Chinese SOE Reform Makes Marked Progress

Almost all provinces and autonomous regions in China are expected to see improved profit margins in state-owned enterprises (SOEs) by the end of this year, according to the State Economic and Trade Commission.

Official figures show that Liaoning, Jilin and Heilongjiang provinces in northeast China, where a great number of SOEs are located, saw a jump in profits of SOEs during the first seven months of the year, reversing the trend of losing money over the previous five years.

From January to July, SOEs in China boosted profits by 1.9 times over the same period of last year, more than doubling the total figure for 1998.

At the same time, all but two of the country's 14 pillar industries reaped higher profits than one year ago. After ending a money-losing streak of six consecutive years last year, the textile industry made total profits of 13 billion yuan in the January-July period of this year. State-owned textile enterprises are expected to earn five billion yuan of profit this year.

Since the SOEs as a whole had seen continuous decline in profits before 1998, the Chinese government launched a campaign in a bid to turn around the money-losing SOEs in three years ending this year.

Through the adoption of the proactive fiscal policy and a series of enterprise reform measures, as well as the deepening of reform in the field of social security, the government has laid a foundation for the further development of SOEs.

Over the past few years, the government has written off more than 100 billion yuan worth of bad debts that the SOEs owed to state-owned banks. In addition, it has planned a total of 460 billion yuan worth of debt-to-stake swaps for debt-laden SOEs.

The government has also allocated 19.5 billion yuan from the proceeds from treasury bonds to pay the interest of loans that SOEs borrowed for technology upgrading.

Beijing Cement Plant, the first SOE reaching a debt-to-stake swap agreement with a debt management company in China, has successfully reduced its debt-to-equity ratio from over 80 percent to 32.4 percent. The enterprise is expected to earn 20 million yuan of profits this year.

By the end of 1999, 81 percent of the large and medium-sized SOEs had been turned into limited corporations. A modern corporate system is taking shape among the SOEs. More than 500 state-owned enterprises have cut their links with government authorities and become independent companies.

In June this year, the first group of independent boards of supervisors took office in large SOEs.

These reforms of the operating system and restructuring of SOEs have not only benefited the sustained growth of the economy, but also greatly enhanced the competitiveness of Chinese enterprises in the international arena.

While a number of huge state-owned enterprise groups came into being over the past few years, a great amount of redundant and outdated production capacities, mostly small SOEs, have been shut down in such industries as textiles, coal, metal, construction materials, oil refinery and sugar.



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