Reforming China's state-owned white
elephants By Qiu Xin
HONG
KONG - As China's economy grows much too fast and
economic reform is deepened in order to slow it down,
Beijing over the past few years has been accelerating
the restructuring of its state-owned enterprises (SOEs).
These gargantuan enterprises used to be pillars and
drivers of the Chinese economy but most have now become
crumbling, non-performing
liabilities.
The restructuring process
amounts to virtual privatization. It often
includes selling the SOEs to new investors
and to the previous management; they consist of communist cadres,
who are interested in taking over and
transforming the clunkers into money-makers. The lack of
a check on those cadres' power in the SOEs often provides fertile
ground for restructuring-related corruption and malfeasance,
since the cadres still have the final say
on how the SOEs should be sold and to whom. And that's even
before debut of the restructuring aimed at achieving
efficiency.
The problem is more prominent in
East China's Jiangsu province that boasts a large number
of non-performing industrial SOEs. In the second
half-year, SOE restructuring in Jiangsu was speeded up.
Nonetheless, malpractice soars, and so do the sit-ins
and demonstrations launched by helpless, despairing
workers and mostly unemployed or soon to be unemployed
workers - though demonstrations are strictly controlled
by the Chinese government. That control, like the SOEs
themselves, is not always effective.
According
to foreign media reports, workers of the Nanjing
Analysis Equipment Works in the provincial capital
Nanjing have been protesting since late October. They
staged a sit-in before the factory gate shouting slogans
and their need for work. Some state that the communist
cadres have been lining their pockets through SOE
restructuring, in which cutting back on unnecessary
workers is part of the process.
The Chinese
government now owns about 9,000 "major" SOEs, but it
plans to reduce the number to 1,200 by the end of 2005.
From 1998 to 2003, some 24 million laid-off workers from
SOEs have sought help from re-employment centers, but
that figure does not count those who had not sought
assistance for various reasons, such as paltry
compensation or work in the underground economy.
In the first half of this year, some 1.96
million SOE workers were laid-off. By the end of June,
the official urban unemployment number was 8.37 million,
or 4.3% of the urban employment population. This figure,
however, excludes those from rural areas, migrant
workers and those unemployed who have not registered
with the government.
In fact, the Nanjing SOE
demonstration was not the only protest staged by SOE
workers in October. One well-known domestic magazine,
China Newsweek, reported on October 25 that the Nanjing
Glassware Factory is also facing the same issue of
restructuring and workers out of jobs. Some slogans
posted by the workers also denounce the alleged
embezzling of funds by cadres.
Liu Donghe, vice
director of the Jiangsu Well-off and Modern Life
Research Center, told the magazine in an interview that
the factory operation was to be sold on the cheap to the
management, without considering the workers' interests.
That is why workers became outraged. Liu concluded that
the protesting banners, slogans and outraged workers
have become the most frequent scene in the latest round
of SOE restructuring in Nanjing.
Political
analysts argue the rising demonstrations related to SOE
restructuring can be attributed in part to the hastened
acceleration of SOE reform, which has long been
advocated by Vice Premier Huang Ju. It is widely
believed that the hastened reform opens up loopholes in
the current management system of SOEs and puts at stake
the workers' interests and state-owned assets.
Huang, in charge of economic matters, pledged to
speed up by all possible means the restructuring of SOEs
at an October national meeting on economic affairs. For
the past few years, he has repeated the same line,
endeavoring to remove some restrictions and promising to
grant approval for restructuring. Lured by Huang's loose
supervision over reform, a large number of SOEs have
been undergoing major restructuring, frequently giving
rise to such malfeasances as management buy-out (MBO),
the purchase of a company by its management.
According to official statistics, 61.18% of the
transfer of state-owned assets in Nanjing took the form
of MBOs between January 2003 and January 2004. Affected
workers charge that some SOE executives sold out the big
enterprises on the cheap to themselves or their
relatives, while some allegedly embezzled public money.
Furthermore, under-the-table deals are taking
place at the expense of state-owned assets. Even some
local government agencies in charge of transferring
state-owned assets, like the SOEs, have been found
operating hand in glove with businessmen of questionable
ethics. According to the report published by China
Newsweek, an investment firm from Shenzhen in the south
decided to buy out Zhongshan Group, once the province's
largest SOE running trading, manufacturing and retailing
businesses. The firm deposited US$2.41 million into the
designated account by the official agency. Only 10 days
later, the agency abruptly told the investment firm that
the purchase was canceled due to Zhongshan's failure to
offer some legal documents. Such an explanation was soon
refuted by the investment firm, which argued that
authorities had handpicked a local company to buy out
the group at a much lower price.
Experts
cautioned that the authorities should stay on alert
against the erosion of massive state-owned assets in the
province. By the end of 2002, Jiangsu boasted a
state-owned property total of US$77.82 billion and net
asset of $24.42 billion. If it does not enhance the
supervision and transparency of the SOE restructuring,
more and more money will slip into the pockets of
unethical SOE management and businessmen.
Apparently, Beijing has realized the magnitude
of problems in Nanjing's SOE restructuring, and it has
set out to do something about it.
The
state-owned Assets Supervision and Administration
Commission under the State Council is undertaking a
comprehensive survey of nationwide SOE reorganizations.
The commission intended to organize a joint
investigation panel together with the Ministry of
Finance, Ministry of Supervision and State
Administration for Industry and Commerce, and to inspect
the proprietorship assignments of some large SOEs in
Nanjing on October 15, according to a report by Beijing
Times, an influential daily paper based in the capital.
However, the joint investigation panel did not
arrive on schedule, which is probably because Jiangsu
province's State-owned Assets Supervision and
Administration Commission, the chief "chamberlain" in
the region, had commenced an unprecedented and unusual
self-check or internal self-investigation. Skeptics
perceive the self-check as nothing more than a
face-saving compromise that would definitely fail to
clamp down on corruption. Therefore, inevitably, the
workers huddled and sat in to protest the proprietorship
being rigged or manipulated. At this point, the
disordered state of affairs is widely imputed to Vice
Premier Huang, whose pressing for accelerated SOE reform
is regarded as approval of what often amounts to
corruption and malfeasance.
As a matter of fact,
a special restructuring proposal working to the
employees' advantage had been devised in the late 1990s
when some SOEs began groping for ownership reform, China
Newsweek reported. The proposal allowed the working
staff to purchase 20% of the corporate shares and
procure the management first rights before they
gradually bought out another 51% of the shares in the
following years in order to become the legal owner of
the enterprise.
But the foregoing proposal was
annulled in April 2002, while the so-called "Three
Transfers SOE Reform" was activated instead in Nanjing.
The "Three Transfers" refers to the transfer of
employment contracts, state-owned assets, and
state-owned liabilities. Pursuant to a relevant statute
issued by the Nanjing city government, the share of
state-owned assets should be scaled down to around 30%
by the 2004 deadline.
Critics point out that
Huang has furthered the lack of transparency inside the
pilot SOE restructuring. A Jiangsu-based journal
sponsored by the official Xinhua News Agency published a
comment from an anonymous reader who criticized the
ongoing unpopular SOE reform. "The SOE reform is to
guarantee the accruement of state-owned assets, to
attract investment and to develop the economy. Then why
not sell the state assets at good prices through open,
fair and just transactions?"
The "Three
Transfers" reform being expedited is turning out to be a
fiasco. First of all, the brunt is borne by the SOE
employees, many of whom lose their jobs and receive
irrational compensations and drastic exploitation in the
process. Second, these people will be stricken by severe
poverty when their inadequate compensations are used up,
and thus social stability will be endangered. Finally,
huge amounts of state-owned assets from "restructured"
state-owned enterprises are draining away through the
corruption that often dominates the headlines today.
In the early 1990s, Russia launched a massive
mission to privatize of its own State-Owned Enterprises,
and the national economic arteries as a consequence fell
into the waiting palms of a minority of plutocrats who
tend to hamper institution of the rule of law. Now, will
China's state enterprise reform end up in the same trap?
This is an urgent question that Vice Premier Huang Ju
must assess wisely before he can answer in the best
interests of China.
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