The reform of China's public institutions is a pressing and demanding task.

A high-profile international conference on international experience with public service reform and China's public institution reform, organized by the National Development and Reform Commission (NDRC) last month, highlighted the government's determination to reform the country's 1.3 million "shiye danwei," or public institutions.

The NDRC is currently responsible for a national research project in regrouping public institutions which employ more than 28 million people.

Together with China's extensive restructuring of State-owned enterprises (SOEs) and the reshuffling of governmental agencies, the new reform is another tough nut for the government to crack as the country is in a market-oriented economy.

So what are these public institutions?

The term "shiye danwei" is familiar to Chinese people and reminds us of life-long labour and "cradle to grave" welfare under the planned economic system.

Before China embarked on reforms and opening up in 1978, all institutions were funded and run by the State and were deemed as a means to implement the State's policies. Affiliated to government departments, these institutions provide services in science, education, public health, culture, media, publishing, entertainment and sports.

The government has direct administrative control over the institutions, but more and more disadvantages have surfaced since 1978, along with the implementation of reform policies.

Some measures have been taken to improve the situation, but today there are still around 1.3 million public units in the country, among which 952,000 practise independent accounting.

More than 70 per cent of the country's scientific research personnel as well as 95 per cent of teachers and medical workers are working in public institutions. Expenditure on public institutions accounts for more than 30 per cent of government revenues, which is a heavy burden on the country.

Currently there are three kinds of public institutions. One kind shoulders some administrative functions or serves government departments, mainly engaged in supervision, quality inspection, authorization or logistic services. Another is serving the market and enterprises through consultation and co-ordination services. The third, which represents the majority, is engaged in public services, including education, public health, science and technology, culture and agricultural technology.

But in real practice, while enjoying the benefits granted for public institutions, some of these institutions act like government departments or enterprises. They have not performed their duties to effectively provide public services, but distort market order with their administrative power or pursuit for enterprise interests. Some have even become hotbeds for corruption and led to great losses of State assets.

Thus future reform should focus on adjusting and regulating the sector for a new public service system.

Public service institutions in Western countries mirroring our "shiye danwei" are usually called non-government organizations or non-profit organizations.

Obviously, the basic areas for public institutions to make a presence should be those that cannot be reached by the government or enterprises. Or in some other areas, public institutions can replace the government or enterprises with a more convenient and cost-effective operation. Thus their main stage should be with public affairs, public services, social security, charity and service-related activities. And public institutions should not make profits through performing their duties.

Echoing the SOE and government reform, an eye-catching challenge is how to downsize institutions and reassign redundant employees.

To solidify the public service system, some existing institutions should be discharged. Some with administrative functions should be transferred into government departments, others doing business activities should be changed into enterprises. The number of institutions receiving full government financing should be limited through merger and reorganization. And a supervisory mechanism should be set up to supervise the operation of the public institutions.

This is certainly no easy job.

Millions of former SOE employees have been laid off since major reform of the SOEs took place in the 1990s. The government had to make great efforts to help these people find new jobs. Re-employment centres were established to ensure their basic living expenses and provide skills training. In some cities, the social security network has begun to encompass them as well as other unemployed people.

When major moves were taken to reshuffle governmental agencies in 1999, some former government employees found their leeway in public institutions. But this time, there is no other option available.

On-going reform of the public institutions will put an end to the life-long tenure system, and employment contracts will be introduced and drawn up between institutions and their employees.

A great number of employees will be squeezed out through a proper competitive procedure. Thus, an improved social security system will be vital for smoothing the process.

What's more, reform is an enormous systematic project, which demands further efforts beyond solving the problems of redundant labour and heavy fiscal burdens. Importance should be attached to restructuring the remaining majority that provide public services.

The government should adopt a clear strategy to build a fair and effective public service system, including basic public health, education, science and technology and culture. The system should be able to benefit most people, including those in rural areas and on the lowest rungs of the social ladder.

Fairness is the most important point in the reform, which will require the government to clarify its top responsibility, adjust the key points of public investment, establish a transfer payment system and rational supervision frame.

Public service providers should also follow the market rules of free entry and fair play.

Many enterprises that endured the reform are now operating with renewed vigour and efficiency.

Reform of public institutions, though a tough task, will eventually benefit the country's overall development.

(China Daily May 10, 2004)