parent company of listed firms and it enjoys the rights and interests as the owner of listed companies. The management method of the listed firms is linked with international practice, establishing a corporate management structure, instituting a system that integrates the business department and the functional system. Fifth, the regrouping of personnel. Downsizing staff and diverting redundant workers will be carried out step by step, widening re-employment channels and maintaining enterprise stability.

At present, the Petrochemical Group Company is stepping up efforts to carry out various measures for regrouping and restructuring listed companies, striving to start simulated operation early next year in accordance with the new system, at the same time, stepping up work efforts to ensure that in 1999 on the basis of eliminating potential deficit of the year, 6 billion yuan of profits will be achieved, and efforts will be made to achieve 7 billion yuan, and that the number of its affiliated loss-making enterprises and the amount of their loss will both be cut by half, so as to lay a sound foundation for the reform and development of the Petrochemical Group Company.