HONG KONG -
As China and Russia draw closer economically, especially
in energy cooperation, Chinese economists are studying
the two nations' sweeping, but very different economic
reform models.
China undertook massive
privatization in the 1990s but many of its
state-owned-enterprises (SOEs) are non-performing,
deeply indebted and profoundly in need of overhaul.
Chinese economists urge a closer assessment of Russia's
massive privatization, known as "shock therapy" or the
"big bang" model, and what they see isn't always
reassuring for China.
These questions of reform
models are even more relevant in the wake of Russian
President Vladimir Putin's first state visit to China
during his second term from October 14-16, putting the
Sino-Russian relationship in the world spotlight. On the
agenda for both China and its former socialist ally,
energy cooperation was top priority, though China did
not receive a commitment for an oil pipeline that it
covets. Over the last couple of years, China has been
plagued by an energy shortfall and thus has been
pressing Russia to build a long and costly conduit to
channel crude oil to its northeast. Russia appears to be
holding out, possibly in favor of Japan, though the
final decision has not been announced.
Still,
China is looking closely at Russia's economic reform
models, though they are fraught with problems and have
given rise to oligarchs who have not spread the wealth
to those who need it the most in an economy that is rich
in resources but far from robust. China, making the
transition from socialism to a market economy, has its
own huge state enterprises, conglomerates, private
economic titans and mandarin oligarchs who benefit
enormously from their proximity to power - and who also
don't have the welfare of the masses at heart.
Valued at US$1.2 trillion, China's SOEs play a
major role in the national economy. But as the country
furthers its reform and opens up to the outside world,
private enterprises mushroom and even outperform the
SOEs, especially in the service sector. In some
export-oriented provinces like Guangdong and Fujian,
private exporters have overtaken their state-owned
counterparts to become the pillars of their local
economies. Except for only a few giant SOEs in
nationalized industries, most medium and small ones have
been insolvent and forced into privatization, though
China vocally adheres to "socialism with Chinese
characteristics", which in theory requires robust
nationalization.
In the process of SOE reforms,
Beijing demands that national assets be properly
reorganized rather than in effect embezzled in the name
of privatization. In February, vice-premier Huang Ju, in
charge of SOE reorganization, ordered setting up an
all-new management system of state assets in three
years. Eight months later, in an October inspection
tour, he called for acceleration of SOE reforms for the
second time.
Huang's initiatives are echoed by
Lang Xianping, a finance professor at the Chinese
University of Hong Kong, who warns that not only private
business but also SOEs themselves are eroding state
assets - the most pressing reform issue. This argument
generated a grueling debate among analysts. Finally,
they have come to agree that if China copies Russia's
big-bang privatization of the 1990s, it will end up with
the same problems that Russia is now facing.
Evaluations of how fast national assets are
being improperly appropriated - some call it embezzeled
- in China seem quite varied at the moment, said Wang
Chaocai, a well-known analyst of financial science at
the ministry of finance. By the most conservative
estimate, the country is losing more than 100 million
yuan ($12.05 million) every day and 40 billion yuan per
year from its national assets. Yet, according to the
state-owned Assets Supervision and Administration
Commission (SASAC) under the State Council, the annual
loss should be no less than 150 billion yuan. SASAC is
the supreme body in charge of the SOEs, charting its
reforms and restructuring path.
Some experts
suggest that China, appearing flummoxed and staggering
at the crossroads of SOE reform, should undertake a
thorough study of the contemporary Russian history. In
the early 1990s, Russia followed Poland and adopted the
"shock therapy" approach - implying that macro- and
micro-reforms should be concurrent and radical - instead
of taking the gradualist approach. During this period,
state-owned assets - including national enterprises,
public services, news media and natural resources -
mostly fell into the hands of a small minority well
connected with president Boris Yeltsin. Gradually, these
people became an informal confederation, a plutocratic
bloc of huge wealth and vast business contacts.
This group, however, was facing vehement
resistance from what Russian scholars called
silovikis, a coalition mainly comprising seasoned
politicians, elderly officials, veteran military leaders
and KGB bigwigs. Ever since Vladimir Putin took over
from Yeltsin four years ago, he has been introducing
silovikis into the core of his government to
check the all-powerful tycoons.
The plutocrats
and the silovikis have now evolved into two
separate, conflicting interest blocs. As a result of
Russia's undeveloped justice system and rampant
corruption, the strife between the two blocs defies
solution by legal arbitration and thus triggers civil
disorder and social crimes.
Economist Joseph E
Stiglitz has pointed out the inherent defects of "shock
therapy" in his paper "After the Big Bang? Obstacles to
the Emergence of the Rule of Law in Post-Communist
Societies", co-authored with Karla Hoff, a senior
research economist with the World Bank Group. "The
[shock therapy] strategy adopted in Russia and many
other transition economies was the 'Big Bang' - mass
privatization of state enterprises as quickly as
possible - but it could not help to develop the rule of
law; that is because the privileged bourgeoisie, the
beneficiary caste of privatization in nature, find that
the lack of rule of law, if it persists, will facilitate
them plundering from others fructus industriales,
or industrial fruits, and the plunder will not be
impeded only in a society without transparency, fairness
and the rule of law," they write.
The thesis
analyzes: "A society where the rule of law has been
instituted together with the rule of transparency and
justness will effectively stop the wealth pillage. But
the privileged bourgeoisie fear the rule of law, once
established, will liquidate and deprive them of their
property. So they will try hard to prevent the
establishment of the rule of law if only to protect the
wealth they have already plundered. Unluckily, nothing
could stop them, as they gang up with the officials and
control the national economic arteries."
In
China, those who obtain state-owned assets at large
discounts or simply steal them are not in the minority.
For example, a 5,684 square meter commercial property
still under construction in Ningxia Autonomous Region
was assessed at 150 yuan only and then sold during the
reorganization of a government-owned construction
company, the official mouthpiece People's Daily
reported. Chen Wei, former futures manager of the China
Building-Material Industrial Corporation for Foreign
Econo-Technical Cooperation, used his power to embezzle
a large amount of national assets under the cover of
stocks and futures transactions, the official Xinhua
News Agency revealed on its website.
Then, what
is the degree of resemblance between China today and
Russia in the 1990s? Is it likely that China's political
oligarchs will develop into an interest bloc? Observers
have already noticed a trend that the descendants of
many paramount leaders are creeping into the management
of mega-conglomerates that virtually monopolize the
national economic arteries. Jiang Mianheng, son of
former President Jiang Zemin, is a board director of CNC
International Corporation Ltd, one of the three largest
telecommunication service providers in China. Li
Xiaopeng, son of former Premier Li Peng, is deputy
general manager of the State Power Corporation that
dominates the domestic power supply, and his sister Li
Xiaolin is vice-chairman and CEO of China Power Company.
This should sound the alarm for SOE reforms.
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