August 3, 1999

Since this year, China has continuously implemented active financial policies and further expanded its domestic demand, resulting in a favorable running posture of the national economy, the emerging of the energetic changes on the economic growth structure and the considerably improved economic running quality. The industrial production also maintained better growth. In particular, the economic efficiency of the state-owned enterprises has taken a favorable turn obviously. The efforts on eliminating and reducing losses have achieved initial success and the falling tendency of enterprise economic benefits has been kept within limits.

In the first half year, China achieved an industrial added value of RMB 970.3 billion nationwide, increased by 9.4%, with the growth amplitude increased by 1.5 percentage points comparing to the corresponding period. The state-owned and the state-owned holding industries have achieved an added value of RMB 553.8 billion, increased by 7.6%, 4 percentage points higher than the same period of last year. Non-state-owned industries continuously maintained a fast growth tendency. Driven by the policies of expanding domestic demand, the growth of heavy industry is faster than that of light industry. Heavy industry has increased by 9.9%, 0.8 percentage point faster than light industry. The production and marketing levels of the industrial enterprises have been improved remarkably, resulting in a selling rate of 95.66% for the industrial products of the whole nation, increased by 0.77 percentage point than the same period of last year. The economic efficiency of enterprises has been improved obviously. Only in the first half of the year, the state-owned and the state-owned holding industries earned a profit of RMB 24.31 billion, increased by 2.8 times than the same period of last year. All those efforts made the state-owned enterprises stride a firm step forward towards the objective of shaking off the difficulty within three years.

While making great efforts to advance the sustaining and fast growth of the national economy, the reform of the state-owned enterprises has been further deepened, new progress also has been made in areas such as general quantity control, structure readjustment, market exploitation, technical renovation, management enhancement, market order trimming, etc.

? Enterprise Reform and Shaking-off Difficulty Efforts Have Achieved Obvious Effect. The objective of the three-year reform for the state-owned enterprises has been further clearly defined and the responsibility system for eliminating losses has been further put into effect. Due to continuously carrying out the guideline of "grasping the large-sized enterprise and unlashing the small-sized enterprise", a number of new large-sized enterprise groups have been formed in the sectors such as communication, coal, military industry and so on. Some orientation problems emerged in the reform of the state-owned small-sized enterprises have been normalized initially. Some enterprises undertook standardized company system renovation and the enterprise listing efforts are under way successfully. On the basis of summarizing the experiences accumulated, the efforts on enterprise bankruptcy have been intensified and some annexation and bankruptcy programs have been examined. New progress has been made on increase of capital and reduction of debt. Policies on transferring creditor's right into stockholder's right have already determined. New step has been stridden for separating governmental functions from enterprise management. The liquidation and disposition on the transfer of the enterprises set up by military, armed police and political-legal organs are under way. Efforts on terminating the linkage between the central Party and government organizations and the economic entities they set up and the enterprises they managed have been completed fundamentally.

? Progress Has Been Made on Total Quantity Control and Closing and Stopping the Operation of "Five Kinds of Small Plants". In the first half year, the textile sector has successfully washed out 1.8 million backward cotton textile spindles, channeled off or laid off approximately 200,000 workers and staff, reduced the losses by RMB 2.19 billion than the same period of last year. The total quantity control over the petrochemical industry has been put on position basically. The supply and demand on product oil and main chemical products are balanced. From January to May, coal sector realized its phased objective by closing mines and shrinking output. The whole nation clamped down and closed 23,168 small coal mines, shrunk or reduced the output by 100 million tons, and accomplished the annual targets by approximately 90% and 40.4% respectively. The catalogue of backward productivity, technology and product to be washed out has been published. The first catalogue involved 10 trades, 114 items in total, including metallurgy, coal, petroleum, petrochemical, machinery, and etc. Certain progresses have also been made on closing or stopping the "five kinds of small plants" including small refinery, small glasswork, small cement plant, small thermal power plant, small iron and steel plant, which were commonly characterized by backward technology, wasting energy, inferior quality, environmental pollution and incompliant with safe production conditions.

? New Breakthrough Has Been Achieved on Enterprise Technical Renovation and Technical Advancement. The direction of technical renovation is more specific than ever, the investment structure on technical renovation has been improved considerably, and investment on improving product quality and saving energy increased sharply. The important technical renovation programs of the State determined in recent years have been straightened out and some redundant construction programs have been canceled. Progress has been made on the technical innovation taking enterprise as main body. The reform of 242 scientific research institutions affiliated to 10 state bureaus managed by the State Economic and Trade Commission has been completed basically.

? The Efforts on Exploiting the Internal and External Markets and Market Order Standardization Have been Intensified. By continuously boosting the combination of industry and commerce and vigorously exploit the domestic market, in particular, the rural market, a number of farm machinery and consumables suitable for rural characteristics have been developed. The pace of circulation system reform has been quickened. The market order of important products such as product oil, coal, alcoholic liquor and so on has been improved. The price self-discipline is improved steadily. New marketing ways such as chain operation, agency system, material distribution and the like are developed smoothly. Final award has already been made on the first newsprint paper antidumping case. The nationwide campaign of crackdown on smuggling has achieved remarkable effect, relieving the severe impact on the domestic market from smuggling.

? Enterprise Management is further Enhanced. By continuing the activity of studying Han Dan Steel Corporation, enterprises were driven to intensify the efforts on cost management, funds management and quality control. The training for business managers has been strengthened. In the first half year, the State Economic and Trade Commission has held 5 times of training courses for the managers of enterprises that were to shake off difficulty. The economic and trade commissions at the level of province, autonomous region and municipality directly under the central government have also held similar training courses in succession. Managers of 2178 key enterprises in total required to shake off difficulty have received the training. The training is widely welcomed by enterprises and has played an active role in advancing the deficit-ridden firms to walk out of difficulty.

Of course, the task of reform and shaking off difficulty for the state-owned enterprises remains arduous. The obvious improvement of the economic efficiency for the state-owned enterprises accompanies with the nature of economic recovery. It is worth noting that the growth speed of the industrial production since March this year has been slowed down. The growth speed of nationwide industrial added value has been dropped by 1.2 percentage points, from 10.6% from January ( February to 9.4% in the first half year. That for the state-owned and the state-owned holding industries has been dropped by 1.2 percentage points, from 8.8% from January ( February to 7.6% in the first half year.

In the second half year, centering on realizing the objective of the three-year reform and shaking off difficulty for the state-owned enterprises, the following seven important works must be well done.

(1) Controlling the Total Quantity Continuously and Washing out the Backward Productivity with a Firm Hand. Total quantity control and closing and stopping the "Five Kinds of Small Plants" is an important task for the economic efforts in this year. We should concentrate our efforts on the implementation according to the fixed objectives. Textile sector shall shrink and wash out 9.5 million cotton textile spindles on an accumulative basis and accomplish the task of reducing the numbers of spindles and personnel and eliminating losses substantially. Coal sector shall complete the task of closing and stopping 25,800 illegal and irrational coal mines and shrinking the output by 250 million tons. The total output of raw coal shall be controlled within 1.03 billion tons. The processing quantity of raw oil shall be strictly controlled within 161 million tons and the output of steel shall be shrunk by 10% than last year.

(2) Intensifying the Efforts on Market Exploitation and Strictly Standardizing Market Order. Measures include actively expanding export, implementation of the policies on increase of export rebates, optimizing the structure of the export commodities, intensifying the efforts on the self-management of export for enterprise, readjustment on the export commodity management catalogue, lifting the unreasonable restrictions on the export of some industrial products and attempting to retort the declining tendency of foreign trade export. The antidumping mechanism must be perfected so as to safeguard the normal production and operation of the domestic enterprises by law. The advantages of industry and trade combination and the roles of market exploitation by industry and commerce cooperation shall be fully played. The domestic market, especially the rural market must be actively exploited.

(3) Quickening the Pace of the Annexation and Bankruptcy and Advancing the Optimization and Reorganization of Enterprises. Centering on the shaking off difficulty for such important sectors and important enterprises as textile, coal, metallurgy, nonferrous metal, military industry and etc., the annexation and bankruptcy programs must be determined without losing any time and the problems of a number of severely deficit-ridden, insolvent and hopeless-in-making-up-deficit enterprises must be solved as many as possible, thus eliminating some sources of losses. Closely combining the annexation and bankruptcy and the optimization, reorganization and structural readjustment of enterprises, the optimization and upgrade of industrial structure, enterprise structure and product structure shall be advanced.

(4) Accurately Grasping Policies and Seriously Doing the Transferring Creditor's Right into Stockholder's Right Well. Financial assets management companies shall be established in the state-owned commercial banks to process bad assets by law and transfer the debts into shares for the bank loan of some enterprises. This is a very important measure to eliminate financial risk and relieve the burden of enterprises. We should seriously select, strictly check and recommend good enterprises and prevent running into mass action. In carrying out our work, stress must be projected. From easy to difficult, the work shall be carried out step by step and perfected steadily in practice.

(5) Supporting Important Technical Renovations and Quickening the Pace of Industrial Upgrade. In order to guide and advance enterprises to quicken the pace of technical advancement and industrial upgrade, the Central Government decided to take effective measures and policies to support the important technical renovation programs of the State. We should well master and implement the important policies of the State, elaborately select programs firmly centering on "variety, quality, efficiency and substitutes for imported goods", placing stress on substantial results and putting an end to the redundant construction with a firm hand and the expanding the productivity in disguised form. On program selection, stress shall be placed on the important sectors, important enterprises and important regions. Through technical renovation, a great number of the important enterprises shall be enabled to further improve their competitive power on market. On the technology and equipment required for the technical renovation, the foothold shall be mainly based on domestic products, at the same time, some urgently required technology and equipment that could not be produced shall be imported as appropriate.

(6) Widening the Channel of Fund-raising and Quickening the Pace of the Construction of Social Security System. Laying-off and divided flow, manpower reduction and increase of efficiency are the important conditions for the state-owned enterprises to realize the objective of shaking off difficulty within three years and do the state-owned enterprises well. It is also an important policy. We shall make great efforts to well handle the relationship among reform, development and stability, to raise social insurance funds through various channels, to advance the establishment of the social security system, and ensure the basic living of the laid off workers. Meanwhile, all available means shall be employed to help them in their reemployment.

(7) Cleaning up Loans in Arrears and Quickening the Fund Turnover of Enterprise. Reciprocal outstanding payment and staying higher receivables among enterprises have become a big chronic and stubborn disease in the running of the economy in China, which intensified the financial strain of enterprises and made many enterprises hard to continue their production and operation. We shall lose no time to investigate the outstanding payments among enterprises, on the basis of making the actual conditions clear, put forward pay-off debt scheme as quick as possible and solve the debt chain problem for enterprises.