Creating Good External Environment for SOE Reform and Development

This article, written by Li Kemu, deputy director of the office of the Central Financial and Economic Leading Group, on what he has learned from the study of the Decision of the Fourth Plenary Session, focuses discussion on six points:

The Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning the Reform and Development of State-Owned Enterprises calls for creating a good external environment for the reform and development of State-owned enterprises (SOEs). A good external environment is the necessary condition for the reform and development of SOEs. The reform and development of SOEs, which involve various social and economic aspects, are a complex social systematic project featuring the advance from micro-flexibility to macro-control. Success in SOE reform and development requires intensifying efforts for macro-control and comprehensive coordinated reform, opening wider to the outside world, stopping irrational redundant construction, promoting the construction and standardization of the order of the market system and improving the legal system, thereby creating a good external environment for the reform and development of the SOEs.

I. Tightening Macro-Control, Improving Macroeconomic Environment

The microeconomic activities of SOEs cannot proceed without the restraint of a macroeconomic environment. Only by properly exercising macro-control, maintaining a basic balance for economic aggregate and promoting the sustained, rapid and sound development of the national economy, is it possible to create a favorable macroeconomic environment for the reform and development of the SOEs.

Over the past few years, China's national economy, as a whole, has continued to maintain a desirable development situation, at the same time, unprecedented new characteristics and new trends have emerged in economic operation, some deep-seated problems have continually cropped up. To cope with the new situations and new problems facing economic development, the Party Central Committee and the State Council have, since 1998, made a series of strategic arrangements for expanding demands and boosting economic growth, persistently implemented an active financial policy, further enlarged domestic demands, and steadily pressed ahead with various reforms, so as to maintain a fairly rapid growth rate for the national economy. In an effort to further boost economic growth, improve the macroeconomic environment and accelerate the reform and development of the SOEs, it is presently necessary to further tighten macro-control. The main tasks include: further stepping up the implementation of the active financial policy, striving to give play to the role of the monetary policy, making coordinated use of taxation, pricing and other economic levers to effectively boost consumption, investment and exportation demand, speed up structural readjustment, explore markets, increase job opportunities, guarantee social stability, and continue to maintain the momentum for the sustained, rapid and healthy development of the national economy.

II. Continuing to Open Wider to the Outside World, Enhancing SOEs' World Competitiveness

Opening to the outside world has brought about a constant rise in the degree of China's economy dependence on external resources and international markets, the impact of international economic fluctuation on the domestic economy has become increasingly direct and notable. In making operational decisions, it has become increasingly necessary for SOEs to give consideration to external factors, such as international supply and demand, exchange rates, the international economic period, and the economic trends of other countries. The economic globalization process has brought both opportunities and challenges to the reform and development of China's SOEs.

In the face of economic globalization, we must, against the general background of continuing to open wider to the outside world and press ahead with the reform and development of SOEs. On the basis of relying mainly on domestic markets, SOEs must actively enter the international market to participate in international economic cooperation and competition, participate in the economic globalization process in a more intensive and extensive manner, and make full use of the favorable conditions brought about by economic globalization to develop and expand themselves, enhance their strength and augment their international competitiveness.

III. Stopping Irrational Redundant Construction, Speeding Up Regrouping of Trades and Structural Readjustment

Irrational redundant construction is a chronic disease long existing in the field of China's economic construction. In recent years, under the circumstance wherein the characteristics of a buyer's market have emerged in the market situation, the evil consequences caused by irrational redundant construction over the years, such as the dislocation of the industrial structure, waste of resources, the overstocking of products and vicious market competition, have brought increasingly serious harm to the development of the national economy, greatly hampering the reform and development of SOEs.

To stop irrational redundant construction, it is necessary, through accelerating reform of the investing and financing system, to establish, in the fields of investment and construction as well as in the key links of investment decisions, effective restraint mechanisms to block the sources of irrational duplicated construction and, while safeguarding rational market competition, resolutely stop irrational duplicated construction.

With regard to the projects already formed by previous redundant construction and seriously excessive production capacity, it is necessary to respect the market choice made in accordance with the principle of selecting the superior and eliminating the inferior. In light of the target set for rationalizing the industrial structure, we should adopt economical or necessary administrative measures to carry out comprehensive readjustment and regrouping of trades and eliminate a batch of surplus production capacities.

IV. Developing Market System, Creating Good Market Environment

In the market economy, the market system provides the basic conditions for the subsistence and development of enterprises. An important guarantee for the successful reform and development of SOEs lies in developing and perfecting China's multi-level market system, establishing a unified national market conducive to the rational flow of commodities, funds, technologies and personnel, establishing a good market order, and creating a market environment for fair competition.

V. Fostering and Developing Intermediary Organizations, Perfecting Intermediary Service System

Intermediary service is the objective requirement of the market economy, the intermediary service system has the important functions of service, communication, coordination, notarization and supervision in the market economy, and plays an important, indispensable role in maintaining and standardizing the social and economic order.

The reform and development of China's SOEs require that the intermediary organizations provide high-efficient and fair intermediary services. For this, it is necessary, on the basis of legalization and standardization, to promote the standard development of the intermediary service system. First, intermediary organizations should completely dissociate themselves from government departments, and all commercial intermediary agencies set up by government organizations should be dissolved or reorganized, the involvement of power in intermediary service should be avoided, so as to guarantee the objectivity and fairness of intermediary service. Second, it is essential to intensify rule by law and strengthen supervision, all intermediary organizations must be set up and operated according to legal procedures and accept the restraint, regulation and supervision of law. Finally, it is necessary to energetically rectify and standardize intermediary markets, promote legitimate competition and realize the practice of promoting the superior and eliminating the inferior.

VI. Establishing Sound Economic Legal System, Forming a Standard Environment Ruled by Law

The basic strategy set down by the 15th National Congress of the Party for governing the State according to law and establishing a socialist state ruled by law sets still higher demand on China's legal construction. In order to guarantee the reform and development of SOEs, it is necessary to intensify efforts to further accelerate the construction of a legal system for China's socialist market economy. In compliance with the objective need of the market economic development and the in-depth reform of SOEs, it is particularly necessary to step up formulating laws and regulations for improving and maintaining the market order, strengthening macro-control, improving social security and promoting social progress.

While instituting the separation of government administration from enterprise management, it is necessary to use laws to standardize and regulate the relationship between government administration and enterprise management. In the operation of State-owned assets, the transaction of property rights of SOEs and other aspects, it is imperative to quickly establish a definite legal system to use the legal means to guarantee the preservation and increment of the value of State assets, standardize the restructuring and regrouping of SOEs, particularly small and medium-sized ones, stop the phenomena such as turning public property into private property, and evading and abolishing bank debts and earnestly preventing the loss of State assets. It is necessary to step up the establishment of a legal system conforming with national conditions for opposing monopoly, guaranteeing fair trade and protecting fair competition, create and safeguard a market environment for fair competition, spurring SOEs to improve efficiency and realize the rational allocation of resources.


Please visit People's Daily Online --- http://www.peopledaily.com.cn/english/