Thousands of loss-making state-owned enterprises (SOEs) will be
declared bankrupt in the next few years as China's regulators
accelerate their asset restructuring program.
The move is the latest attempt to restructure and revive
state-owned companies, following a government reshuffle that led to
the founding of the State-owned Assets Supervision and
Administration Commission (SASAC) earlier this year.
Under the program, thousands of state companies will be declared
bankrupt over four to five years, and any recovered income will
mostly go towards supporting laid-off workers of the firms.
A source with the Enterprises Restructuring Bureau under SASAC
told China Business Weekly about 2,000-3,000 companies are
scheduled for bankruptcy within the five-year period.
He confirmed many of the companies are state-owned firms in
"sunset industries" that have suffered long-term losses due to poor
management, outdated skills and technologies.
SASAC Director Li Rongrong said earlier in July at a work
conference the state would speed up policy-mandated bankruptcies of
state-owned enterprises (SOEs).
"Some 10 percent of those companies are depleted SOEs located in
remote mountain areas that rely on natural resources, such as
ore-mining. Most of them could not become profitable again through
restructuring," said Beijing Youth Daily early last
week.
According to the bureau source, who declined to be identified,
more than 200 military companies are among those on the bankruptcy
list.
Previously, such firms stopped trading under China's bankruptcy
law.
The Bankruptcy Law, which was drafted in 1986 and took effect in
1988, is largely obsolete today due to its obscure clauses and poor
supervision.
Its inadequacies have given rise to calls for a new, substitute
law. The State Council issued a provision in 1997 to shore up
bankruptcy activities before a new law is introduced.
The provision requires income generated from bankruptcies to
first be used to fund assistance to workers in the company.
"And disposal of these companies, which are mostly long-term
loss-making companies, will be carried out through public bidding
and negotiations," said another source with the SASAC's Enterprises
Restructuring Bureau, which is responsible for drafting rules for
restructuring of state-owned companies.
Foreign and private funds or companies are now welcome as the
government becomes more aggressive in reshaping State assets.
"There are no restrictions on foreign and private companies that
want to buy stakes in restructuring State-owned companies," said Lu
Hao, vice-mayor of Beijing. As of mid-July, the capital had listed
104 key industrial enterprises that foreign and domestic companies
could acquire.
SASAC, a new super-ministry affiliated to the State Council,
combines functions of the former State Economic and Trade
Commission, Working Committee of SOEs directly affiliated to the
central government, and Ministry of Finance.
The bureau is responsible for supervising and managing the
country's State-owned assets. But it is not allowed to intervene
directly in State firm's business operations.
"It is very hard to differentiate between normal supervision and
unwanted intervention under the current system," said Qiao
Xinsheng, a financial professor.
The commission introduced a long-awaited provision governing the
supervision of State-owned assets earlier this year, setting the
ground rules for their management.
The central government will help firms still in the red after
being declared bankrupt to assist laid-off workers.
The source said local SASAC branches and the local government
will decide what style of settlement will apply to these companies,
either through public bidding or negotiations.
He said both foreign and private sectors could participate in
bidding for those bankrupt companies.
"In fact, in 1997 we initiated a trial program to let
loss-making companies go bankrupt in about 10 cities, and it has
since been extended to over 50 cities," the source said.
He told China Business Weekly the key priority for
companies that go bankrupt is the welfare of laid-off workers.
China has always been reluctant to dismantle failing SOEs
because of the resulting staff redundancies and possibility of
social unrest.
However, SOEs that declare bankruptcy will enjoy preferential
policies in finding new jobs for their employees and restructuring
their subsidies and taxes, the Beijing Youth Daily reported.
For example, they will be allowed to sell their land and assets
in exchange for staff relocation funds. The government will even
provide subsidies if the company does not have enough money to help
its laid-off employees, the source confirmed.
The reform of China's thousands of state-owned companies is one
of the biggest tasks China's central government faces. But it is
also the trickiest, given the need to provide a safety net for
redundant workers to prevent public discontent.
Some state-owned companies, once labeled pillars of China's
economy, have lost their luster in recent years due to poor
management, inefficiency and pressure from private and foreign
firms.
From 1995 and 2002, 7,798 SOEs went bankrupt. But SASAC said, by
the end of 2002, there were still 159,000 state-owned or
state-controlled industrial and commercial enterprises, with an
overall asset volume of 18 trillion yuan (US$2.2 trillion).
SASAC, which represents the state as owner of the assets, now
directly supervises 191 of China's biggest SOEs, including the
market leaders in some sectors. Local SOEs are supervised by local
State asset-management agencies, which are also under SASAC's
control.
(China Business Weekly, August 3, 2003)