| Foreign
capital in SOE reform a step forward (11/12/2002)
By translating opening-up into a driving force for reforming the
State sector, China has not only fulfilled its commitment to the
World Trade Organization (WTO), but also made best use of its new
membership.
A provisional regulation was jointly released by several key economic
departments on Saturday regarding the use of foreign capital for
restructuring State-owned enterprises (SOEs).
While leaving foreign investors speculating what proportion of
shares they can hold in such SOEs, the regulation clearly drives
home the authorities' determination to expedite SOEs' reform.
Undoubtedly, the regulation is a continuation of a circular issued
early last week, which gives foreign investors wider access to China's
stock market, by allowing them to buy State-owned or institutional
shares in home-grown listed companies through open competition.
The government has listed many State-run enterprises on the stock
market over the past decade and is considering ways to reduce State
shares further in coming years.
The country's transition from a planned economy to a market economy
has led to a prevailing understanding that without fundamental shake-ups,
low efficiency State firms will not be able to keep their footing
in the market.
Therefore, measures must be and have been taken to prevent SOEs
from becoming a major impediment to the development of the fledgling
market economy.
In fact, the country has achieved remarkable progress in the reform
of SOEs over the past years.
State firms have withdrawn from many competitive sectors. With
many small SOEs being transformed into non-State-run companies through
mergers and reorganization, the share of the State sector in the
national economy has shrunk substantially .
For instance, the proportion of the total value of output of State-owned
or State holding industrial enterprises to the country's total,
has plummeted from 80 per cent in 1980 to about 44.4 per cent in
2001.
Meanwhile, most large and medium-sized SOEs have carried out efficiency-orientated
corporate reform, and the monopoly of State firms in most sectors
has been broken.
As a result of better efficiency and competitiveness, while the
number of SOEs in China fell from 102,300 in 1989 to 46,800 last
year, the overall profits they made leapt to 238.9 billion yuan
(US$28.7 billion) in 2001 from a mere 74 billion yuan (US$8.9 billion)
in 1989.
However, the reform of SOEs remains the most difficult and most
challenging central link to the country's overall economic restructuring.
Settlement of many other problems like banks' bad loans and lay-offs
has been bottlenecked by sluggish SOEs' reform.
SOEs currently occupy an inordinately large part of the financial
resources of both the banking sector and the stock market. The downsizing
of SOEs has led to the lay-off of up to 24 million workers in recent
years.
To give a fuller picture of the basic role of the market in the
allocation of resources and create an equal environment for all
market players, breakthroughs in SOEs' reform are urgently needed.
Adjusting the distribution and structure of the State sector and
reforming the State property management system must be deemed a
major task for the country's deeper economic restructuring.
The introduction of foreign investors in the reforming of SOEs
is surely a step forward and one more significant than merely observing
the country's promises made upon its WTO entry.
It is a widely-held belief that foreign investors will bring not
only capital, but also advanced technology, management and much-needed
corporate governance to China.
Admittedly, sophisticated corporate governance reform cannot be
achieved overnight, given the immensity and complexity of reforms
needed in the SOEs.
Addressing these problems calls for a coherent policy framework.
So the government's role is to ensure transparency and sustainability
of its policies, in line with the core principles of fair competition.
(China Daily)
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