[ 周大勇 ]——(2003-10-28) / 已閱42634次
3. The reasons of SOE problem behind
According to above, after 20 years reform, China has got both achievements and still problems in SOE sector. Why those defects of SOE still exist and can’t be gotten rid of in keeping with the reform?
From 1978 on, the Policy of CCP has been concentrating on mainly two missions, one is how to manage the SOE and make the SOEs adapt to the market economic, two is how to ensure a stable social situation during deeper reform.
Here is a basic question need to be answered but always neglected: Why exactly need we have stated-owned asset in market economic country? What is the aim to manage SOEs? The empirical answer to this question is, if a state are engaged in operating asset, it has usually following aims:(1) maintain public ownership in order to ensure the equity in distribution;(2) treat SOEs as the main instrument to realize industrialization;(3) ensuring the state control in strategically economic department; (4) try to provide more employment chance; (5) ensure the tax and state revenue; (6) provide public products and services which the private economy hard to arrange; (7) prevent natural monopoly from intervening the market and (8) try to maximize the profit.
Among above aims of SOE, expect the last one, the others are all non-commercial aims. If the country wants to realize these non-profit aims, it has to scarify some benefits to carry out the policy, and to fulfill the demand of social stability. In another word, if the government wants to pursue non-profitable goals, it must give up or decline the request of profitability, because the two sides are contradictory. On the contrary, if SOE pursue the commercial target, it should get rid of the burden of those non-commercial missions. There is no way to catch two birds by one stone.
Yet, the Chinese government expected not only to maintain profit by means of emphasizing the autonomy through the reform of the SOEs, but also to maintain the SOEs as government’s tool to settle urban surplus labors, to gather more revenue and to provide the public products. SOEs have to pay more tax, have no right to dismiss personnel, even a lowest range worker, besides, they have to accomplish the plan of authorities or to supply some kind of product to the government without repay in order to meet the request of the state beneficiation. These double roles of SOE determine that the SOEs are unable to concentrate on profitability.
At this point, one should ask, why the Chinese government fulfills the social responsibilities by control the SOEs? Comparing two types of ownership and their contribute, it is clear that the private sector are more efficient by managing the asset. So if the inefficiency of the SOE is evitable (6) , why the state kept such large amount state- owned asset in hand and doesn’t let them distributed? If the asset can be arrange and thus increase in value, it does not matter, who occupy the property, as state has power to collect tax, the result thus will be alike wherever the form of ownership. However, based upon three reasons, Chinese government did not carry out relevant policy to distribute the property of SOEs formally.
1) The SOE problem is determined by the characteristic of the country. The present leading generation has still much benefit in SOEs, because at one hand, SOE is the represent of the socialism economy, in which should state-owned sector dominate. It’s impossible to get rid of the traditional impression of socialism for the Chinese Communist Party under its own name. Exactly or only through emphasizing the character of the State, the Party continues to enjoy the privilege as the only ruling party. Furthermore, the state assets in SOEs are an insurance of the rule; the party should be able to have power over some asset to deal with some emergency such as riot, unrest, and natural disasters and to provide social welfare because of the weak of social security system. At another hand, the bureaucrats of the Party have their personal profit rooted in SOEs, this we have pointed out before.
2) The capability of private sector were unconvinced before the 15th conference of CPP. The private economic sector has been viewed as beneficial supplement of the socialism economy. There were previously suspect about the ability and contribution of the non-state owned sector. As we have seen in Fig 1, the non-stated sector increased very rapidly and accumulated tremendous properties in relative short period, the state had to affirm the legal position of the private sectors. Only after the 1994, when the Party decided to let some medium and small SOEs contracted out or leased to private, the non-state economy began to obtain the equity right and chance as state-owned sector.
3) When the whole economic environments are taken into account, then we can find that there were no condition to reduce the some public burdens of SOE, because before the establishment of a consummate legal system and the social security system, SOE must act as the natural insurance for the citizens. The private economic sector pursues only profit, thus it is not tend to take the responsibility of accommodation more labor forces. In the case that the economic situation turns worse or the reform was not successful or fail, the SOEs can still keep the society from collapse even through inefficient operation.
Based upon above reasons, China took a gradually reform strategy, in which the SOEs played an important role to maintain a safe social and economic reform in such a big country. However, if there were not further reform, the problem of the SOEs will lead to discontent conversely.
4. Argue of some reform plans and suggestion
At earlier time, in order to meet the development of the reform, some economist held the view called “depoliticization”, it means reducing the influence from the authority step by step, therefore to prevent it from making manageable decisions for SOEs directly as well as to cut down the interference from the Party. Such kind of plan suggested three steps, separation of enterprises from the government, establishment of mechanisms for selecting managers and release from the social responsibilities.
As we have observed, the reform followed partly this kind of theory. Unfortunately, such suggestion focuses only on management of SOEs, hence it is not the end solution. Keeping with this way, then there are rare possibilities to carry out further reform by SOEs themselves automatically and the SOEs performance will not turn better dramatically. Because government does not want to voluntarily give up their right in the SOEs. Even the government officer has still benefit from the enterprises; they can not only usually become tribute from the enterprises, but also write off some personal expense in the enterprise. Even if the enterprise falls in bad situation, they benefit from helping the enterprise to apply state allocation or from obtaining a piece of the property through the disposal of the enterprises properties.
At another side, SOE prefer to stand under the cover of the government too, so that they can continue enjoying the benefit of de fecto soft budget constraint (7) . And at least, the manager will not be laid off. Besides, so long as the enterprise is state owned, managers are still in bureaucratic hierarchy, they are lacking of inner incentive to take commercial risks like a professional manager. Although the corporate governance are adopted, they are not owner of the asset eventually, so it is better for them to maintain the current position as a cadre, enjoying the respect and welfare as a officer, but not a businessman. Therefore, the normal manager in SOEs is still conservative in contrast with those in private sector.
Based on above points, if the enterprise is as state owned, the defects can’t be dispelled, then the way left is to change its basic character, it means the change of property ownership. Actually, when Chinese government began to establish a modern enterprise system, the transformation of ownership was implied. Nevertheless, privatization is still a sensitive topic in China, however the transformation of ownership and offering equal treatment to private owned enterprise, protecting legitimacy of private property has already become a common social understanding in China. Most Chinese economists accept now, that the transformation of ownership must to be involved to eliminate the defects of the SOE further. There are many suggestion in according to the transition, for example, sale as a whole or MBO (management buyout) are suggested to solve the medium and small state-owned enterprise issue, because it is viewed can guarantee the value of the enterprise’s assets better; concerning the large-scale enterprises, it is proposed through listing in stock market or reorganizing to mix-share corporate sand to conquer all sorts of weakness of the country as a single stockholder, and through permitting the privately owned capital get involved progressively to implement the transition course gradually. The analyzing of these suggestions is out rage of this essay, but the goal of these suggestions is alike. In fact, a lot of local enterprises have already been reformed in such direction. Chinese State Council determined to reduce the state-run share of the state-run listed companies in 2002, is also reviewed as the behavior that the state-run capital withdraws from SOEs progressively too.
Certainly, there are lots of different opinions. Many people worry that it will lead to the running off of state-run assets during the transition process. For instance, in some cases, the whole enterprise asset will be sold to former manager for free or for very high discount. Though there is clear discount method stipulate, some manager layer and government officer can also conspire in order to defraud larger portion of state assets. Such kind of act leads to losses of the state-run assets naturally, furthermore, it is also a fair problem, and it is apt to cause the sharpening of social dissatisfaction.
The key problem here is, whether a proper method exists to prevent state-run assets from losing at present, when a transition is necessary for further SOE reform? I think one must realize, in China, the corruption can exist under any reform method. Even under the reform carried out through securitisation, the result can be also unjust, the example in Russia was very clear. Furthermore, according to simple economic performance, securitisation system reform can't solve the problem of inside management. Because the securitisation reform will produce many minority stockholder, which are unable to supervise the manager layer of enterprise. No matter what kind of method will be implemented, we should appraise the affect of transition by whether it can promote enterprise's benefit, government revenue, enhance the return of banks loan and enlarge the income of workers after enterprises reform.
Nowadays, an " ice-roll theory" prevails in Harbin, a city with deep SOE tradition: If state-owned enterprise does not keep on reforming (transition of the ownership), its assets will also reduce rapidly like ice-roll under the sunshine, and even disappear at last. On the contrary, even though the assets belong to private, the private capital is still social capital too, which will concentrate on increasing in value and keeps on operating the asset well.
Based on the reform history in China, if we emphasize only on losses of state-run assets, it does not help transformation of enterprise smoothly, on the contrary, it will lead to assets shift. This kind of case has taken place in early township enterprise transformation. Since some villages and towns government insisted to keep a certain portion of government share in the process of transformation, this made the operator of reformed enterprises worry about the change of the government policy. So, those operators managed to take enterprise's assets away and set up new enterprises in their own control. So, to ensure a smooth and efficient reform, government should give new owner or operators of the enterprises more confidence and legal guarantee.
What is more, the government plays continually an important role in the whole process. At one side, it should bear relative responsibilities in the course of reform, that is, to undertake the cost demand of the reform. Reform should not be a free lunch either for new operators or owner of the reformed assets nor for the government. At another side, to create a suitable circumstance for the reform is also very important, the government should strengthen the construction of a fair market and relevant regulations, because even under private ownership system, the questions such as information asymmetry, encourage incompatible, and responsibility reciprocity also exist. So that enterprise operator can also infringes the owner, if there were no a competitive market, which reflects abundant information of the management of enterprises performance.
Whether we can strip out the social burden of SOE, also depend on a series of changes of external environment condition. If the problems such as price twist, industrial structure twist and undeveloped labor market cannot be dispelled through macroscopically policy reform; property transition can only cause inflation, unemployment and a series other problems.
5 Conclusion
The SOE reform is one of the big issues during the Chinese market economic reform since 1978. China has turned out to be the largest and most advanced economy. Concerning the SOE reform there are also many thorny problems, though since 25 years the Chinese government has been taking efforts to promote economic competition, to strengthen the financial system, to facilitate labor market flexibility, to set up social security system in order to cooperate the SOE reform. SOE problem in China has its own historic and practical background, even we didn’t discuss the transformation in former Soviet Union and East European Countries, but the situation is more complicated in China. But if Chinese government keeps on implementing a gradual reform policy, supporting the transition of state-owned properties and at the same time enhancing the internal market fairer and competitiver, the SOE problem will be solved eventually. The SOE reform will be end till there is no concept of SOE, that means that all the enterprises will be treated alike according to the market rules and national regulations.
Fig 1 china’s industrial output by ownership
Fig. 2 national fixed-asset investment in china
Fig 3 rate of urban unemployment in china
notice:
1, http://www.nhh.no/geo/chinese/: the History of Soe in China
2, http://www.nhh.no/geo/chinese/: the History of Soe in China
3, Chinadaily 2002
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