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China's Money Losing SOEs Make Progress
After nearly three years of reforms, 3463 state owned enterprises (SOE) and large- and mid-scale state holding companies out of 6599 money losing enterprises, or 52.5%, are now profitable according to the newest statistics. Experts say that money losing SOEs have entered a new phase and that the goal of making most SOEs profitable in three years is within sight.
In 1998, the State Council set a goal to have most large- and mid-sized money losing SOEs profitable in three years. This was the key to spurring SOEs to reform. This year is the last year of the three year goal.
According to the numbers, China has 14,000 state owned enterprises and large- and mid-sized state holding companies, which are still one of the major engines of China's economy. At the end of 1997, when the goal was first set, there were 6,599 money losing SOEs and large- and mid-sized state holding companies. The thrust of the goal set by the State Council was that most of these 6,599 money losing enterprises should be profitable by this year. Or in other words, not every single one of the 6000-plus SOE had to be profitable but most of them, if they turned an overall profit, it would be considered a success.
To reach this goal, China's leaders adopted a series of fiscal policies including a moderate monetary policy, improving export drawbacks, cracking down on smuggling, controlling the production of goods with surpluses, expediting the process of annexing bankrupt companies, accelerating the establishment of a social welfare system, and cutting interest rates on bank loans ten times. Also, it used annexing bankrupt companies, debt-for-equity swap and discounted rates on technological restructuring to cut the financial burden of enterprises.
After two years of hard work, more than half the money losing SOEs have turned profits. The textile industry has basically completed layoffs and cut down its scale, in the end of 1999 it made 900 million yuan in profits, ending six years in the red. The metals and construction material industries have also moved into the black. The coal and military industries have been able to keep their losses in check. At the same time, the overall picture for state owned industries has improved. In 1999, after the earnings and losses were added up, it made 96.7 billion yuan in profits, up 77.7 from the year before.
Things looked rosy in the first half. In the first quarter, large- and mid-sized enterprises nationwide earned 30.2 trillion yuan, up 271.7% from last year, despite nine provinces losing money. Some department predict that state owned industries will earn more than 120 billion by the end of the year, setting a new historical high.
However, the esteemed Chinese economist Zhang Weiying pointed out that although the SOEs have made huge advances, people shouldn't be blindly optimistic. There is still five months until the end of the year. We must continue to work hard. He says that currently SOEs are facing fiercer and fiercer competition. In the competitive market, SOEs must be innovative. The managers of the SOEs must be very aggressive for their company to do well.
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