The central government plans to use dividends from some
state-owned firms to bolster social security funds when necessary.
The plan will go into effect this year on a trial basis.
It's part of the government's program to start collecting
dividends from all state firms under its direct control next year
to better allocate the nation's capital to avoid unwanted
investment.
The program will be piloted first within selected central
government-controlled enterprises this year, the State Council, or
China's Cabinet, said in a statement late yesterday, without naming
any of the companies involved.
The dividends will be collected jointly by the Ministry of
Finance and the State-owned Assets Supervision and Administration
Commission, the statement said.
The statement didn't specify what proportion of profit each
state-owned enterprise must pay the central government. The
dividends will re-allocated to support the nation's strategic
planning and can be used to bolster social security funds when
necessary, it said.
China's central government halted collecting dividends from
state-owned enterprises in 1994 as part of efforts to help
financially-troubled firms use profits for their own
development.
The central government began to consider a plan in 2006 to
resume demanding dividends from state firms, which have been
posting strong earnings in the recent years on the back of fast
economic growth.
International economists including some at the World Bank have
suggested that dividends should be collected from Chinese state
enterprises in a bid to divert excess capital available for
investment.
The World Bank has argued that Chinese state-owned firms, with
no need for dividend payouts, usually reinvest their profit
inefficiently, leading to greater risks of inflation.
The 159 state companies under direct control of the central
government logged a combined profit of 754.7 billion yuan (US$100.4
billion) in 2006, up 18.2 percent from a year before.
Li Rongrong, director of the state-asset regulator, said last
year that the dividends from the state companies will likely be
used to fund public works projects and support the development of
select industries.
Li also noted that the profits can help wrap up reorganizations
of some state-owned companies and will likely be invested in
research and development.
(Shanghai Daily September 14, 2007)