It is widely expected that the year 2007 will witness
acceleration in the restructuring of large State-owned
enterprises.
The giant State-owned enterprises (SOEs) are mostly under the
direct management of the central government. After the
restructuring of the past several years, the number of central SOEs
is down from 196 in 2003 to 159 in 2006.
The central SOEs make fat profits every year for the State, but
most have much to improve in corporate governance, management,
innovation and efficiency. Some are even under question about their
ability to remain profitable.
From an academic perspective, there are several reasons that the
central SOEs should sharpen their competitive edges through
fundamental reform.
First, incompetent central SOEs may spoil the efforts of
promoting the market economy in China. The weak central SOEs may
create the market expectation that central SOEs can only make money
under State protection.
With this expectation, private businesses and foreign invested
businesses are probably willing to invest in connections with the
central SOEs in an attempt to share their profits gained through
the assumed protection. This is certainly fatal to the
establishment of a free economy.
Second, if the central SOEs remain incompetent, they may hurt
the public welfare. This is easy to understand when the SOEs
collect higher-than-normal prices for their products or
services.
But even if their prices are not out of line thanks to
administrative controls, these SOEs still create government expense
in the form of special subsidies to inefficient businesses.
As a non-profit organization, any subsidy from the government is
paid for by the taxpayers. In this way, the incompetence of central
SOEs always hurts the public interest.
Third, central SOEs are mostly the suppliers of products and
services either key to the national security or indispensable to
everyday life.
If they are not strong in efficiency or creativity, their
services or products will not be good enough to satisfy the market.
This will not only harm consumers' confidence in SOEs but also pose
substantial threats in case of national emergency.
The government has acknowledged the importance of reforming the
central SOEs. As the transition period for China's World Trade
Organization membership came to an end in December, 2007 is the
first year of fully opening up.
The Beijing Olympics in 2008 and the Shanghai Expo in 2010 will
both create abundant commercial opportunities for the Chinese
market.
Success depends on the competence of businesses as well as the
government's management of the State-owned resources as to whether
the country makes the best use of these precious opportunities to
complete its transition to a real market economy.
Therefore, the central government will definitely speed up
reforming the SOEs.
Some are worried that the mergers and consolidation of the
central SOEs may enhance their monopoly, worsen the unfair
competition, and hurt the private sector.
Such worries are not baseless and the academics have been
discussing this issue for decades. Though there is not unanimous
consent among researchers on the relationship among the government,
the market and business, it is certain that a mechanism encouraging
regular cooperation between the government and business would lend
a strong hand to boosting the country's strength in global
commerce.
Therefore, the authorities should attach top priority in
restructuring the central SOEs to reorganizing resources and
improving their business efficiency to make them better positioned
in global competition.
Since the central SOEs are meant to focus on core industries
related to national security, they have a good opportunity to
establish cooperation with private businesses and foreign-invested
ventures.
However, if the central SOEs do not have modern corporate
governance, innovative research and development, and proper market
targets such cooperation may not come easily.
In the latest round of restructuring, some of the central SOEs
obtained listings on the stock market.
The shares of the central SOEs were warmly received. It is a
clear signal from the market that the restructuring of the central
SOEs is considered beneficial to their business.
Actually, some central SOEs made remarkable progress after their
restructuring, which has verified market expectations.
As the supervisors of the central SOEs, the State-owned Assets
Supervision and Administration Commission (SASAC) should take
seriously its role in the restructuring. It should choose the SOEs
to be restructured according to the national strategies for
industrial development and national security.
SASAC needs to draw a clear line between the rights of ownership
and management during the restructuring.
On the one hand, SASAC should keep a close watch on the SOEs as
the representative of their owner the State. On the other hand, it
should also refrain from intervening in business decisions that
should be made by an SOE's board of directors.
It is also an important part of the duty of SASAC in the
restructuring to introduce strong incentive policies for the
SOEs.
(China Daily March 8, 2007)