Official Sure State Firms Can Turn Around

A top official of Liaoning Province expressed his confidence in the success of the province's campaign to bail out unprofitable State-owned enterprises (SOEs).

Wen Shizhen, secretary of the province's Communist Party Committee, predicted that less than 30 per cent of the province's large and medium-sized SOEs would still be losing money by the end of the year, according to a report by Wednesday's Chinadaily.

"I estimate the figure can be as low as 25 per cent," he said in an interview with Chinadaily.

Liaoning has the largest number of State-owned enterprises of all of China's provinces. "They were the most influenced by the planned economy in the past," Wen said.

In 1997, when China started a campaign to make its debt-ridden SOEs profitable within three years, most of Liaoning's large and medium-sized SOEs were in the red.

Most of these enterprises stopped losing money last year, and showed a net profit of 3.28 billion yuan (US$400 million), according to Zhang Guoguang, governor of the province, who revealed the figures last month in a report to an inspection team from the central government.

Profit in the first half of this year was 4.3 billion yuan (US$518 million).

The two major goals set for the three-year campaign are reversing the trend of unprofitability in most of the large and medium-sized SOEs and introducing a modern corporate mechanism.

"In view of the overall situation, these two goals can be achieved by the end of this year," Wen said.

Explaining the second goal, Wen said efforts were made to convert most of the SOEs into share-holding companies and change the ways of management.

Since 1998, when the province mapped out a plan to adjust its State-owned sector, 70 per cent of the SOEs became share-holding companies through joint ventures, listed on the stock market or changing their bank debts into shares.

Fifteen per cent of SOEs, crucial to the national economy, remained the property of the State or became joint stock firms with the State holding the majority of shares.

The remaining 15 per cent were too deficit-ridden to be saved. Half have gone bankrupt. "The other half will be closed down," Wen said, stopping short of giving a deadline.

Wen said establishing a management system that suits a market economy was the prime task in changing the SOEs into modern corporations.

In the past, SOEs like iron and steel companies had to operate their own support industries, including ore mining, transportation and medical treatment for workers.

Reform: Efforts Aimed at Upgrading Firms Technology

Under the reform, those affiliated businesses became independent companies and "social functions," such as hospitals and schools, were turned over to local governments.

Benxi, a major iron and steel company in Liaoning, had 23 affiliated factories separated in the past three years.

Separating the factories caused a jump in the number of unemployed and cost the government dearly in payments to workers laid off.

Wen said the provincial government spent more than 10 million yuan (US$1.2 million) to relieve Liaoyang Petrochemical Corporation of its "social burdens."

Chen Shinan, mayor of Liao-yang, said his government spent 15 million yuan (US$1.8 million) to help the hometown oil giant.

The corporation also reduced its management staff from more than 400 down to 130.

The corporation benefited greatly from the reduction effort. Last year, it lost 640 million yuan (US$78 million), but the loss dropped to 180 million yuan (US$22 million) early this year. The corporation is expected to show a profit of 38 million yuan by the end of the year, according to Chen.

Wen said technological upgrading was another major objective of the reforms.

"Compared with the enterprises' mechanism transformation, technological innovation is more important," Wen said.

In the past five years, more than 80 billion yuan (US$9.64 billion) have been spent in upgrading the enterprises' technology.

In 1999, the province used 70 per cent of its US$3 billion in foreign investment on technological improvements.

Liaoning's iron and steel industry began to show a profit last year thanks to the technological improvement of products, Wen said.

Anshan Iron and Steel Group, a typical example of a State-owned enterprise under the planned economy system which had suffered losses for many years, has extricated itself from dire straits through technological innovation.

Anshan replaced its open-hearth furnaces with technically advanced converters and introduced the hot-rolling production line, resulting in reduced costs and better quality steel.

"These are the most profound, most significant changes in State-owned enterprises," Wen said.

Wen attributed part of the province's economic growth in the first half of this year to support from the central government and an improvement of the international market situation that began in late last year.

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