The SOE reform in China
Zhou Dayong
Summer semester 2003
Europa-University Viadrina,Germany
Abstract:
The essay tries to study the process of the state-owned enterprise (SOE) reform in China. Chinese economic reform resulted in significant influences on all social aspects, SOEs as an especially economic sector suffers a change both in internal management as well in the outside economic environment. I try to discuss in the essay, that the Chinese SOE reform has made large progress, however, SOE can’t conquer many problems by itself, the resolution of SOE lies in elimination of SOE by a further reform including property transition and construction of a fairer market.
Outline
1. History of the SOE reform in China
2. The main problems left in the reform
3. The reasons of SOE problem behind
4. Argue of some reform plans and suggestion
5. Conclusion
1. The history of the SOEs reform in China
1.1 the establishment of SOE
In 1949, the Chinese Communist Party (CCP) came into power in Mainland China. One goal of the CCP was to lead China into a modern socialism society. In economic scale, it meant mainly industrialization. According to CCP’s policy, the form of industrial organization must be based upon state owned enterprises. The state-owned industrial system was set up by two ways. One was the new enterprise after the liberation. At the end WWII, most industrial sectors in China, such as communication network, transportation and power industry were destroyed and had to be rebuilt, at the same time, military industries and financial sector e.g. banking system was directly nationalized from the former control of Gongmin Party. Another way was transformation from the private ownership to state-owned enterprises. The private properties were regulated under state management, in some cases, for instance in commercial scale, the former private enterprises were bought by local government gradually. Till 1952, about 83% of industrial companies were controlled by the state; a socialism economic system was announced established. (Fig 1)
1.2 The reform began from 1978
Until Chinese economic reform began in 1978, public ownership in forms of state-owned and collectivized were only legal ownership of property. In industrial sector, the enterprises were controlled respectively under central or local governments, the latter made decisions for the enterprises, the enterprises were not profit seeking economic entities, they were simply workshops to execute centrally set policies.
In 1970s, the discontent of economic situation accumulated constantly, because the defects of central planning system became obviously more and more. Around 1978, the rural reform took place from grass roots and spread quickly, till 1982, the collectivized people commune had to be abolished. In company with the reform, the free market in a certain degree was developed. At the same time, the problem of lack of autonomy in SOE, which led to low efficiency, was also taken into account. Therefore, from 1978 on, the Communist Party, under the leading of Deng Xiaoping, put hand to solve the SOE problem. From 1978 to 1984, the efforts of the reform concentrated on giving the SOEs more autonomy by allowing them increased authority over the allocation of their profits, and limited production autonomy. The rest profits could be used either to finance increased investments or to pay bonuses to employees. Besides, administrative control over SOEs was decentralized to local governments. But as the prices were still centrally determined and SOEs did not realize the cost of their fixed and working capital, the reforms did not improve much the resource allocation or the utilization of capital. (1)
1.3 Contract is the main form in the second phase.
From 1985 to 1992 was the second phase of the SOE reform. The policy named Zhenqi Fenkai (separating government from enterprises), the central government decided to turn SOEs into truly independent production and management entities, and stipulate that enterprises must take responsibilities for their own profits and losses by means of contracts and leasing. The common practice was: the enterprises sign a manage contract with the responsible authorities. Under the contract, enterprises were not only allowed to retain the extra profits after they had fulfilled the contracted quotas, but also allowed to arrange their own manage including dismiss or enroll personnel. By the end of 1987, about 80% of state-owned industrial enterprises adopted the contracts system. In 1991, over 90% of the previously contracted enterprises signed the second round of contracts. Meanwhile, based on the first round contract practice, the content of the contract was improved; the authority introduced more rational norms to examine the fulfillment of contract. A multiple index system was formed, which included economic efficiency index, development potentiality index and management index etc.
During this period, the practice of shareholding reform appeared as well. This new creature was adopted at first by village enterprises, which come from the former collective enterprises. The village enterprises were always short of capital, so they raised money from the village residents. Along with the reform moved forward from countryside to cities, the shareholding system was also introduced into SOE reform. Early in April 1984 Chinese reform committee organized a seminar to discuss the exploitation of shareholding in SOE reform. That conference drew a conclusion that shareholding system is a rational way to restructure the collective and state owned enterprises in cities. In July the same year, the first shareholding company after Chinese liberation—Beijing Tianqiao department store (shareholding) came onto horizon. Till 1991, there were already 709 state owned enterprises restructured along shareholding system. These enterprises included industrial sector companies, trade companies, also financial enterprises, construction enterprises etc.
Besides, in the second phase of SOE reform, tax system had also a great change. Instead of handing in profit, SOEs paid a certain portion of tax according to their revenue level. The State and local government collected tax separately; this measure was implemented to loose the relation between SOE and local authority.
However, during this period, the SOEs showed their weakness in competition with the new developed private companies, joint venture companies and township and village enterprises, because at one side, the manager of SOEs didn’t get use to do business in a free market, the attitude of waiting, relying on government and begging for help were widespread. At another side, the relationship between government and enterprises became more complicated, because, although under the contract system, the government have no right to interfere in the SOEs management, they still rely on each other: the government need the SOE to have good performance in order to settle surplus labor forces and continue to play a role in maintain the social stability, at the same time, to increase the government’s revenue to deal with the raising infrastructure investment and other expense. The SOE, on the other side, need the protection of the authority, in order to obtain more chance to get loans, subsidizes or orders in government arranged projects. Besides, even though most of direct subsidies form the state have been cancelled, many domestic savings were also channeled into SOEs, because banks had been directed to take up the role of making "loans" to SOEs instead of the state. The total of non-performing loans has grown so large that it started to endanger the banking system. (2)
1.4 The MES is the key point in the third phase of the reform and the achievements
Form 1993 on, the reform moved into the third phase, the aim called setting up the modern enterprises system (MES). The Third Plenary Session of the 14th Party Central Committee in November 1993 proposed: "It is the inevitable request for market economy to set up modern enterprise system, it is a direction of the SOE reform of China. "This indicates that SOE reform enters a new stage of system innovation. In 1994 the State Council determined to chose 100 state-run large and medium-sized enterprises to launch an experiment to implement restructure along MES. The basic demands of the experiment were to "define right and responsibility clearly, separate government function from enterprise management, and operate scientifically”. Those requirements were in fact the basic characters concerning modern enterprises system. Along the policy of building MES system, and based upon the development of the whole economy, there were many achievements reached in the third phase.
1) By 2000, most large and middle scale SOEs have set up modern enterprise system tentatively. According to the investigation in 2473 enterprises of State Statistics Bureau 2000, 2016 enterprises have restructured, account 81.5%. Among those enterprises, 603 turned to Co., Ltd., accounts for 29.9%; 713 were restructured to limited companies, accounts for 35.4%; the number of solely state-owned company is 700, accounts for 34.7%. As for their management, 82.2% established shareholders’ meeting, 95.1% established the board of directors, and the board of supervisors has been established in 84.5% of enterprises. Therefore, corporate governance structure has already taken shape in SOEs.
2) In this phase, during" the Ninth Five-Year Plan", China began to adjust the state-run economic layout strategically, The idea called Zhuada Fangxiao (to grab the big ones and let the small ones go). The reform for medium and large SOEs focused on fostering a batch of trans-regional, inter-trade, inter-ownership big SOE groups through reorganizing, transforming, uniting annex. In 1997, the number of national large-scale enterprise groups expands to 120. For instance, under approval by the State Council, China Petrochemical Corporation, China Oil and Natural Gas Corporation were predominated to two large groups, whose assets of enterprise group reached in 40 billion dollars, such measure improved the intensification degree and international competitiveness of Chinese petrochemical industry greatly. Another example was in telecommunication market, six major SOE telecom groups (China Telecom, China Mobile, China Unicom, China satellite communication, China railway communication) were predominated. So a new form of competition in field of communication service took shape.
By the end of 2001, national key enterprises add up to 2710, total assets up to 1,280,450 million dollar. Among 179 super-huge enterprise groups, whose business income is over 500 million dollar, there are 165 state-owned or state-holding enterprise groups.
3) During this phase, separating government function from enterprise management was strengthened harder than before. Chinese government started administrative organization structure reform in 1998. Through this administrative restructure, the departments of the State Council reduced from 40 to 29. At provincial level, government departments reduced from 55 on average to 40, about 20% departments were simply. Some departments were cancelled totally. The cancellation of government departments indicated that the SOE stay in the charge of specialized official department manages changed completely. Meanwhile, the administration rank of the state-owned enterprise were cancelled, some administrative approval procedure were simplified.
4) To relieve the social burden of SOEs, re-employment service center were set up to shunt the redundant staff of enterprises. It has been a great difficult problem of the SOE reform from begin on that enterprises are overstaffed. It is an important measure of revitalizing the SOEs to dismiss and distribute workers. In June 1998, the state council required all regions to set up re-employment service center system. National Ministry of Labor and Social Security emphasized that the laid-off worker in SOEs must 100% enter the re-employment service center. The re-employment service center determined to provide serve functions such as grant basic living cost, withhold social insurance, organize job training and launch employment etc. for laid-off worker. The fund, which used for ensuring laid-off worker's basic life and paying the social insurance premium, come from financial budget, enterprise as well as societies (namely form contribution or from laid-off worker themselves), each part bears 1/3 of the whole fund. The re-employment service center provides service for laid-off workers for at longest 3 years. When they can’t reemploy after this period, can still enjoy unemployment compensation or the society relieve according to relevant regulation.
In this reform stage, re-employment service center played a positive role on maintain social stability. From 1998 to the end of 2001, 25,500,000 laid-off workers emerged (Fig 3) in national state-owned enterprises, among them more than 17 million people were reemployed, more than 3 million people retired. However, re-employment service center was only a transitional institute, because the SOE had to still take responsibility to settle down those laid off workers. According to a new policy, all laid-off workers after 2001 are treat as unemployed and have to enter free labor force market.
5) In order to extricate SOE from predicament, especially to resolve the problem of high liability-asset ratio, by December 2000, 580 SOEs began to implement debt-to-share swap, that mean the enterprises’ debt were recalculated as share (enterprises’ equity), so that the interest burden of SOEs were lightened. In the process, most of unperformed loans would be calculated as shares, which would be gathered and supervised by a new state commission-- State-owned Assets Supervision and Administration Commission (SASAC). Till 2001, the total amount of money of debt-to-equity swap account 40,5 billion dollars, and the result was that the average asset-liability ratio of debt-to-share swapped enterprises dropped from more than 70% to under 50%.
2. The main problems left in the reform
After three steps reform, the SOE acquired more autonomy, as we have seen, the whole economic circumstance were also better. But because the reform did not touch the socialism idea from begin on, thus the transition of ownership of SOE was left basically unchanged, the defects of SOE could not changed completely. In the context of China’s economic reforms, there are still a few problems in SOE sector existed and have also a deep influence.
First of all, the interventions from the government still maintained influence in SOE. The administrative relation between enterprise and government is still remaining. Even the Local State Assets management office was established, it belong to the same bureaucratic system like former authorities. It can appoint or remove senior executives of SOEs. If enterprise applies to the broad structure, the directors in broad are appointed by it. The office has also a say in the transfer of holdings, corporate mergers, closures or other major changes to the enterprises, it is also charged with the tasks of clarifying property rights and settling disputes (3) . It seemed that the state assets supervisory takes the place of former authority above the SOEs. Moreover, the local government maintains still strong power in local enterprise, they rely on each other as we discussed above. So long as the enterprises are state-owned, whether they are big groups, stock companies or little entities, it is difficult to shaking off the directly or indirectly control from the government.
Secondly, because of the long tradition, enterprises are still taking responsibilities for their employees in pension, medical areas, therefore the so-called “soft budget constraint” cannot be given up completely. Although we have discussed that the Chinese government has managed to start re-employment plan, SOEs also take a part of the fund to support the plan. Correspondenly, government had to shoulder some failures resulted from the mismanagement of SOEs’ and avoid from their bankruptcy, in order to prevent the enterprise from bankrupcy and thus endanger the social stability.
Thirdly, the management of SOEs has low quality compare with other economic sectors. Though SOEs have produced an average 10% growth rate in the value of industrial output during the period 1978-98, this rate is considerably below the average of other sectors. The problem has two reasons. One of them is lacking of the inner incentive of the managers. The SOE managers are not entrepreneurs in the true sense, but bureaucrats at any rate. Their appointment by the government not basically according to their managerial capability, but based on their rankings in the bureaucratic hierarchy through the politic system. Another factor concerns the supervision within the SOE, it is also lacking in most cases. In practice, the position of supervisor in a enterprise is normally taken by staff within the enterprise and in most cases, the position of president of the supervision committee is taken by somebody within the enterprise, who is under the leadership of the directors and managers in his ranks both at work and in the Party. This system makes it very hard for the supervision committee to fully perform its authority (4) .
Fourth, the high liability-asset ratio is also regarded as a fatal problem of SOEs. It was observed, that during the reform period, the liability-asset ratio of industrial SOEs rose from around 11% in 1978 to approximately 65% in 1997. In as many as one-fourth of industrial SOEs, liabilities have even come to exceed assets; these enterprises are in fact insolvent. The World Bank suggests that in debt restructuring may be necessary for the most heavily indebted enterprises to bankrupt. After the implement of debt-to-share swap, the ratio decreased, but the debtor, in most cases are banks, didn’t collect the loan back, so it made the SOE even harder to get new loan for production. (5)
Furthermore, the whole process of the SOE reform companied by a serials of social problems, in compare to some difficulties such as lack or reserve labor force, ageing of the equipments, the most troublesome is the unemployment in large scales. In addition, in rural areas, millions of flowing population has been produced because of the bankruptcy and low profitability of the township and village enterprise. In urban China there are frequent reports about workers’ unrest. Although until now China still maintain a relative political stability, the menace will not fade away in a short time.
国务院办公厅转发国家教委等部门关于创造良好社会教育环境保护中小学生健康成长若干意见的通知
国务院办公厅
国务院办公厅转发国家教委等部门关于创造良好社会教育环境保护中小学生健康成长若干意见的通知
国务院办公厅
国家教委、广播影视部、文化部、国家体委、新闻出版署、全国总工会、共青团中央、全国妇联、中国科协《关于创造良好社会教育环境保护中小学生健康成长的若干意见》，已经国务院同意，现转发给你们，请贯彻执行。
关于创造良好社会教育环境保护中小学生健康成长的若干意见
国务院：
《中共中央关于改革和加强中小学德育工作的通知》指出，“关心和保护中小学生健康成长，不仅是教育部门和学校的职责，而且是全社会的责任和义务。要把社会教育、家庭教育同学校教育密切结合起来，形成全社会关心中小学生健康成长的舆论和风气。”为落实《通知》精神，创
造良好的社会教育环境，保护中小学生健康成长，特提出以下意见：
一、各级教育、文化、科研、新闻出版、体育、广播影视等部门，群众团体和学校，要不断提高认识，从培养接班人的高度，明确自己的责任和义务，关心和保护青少年健康成长。要在当地人民政府的领导下，端正业务指导思想，把为中小学生创造良好的社会教育环境，提到重要议事
日程，因地制宜，制订长远规划和切实可行的措施，并逐步形成制度，加强监督检查，总结推广先进经验。要造成强大的社会舆论，使社会各方面从不同角度为中小学生健康成长创造条件。
二、国家各有关部门和群众团体要千方百计地为中小学生组织各种健康有益的活动。要创造和利用一切条件，尤其是利用历史文物和革命文物等，对中小学生加强中国近代、现代史教育、国情教育、爱国主义教育、社会主义教育和革命传统教育。博物馆、展览馆、科技馆、纪念馆等要
定期免费或低费接待中小学生集体参观。有关部门要定期举办有中小学生参加的艺术节、电影节及歌舞、戏剧、音乐、美术、书法等项活动。要经常组织专业演出团体为中小学生举办专场演出。要积极开展青少年科技活动，举办科普讲座、科技月（周）、科技夏令营、科技影视放映活动。
全国定期举办青少年创造发明和科学论文评比。要在中小学广泛开展各种生动活泼、形式多样的体育活动，组织参观体育比赛，举办体育夏令营等。公共图书馆、科技馆、美术馆、文化馆、体育场（馆），每年要面向中小学生安排内容丰富、健康向上的开放项目，并给予优惠服务。各单位
每年至少要面向中小学生免费开放1至2次。
三、新闻出版、广播影视、文化、教育、科技等一切从事精神产品生产的部门，要努力为广大中小学生提供更多更好的精神食粮。为鼓励更多的作家、艺术家、科学家、教师为中小学生创作教育性强、格调高尚的优秀作品，由新闻出版署、国家教委、文化部等单位主办，全国每三年评
选一次优秀少儿读物，由中国儿童少年基金会设立的中国儿童少年读物奖励基金会对获奖者予以奖励；全国每两年评选一次优秀少儿影片，由国家教委、广播影视部、文化部等单位主办，委托中国儿童少年电影学会组织“童牛奖”评选活动，对优秀影片及其创作、生产人员等给予奖励；国
家教委、共青团中央、文化部和新闻出版署每年“六一”前向全国少年儿童推荐“红领巾读书读报奖章活动”阅读书目，每五年表彰一次“红领巾读书读报活动”先进个人和先进集体，以后还将组织优秀少年儿童广播节目、电视片和优秀少年儿童歌曲等项评选活动。有条件的地方和单位，
要逐步组织一支以退（离）休文艺、教育工作者和老干部为骨干的兼职评论队伍，定期对各种精神产品进行评议，做好舆论导向工作。各省、自治区、直辖市每年要重点扶植1至2部少年儿童影视作品的创作和生产。
四、要继续认真整顿文化市场，严禁编写、制作、出版、发行、销售、播发、租借对青少年有害的书刊、图片和音像制品。凡属已定性应取缔的，有宣扬反动政治观点、凶杀暴力、淫秽色情、封建迷信等内容的图书报刊要坚决销毁，对虽不属于取缔范围，但是格调低下，对青少年健康
成长不利的图书报刊，要进行评论和批评，以抵制其消极影响。这类书刊不得向中小学传播。对少数经批准出版供研究使用但不适宜中小学生阅读的资料，应按照规定严格内部控制发行，任何单位和个人均不得将这类书刊销售、租借给中小学生阅读。文化、电影电视部门要对国产和进口的
影视片、录像带和激光视盘实行严格的审查。对有社会价值和艺术价值，但有夹杂色情内容和容易引起少年儿童恐怖感的和不良行为的作品，或表现现实社会畸形现象的作品，应定为“少儿不宜”，对这类片、带、盘，要严格限制观看范围，不允许向中小学生租售，不许组织中小学生专场
放映，不向未成年人（不满18周岁）出售门票，不允许进场观看；这类影片不缩制16和8．75毫米拷贝，这类录像节目，在社会上发行时，应标明“儿童不宜”，这类影视片也不提供给农村放映队和电视台播放。对有一定认识作用和艺术价值但不易为少年儿童理解，并可能对他们产
生不良影响的影视片，电视台应安排在22时以后播放。
五、文化和工商管理部门要加强对公共文化教育娱乐场所的管理，严禁对少年儿童有害的演出、展览和各种形式的赌博活动。营业性的电子游戏、台球等活动摊点的管理要定点定人，设点要尽量远离学校。营业性的舞厅、酒吧及其他中小学生不宜入内的场所，要禁止中小学生进入。各
种营业性的民间文艺团体举办的演出、展览，必须经过文化和工商管理部门审批。对在公共场所宣扬封建迷信的看相、测字、算命、销售迷信物品者的摊点，公安和工商管理部门应坚决取缔。
六、各地要重视青少年活动场所设施的建设。要从当地实际出发，依靠社会力量，把青少年活动设施的建设纳入城乡建设规划，努力使中等以上城市都建有一定规模和数量的少年宫（家、站）、少年儿童活动中心、少儿图书馆、少年科技中心（馆、站）、儿童公园和剧院等少年儿童校
外教育活动基地。各县、镇也应努力创造条件，建立少年儿童活动场所。任何单位不得侵占、挤占少年儿童活动场所。各地有关部门要加强对所属校外教育机构与活动场所的领导，不断端正业务指导思想，正确处理普及和提高的关系，组织各种活动时要注意把思想性、知识性、趣味性结合
起来，挖掘潜力，扩大容量，更好地为中小学生服务，对开展各项活动所需的经费、人力、物力应尽力给予保证。要定期评选先进校外教育机构，表彰优秀校外教育工作者。
七、重视家庭教育工作。帮助家长提高家庭教育水平，纠正错误的教育方法。有关部门要密切配合，建立家庭教育咨询机构，举办“家长学校”，积极组织广大教育工作者、专家、学者研究家庭教育理论和编写有关家庭教育的参考材料，举办各种家庭教育培训班和讲座、展览、咨询等
活动，总结交流办好家长学校的经验，表彰优秀家长。
八、各地要充分发挥各条战线先进单位、先进人物、退（离）休的老干部、老专家、老教育工作者、老工人的作用。除举办先进人物报告会、先进事迹展览会等活动外，还要有组织有计划地引导中小学校与当地先进单位、先进人物建立经常性的联系。先进单位和先进人物所在的单位要
热情接待中小学生参观访问，共同举办各种有教育意义的活动。中小学校应邀请当地先进人物到校讲故事、作报告，参加学校活动，并可聘请先进人物做中小学的校外辅导员或兼职教员。
九、要运用法律手段，有效地保护中小学生健康成长。各地要加紧制订保护青少年的法规。公安、司法和工商行政管理部门要和有关部门配合，搞好社会治安和文化市场的整顿工作，消除诱发青少年不良行为的因素。学校要对中小学生进行法制教育，做好违法青少年的帮教工作。
十、公安、司法部门要根据有关法规对滋扰学校，破坏学校正常教学秩序的违法犯罪分子，予以严厉打击。
创造良好的社会教育环境，保护中小学生健康成长，是一项长期的、具有战略意义的任务。各有关部门要在当地政府的领导下，根据本意见的精神，结合当地实际，创造性地开展工作。要注意不断总结经验，调整工作部署，扎扎实实、持续地将这项工作做好。
以上意见如无不妥，建议批转各地区、各部门贯彻执行。
1991年10月8日
