The SOE reform in China
Zhou Dayong
Summer semester 2003
Europa-University Viadrina,Germany

Abstract:
The essay tries to study the process of the state-owned enterprise (SOE) reform in China. Chinese economic reform resulted in significant influences on all social aspects, SOEs as an especially economic sector suffers a change both in internal management as well in the outside economic environment. I try to discuss in the essay, that the Chinese SOE reform has made large progress, however, SOE can’t conquer many problems by itself, the resolution of SOE lies in elimination of SOE by a further reform including property transition and construction of a fairer market.


Outline
1. History of the SOE reform in China
2. The main problems left in the reform
3. The reasons of SOE problem behind
4. Argue of some reform plans and suggestion
5. Conclusion


1. The history of the SOEs reform in China
1.1 the establishment of SOE
In 1949, the Chinese Communist Party (CCP) came into power in Mainland China. One goal of the CCP was to lead China into a modern socialism society. In economic scale, it meant mainly industrialization. According to CCP’s policy, the form of industrial organization must be based upon state owned enterprises. The state-owned industrial system was set up by two ways. One was the new enterprise after the liberation. At the end WWII, most industrial sectors in China, such as communication network, transportation and power industry were destroyed and had to be rebuilt, at the same time, military industries and financial sector e.g. banking system was directly nationalized from the former control of Gongmin Party. Another way was transformation from the private ownership to state-owned enterprises. The private properties were regulated under state management, in some cases, for instance in commercial scale, the former private enterprises were bought by local government gradually. Till 1952, about 83% of industrial companies were controlled by the state; a socialism economic system was announced established. (Fig 1)
1.2 The reform began from 1978
Until Chinese economic reform began in 1978, public ownership in forms of state-owned and collectivized were only legal ownership of property. In industrial sector, the enterprises were controlled respectively under central or local governments, the latter made decisions for the enterprises, the enterprises were not profit seeking economic entities, they were simply workshops to execute centrally set policies.
In 1970s, the discontent of economic situation accumulated constantly, because the defects of central planning system became obviously more and more. Around 1978, the rural reform took place from grass roots and spread quickly, till 1982, the collectivized people commune had to be abolished. In company with the reform, the free market in a certain degree was developed. At the same time, the problem of lack of autonomy in SOE, which led to low efficiency, was also taken into account. Therefore, from 1978 on, the Communist Party, under the leading of Deng Xiaoping, put hand to solve the SOE problem. From 1978 to 1984, the efforts of the reform concentrated on giving the SOEs more autonomy by allowing them increased authority over the allocation of their profits, and limited production autonomy. The rest profits could be used either to finance increased investments or to pay bonuses to employees. Besides, administrative control over SOEs was decentralized to local governments. But as the prices were still centrally determined and SOEs did not realize the cost of their fixed and working capital, the reforms did not improve much the resource allocation or the utilization of capital. (1)

1.3 Contract is the main form in the second phase.
From 1985 to 1992 was the second phase of the SOE reform. The policy named Zhenqi Fenkai (separating government from enterprises), the central government decided to turn SOEs into truly independent production and management entities, and stipulate that enterprises must take responsibilities for their own profits and losses by means of contracts and leasing. The common practice was: the enterprises sign a manage contract with the responsible authorities. Under the contract, enterprises were not only allowed to retain the extra profits after they had fulfilled the contracted quotas, but also allowed to arrange their own manage including dismiss or enroll personnel. By the end of 1987, about 80% of state-owned industrial enterprises adopted the contracts system. In 1991, over 90% of the previously contracted enterprises signed the second round of contracts. Meanwhile, based on the first round contract practice, the content of the contract was improved; the authority introduced more rational norms to examine the fulfillment of contract. A multiple index system was formed, which included economic efficiency index, development potentiality index and management index etc.
During this period, the practice of shareholding reform appeared as well. This new creature was adopted at first by village enterprises, which come from the former collective enterprises. The village enterprises were always short of capital, so they raised money from the village residents. Along with the reform moved forward from countryside to cities, the shareholding system was also introduced into SOE reform. Early in April 1984 Chinese reform committee organized a seminar to discuss the exploitation of shareholding in SOE reform. That conference drew a conclusion that shareholding system is a rational way to restructure the collective and state owned enterprises in cities. In July the same year, the first shareholding company after Chinese liberation—Beijing Tianqiao department store (shareholding) came onto horizon. Till 1991, there were already 709 state owned enterprises restructured along shareholding system. These enterprises included industrial sector companies, trade companies, also financial enterprises, construction enterprises etc.
Besides, in the second phase of SOE reform, tax system had also a great change. Instead of handing in profit, SOEs paid a certain portion of tax according to their revenue level. The State and local government collected tax separately; this measure was implemented to loose the relation between SOE and local authority.
However, during this period, the SOEs showed their weakness in competition with the new developed private companies, joint venture companies and township and village enterprises, because at one side, the manager of SOEs didn’t get use to do business in a free market, the attitude of waiting, relying on government and begging for help were widespread. At another side, the relationship between government and enterprises became more complicated, because, although under the contract system, the government have no right to interfere in the SOEs management, they still rely on each other: the government need the SOE to have good performance in order to settle surplus labor forces and continue to play a role in maintain the social stability, at the same time, to increase the government’s revenue to deal with the raising infrastructure investment and other expense. The SOE, on the other side, need the protection of the authority, in order to obtain more chance to get loans, subsidizes or orders in government arranged projects. Besides, even though most of direct subsidies form the state have been cancelled, many domestic savings were also channeled into SOEs, because banks had been directed to take up the role of making "loans" to SOEs instead of the state. The total of non-performing loans has grown so large that it started to endanger the banking system. (2)

1.4 The MES is the key point in the third phase of the reform and the achievements
Form 1993 on, the reform moved into the third phase, the aim called setting up the modern enterprises system (MES). The Third Plenary Session of the 14th Party Central Committee in November 1993 proposed: "It is the inevitable request for market economy to set up modern enterprise system, it is a direction of the SOE reform of China. "This indicates that SOE reform enters a new stage of system innovation. In 1994 the State Council determined to chose 100 state-run large and medium-sized enterprises to launch an experiment to implement restructure along MES. The basic demands of the experiment were to "define right and responsibility clearly, separate government function from enterprise management, and operate scientifically”. Those requirements were in fact the basic characters concerning modern enterprises system. Along the policy of building MES system, and based upon the development of the whole economy, there were many achievements reached in the third phase.
1) By 2000, most large and middle scale SOEs have set up modern enterprise system tentatively. According to the investigation in 2473 enterprises of State Statistics Bureau 2000, 2016 enterprises have restructured, account 81.5%. Among those enterprises, 603 turned to Co., Ltd., accounts for 29.9%; 713 were restructured to limited companies, accounts for 35.4%; the number of solely state-owned company is 700, accounts for 34.7%. As for their management, 82.2% established shareholders’ meeting, 95.1% established the board of directors, and the board of supervisors has been established in 84.5% of enterprises. Therefore, corporate governance structure has already taken shape in SOEs.
2) In this phase, during" the Ninth Five-Year Plan", China began to adjust the state-run economic layout strategically, The idea called Zhuada Fangxiao (to grab the big ones and let the small ones go). The reform for medium and large SOEs focused on fostering a batch of trans-regional, inter-trade, inter-ownership big SOE groups through reorganizing, transforming, uniting annex. In 1997, the number of national large-scale enterprise groups expands to 120. For instance, under approval by the State Council, China Petrochemical Corporation, China Oil and Natural Gas Corporation were predominated to two large groups, whose assets of enterprise group reached in 40 billion dollars, such measure improved the intensification degree and international competitiveness of Chinese petrochemical industry greatly. Another example was in telecommunication market, six major SOE telecom groups (China Telecom, China Mobile, China Unicom, China satellite communication, China railway communication) were predominated. So a new form of competition in field of communication service took shape.
By the end of 2001, national key enterprises add up to 2710, total assets up to 1,280,450 million dollar. Among 179 super-huge enterprise groups, whose business income is over 500 million dollar, there are 165 state-owned or state-holding enterprise groups.
3) During this phase, separating government function from enterprise management was strengthened harder than before. Chinese government started administrative organization structure reform in 1998. Through this administrative restructure, the departments of the State Council reduced from 40 to 29. At provincial level, government departments reduced from 55 on average to 40, about 20% departments were simply. Some departments were cancelled totally. The cancellation of government departments indicated that the SOE stay in the charge of specialized official department manages changed completely. Meanwhile, the administration rank of the state-owned enterprise were cancelled, some administrative approval procedure were simplified.
4) To relieve the social burden of SOEs, re-employment service center were set up to shunt the redundant staff of enterprises. It has been a great difficult problem of the SOE reform from begin on that enterprises are overstaffed. It is an important measure of revitalizing the SOEs to dismiss and distribute workers. In June 1998, the state council required all regions to set up re-employment service center system. National Ministry of Labor and Social Security emphasized that the laid-off worker in SOEs must 100% enter the re-employment service center. The re-employment service center determined to provide serve functions such as grant basic living cost, withhold social insurance, organize job training and launch employment etc. for laid-off worker. The fund, which used for ensuring laid-off worker's basic life and paying the social insurance premium, come from financial budget, enterprise as well as societies (namely form contribution or from laid-off worker themselves), each part bears 1/3 of the whole fund. The re-employment service center provides service for laid-off workers for at longest 3 years. When they can’t reemploy after this period, can still enjoy unemployment compensation or the society relieve according to relevant regulation.
In this reform stage, re-employment service center played a positive role on maintain social stability. From 1998 to the end of 2001, 25,500,000 laid-off workers emerged (Fig 3) in national state-owned enterprises, among them more than 17 million people were reemployed, more than 3 million people retired. However, re-employment service center was only a transitional institute, because the SOE had to still take responsibility to settle down those laid off workers. According to a new policy, all laid-off workers after 2001 are treat as unemployed and have to enter free labor force market.
5) In order to extricate SOE from predicament, especially to resolve the problem of high liability-asset ratio, by December 2000, 580 SOEs began to implement debt-to-share swap, that mean the enterprises’ debt were recalculated as share (enterprises’ equity), so that the interest burden of SOEs were lightened. In the process, most of unperformed loans would be calculated as shares, which would be gathered and supervised by a new state commission-- State-owned Assets Supervision and Administration Commission (SASAC). Till 2001, the total amount of money of debt-to-equity swap account 40,5 billion dollars, and the result was that the average asset-liability ratio of debt-to-share swapped enterprises dropped from more than 70% to under 50%.

2. The main problems left in the reform
After three steps reform, the SOE acquired more autonomy, as we have seen, the whole economic circumstance were also better. But because the reform did not touch the socialism idea from begin on, thus the transition of ownership of SOE was left basically unchanged, the defects of SOE could not changed completely. In the context of China’s economic reforms, there are still a few problems in SOE sector existed and have also a deep influence.
First of all, the interventions from the government still maintained influence in SOE. The administrative relation between enterprise and government is still remaining. Even the Local State Assets management office was established, it belong to the same bureaucratic system like former authorities. It can appoint or remove senior executives of SOEs. If enterprise applies to the broad structure, the directors in broad are appointed by it. The office has also a say in the transfer of holdings, corporate mergers, closures or other major changes to the enterprises, it is also charged with the tasks of clarifying property rights and settling disputes (3) . It seemed that the state assets supervisory takes the place of former authority above the SOEs. Moreover, the local government maintains still strong power in local enterprise, they rely on each other as we discussed above. So long as the enterprises are state-owned, whether they are big groups, stock companies or little entities, it is difficult to shaking off the directly or indirectly control from the government.
Secondly, because of the long tradition, enterprises are still taking responsibilities for their employees in pension, medical areas, therefore the so-called “soft budget constraint” cannot be given up completely. Although we have discussed that the Chinese government has managed to start re-employment plan, SOEs also take a part of the fund to support the plan. Correspondenly, government had to shoulder some failures resulted from the mismanagement of SOEs’ and avoid from their bankruptcy, in order to prevent the enterprise from bankrupcy and thus endanger the social stability.
Thirdly, the management of SOEs has low quality compare with other economic sectors. Though SOEs have produced an average 10% growth rate in the value of industrial output during the period 1978-98, this rate is considerably below the average of other sectors. The problem has two reasons. One of them is lacking of the inner incentive of the managers. The SOE managers are not entrepreneurs in the true sense, but bureaucrats at any rate. Their appointment by the government not basically according to their managerial capability, but based on their rankings in the bureaucratic hierarchy through the politic system. Another factor concerns the supervision within the SOE, it is also lacking in most cases. In practice, the position of supervisor in a enterprise is normally taken by staff within the enterprise and in most cases, the position of president of the supervision committee is taken by somebody within the enterprise, who is under the leadership of the directors and managers in his ranks both at work and in the Party. This system makes it very hard for the supervision committee to fully perform its authority (4) .
Fourth, the high liability-asset ratio is also regarded as a fatal problem of SOEs. It was observed, that during the reform period, the liability-asset ratio of industrial SOEs rose from around 11% in 1978 to approximately 65% in 1997. In as many as one-fourth of industrial SOEs, liabilities have even come to exceed assets; these enterprises are in fact insolvent. The World Bank suggests that in debt restructuring may be necessary for the most heavily indebted enterprises to bankrupt. After the implement of debt-to-share swap, the ratio decreased, but the debtor, in most cases are banks, didn’t collect the loan back, so it made the SOE even harder to get new loan for production. (5)
Furthermore, the whole process of the SOE reform companied by a serials of social problems, in compare to some difficulties such as lack or reserve labor force, ageing of the equipments, the most troublesome is the unemployment in large scales. In addition, in rural areas, millions of flowing population has been produced because of the bankruptcy and low profitability of the township and village enterprise. In urban China there are frequent reports about workers’ unrest. Although until now China still maintain a relative political stability, the menace will not fade away in a short time.

江苏省无锡市人民政府办公室


关于印发无锡市市民卡管理暂行办法的通知

锡政办发〔2010〕34号


各市（县）和各区人民政府，市各委、办、局，市各直属单位：

《无锡市市民卡管理暂行办法》已经市政府同意，现印发给你们，请认真贯彻执行。





二○一○年二月十二日









无锡市市民卡管理暂行办法



第一条 为加强市民卡管理，规范市民卡使用，方便市民办理个人社会事务，提升政府公共管理和服务效能，提高社会信息化应用水平，结合本市实际，制定本办法。

第二条 本办法所称的市民卡为无锡市社会保障·市民卡，是指由无锡市人民政府发放的，用于办理市民个人相关社会事务和享受公共服务的多用途智能卡。

市民卡分为标准卡和衍生卡。标准卡为记名卡，具备市民卡全部功能；衍生卡分为记名卡和不记名卡，具备标准卡的部分功能。

第三条 本市行政区域内市民卡基础信息的采集、存储、交换、共享和市民卡的申领、制作、发放、使用及其相关的管理服务活动，适用本办法。

第四条 标准卡的发放对象为本市户籍人员以及依法参加本市社会保险或者依照相关规定的其他人员；衍生卡发放对象不受限制。

第五条 市信息化和无线电管理局是市民卡工程的牵头协调部门，负责市民卡建设方向的把关和技术方案的审查审定、市民卡工程的综合协调以及对市民卡工程的监督管理。市人力资源和社会保障局为市民卡工程建设具体操作部门，负责技术方案确定后的具体实施和市民卡的发放管理。

无锡市民卡服务中心（无锡市民信息资源管理中心）负责市民信息的采集和核准、市民信息资源库的建设和运行维护，市民信息的交换、开发、共享、安全管理以及市民卡的发放工作。

无锡市民卡有限公司受市政府的授权和委托，负责市民卡的制作、运营服务和业务拓展工作。

第六条 市政府各职能部门及有关公共服务机构应当根据市民卡系统建设的需要，积极推动市民卡在本部门管理和服务中的应用。

区人民政府、镇人民政府、街道办事处以及社区服务机构，应当配合做好市民卡信息的采集和市民卡申请的受理、发放、宣传等相关工作。

本办法施行后，市政府各部门及有关公共服务机构原则上不再发行与市民卡功能类似的其他卡种。已发行的，应当逐步纳入市民卡体系，并及时进行调整。

第七条 市民卡各应用部门及有关公共服务机构应当按照相关规定及时、准确、完整、无偿向市民信息资源管理中心提供相关信息。

市民卡各应用部门及有关公共服务机构经市民信息资源管理中心同意，可以使用相关信息。

第八条 市信息化和无线电管理局应当会同相关部门制定市民信息资源库的规划、标准和信息安全管理办法。市民信息资源管理中心在市民信息的采集、存储、交换和应用等各个环节应当保护持卡人的隐私。

第九条 市民卡的技术应用必须符合《中国金融集成电路（IC）卡规范（V2.0）》、《社会保障卡（个人）规范》、《建设事业集成电路（IC）卡应用技术》标准和中国人民银行制定的银联卡标准。

第十条 市民卡卡载信息包括视读信息和机读信息。市民卡的视读信息包括持卡人姓名、性别、社会保障卡号、发卡日期、有效期、市民卡序号、银行卡号、条形识别码、个人相片等基本信息。市民卡的机读信息包括持卡人基本信息和持卡人在市民卡各应用部门中的相关管理和应用信息。

第十一条 标准卡具有以下功能：

（一）记录功能：记录持卡人的基础信息和相关业务信息；

（二）凭证功能：持卡人持卡可通过联机或者脱机办理个人相关事务；

（三）查询功能：持卡人通过市民卡服务网络的读卡设备，查询持卡人本人的个人身份、劳动保障、公用事业消费等方面信息；

（四）公共服务：作为持卡人享受政府服务（劳动、保障、居住、卫生、民政等）和公共服务的电子凭证；

（五）消费支付：持卡人在对市民卡电子钱包充值后，可凭卡在市民卡应用网点用于公共交通、公用事业、日常生活方面的消费；

（六）银行卡功能：持卡人通过市民卡合作银行营业网点和具备银联功能终端上办理金融业务；

（七）居住证功能：符合无锡市居住证申领条件的，可以享受《无锡市居住证管理暂行办法》所规定的相应待遇。

市民卡衍生卡具备前款规定的部分功能。市民卡有限公司在前款规定功能基础上可在授权和法律允许范围内开发增值服务。

第十二条 市民卡应用范围主要包括劳动就业、社会保障、公共交通、医疗卫生、居住管理、银行卡结算、小额电子交易支付等领域，并根据业务发展逐步拓展至其他领域。

第十三条 标准卡和记名衍生卡只限本人使用。不记名衍生卡可在法律和市民卡相关规定允许范围内由原持卡人授权他人使用。持卡人须妥善保管市民卡及相关使用密码,因遗失、出让或者转借市民卡造成的损失由持卡人自行承担。

第十四条 市民卡有效期为十年，自发放之日起计算；有效使用期届满前三个月内，持卡人应当及时办理换领手续。

第十五条 市民卡服务中心应当及时向社会公布市民卡新增服务功能，持卡人可以根据需要申请开通。

第十六条 申领标准卡由所在单位或者个人向市民卡服务网点提出申请，并提供个人基础信息和图像信息通过校核后，办理有关申领手续。

标准卡开通居住证功能的，应当按照《无锡市居住证管理暂行办法》规定的条件和程序，经公安机关审核后办理。

第十七条 市民卡有效期届满，持卡人可到市民卡服务网点申请换领新卡。

市民卡使用后出现卡面污损、残缺不能辨认，或者不能在读卡设备上读写的，持卡人应当到市民卡服务网点申请换领新卡。

持卡人姓名、公民身份号码等其他基本信息依法发生变更的，应当到市民卡服务网点申请换领新卡。

第十八条 持卡人遗失记名卡的，应当持本人有效身份证件到市民卡服务网点办理书面挂失手续。

持卡人因故不能办理书面挂失的，可以通过电话方式申请预挂失。通过申请预挂失后，持卡人仍应当在规定的时间内办理书面挂失手续。

市民卡各应用功能的挂失，根据各相关应用部门的有关规定执行。挂失生效前所发生的个人损失，由持卡人自行承担；因持卡人未按规定办理挂失手续而造成的个人损失，由持卡人自行承担。

涉及银行卡资金账户的相关事宜，遵照金融机构的有关规定处理。

市民卡电子钱包不记名，不挂失。不记名卡不挂失。

第十九条 持卡人办理挂失手续后且在申请补领新卡前，因各种原因需办理解除挂失手续的，可以持本人有效身份证件到市民卡服务网点办理。

第二十条 持卡人遗失市民卡的，应当到市民卡服务网点申请补领新卡。

第二十一条 持卡人因死亡、户籍变动等原因，依法不再继续享受本市社会保障及其他社会公共服务的，持卡人或者其近亲属在办结市民卡相关社会事务后，应当持相关身份证明材料及时到市民卡服务网点申请注销市民卡。

第二十二条 原持有社会保障卡人员，免费更换市民卡。

市民申领、换领、补领市民卡按照物价主管部门有关规定执行。

第二十三条 持卡人换领或者补领市民卡期间，市民卡相关部门及有关公共服务机构应当保障其办理相关事务的权利。

第二十四条 市民卡行政主管部门及服务机构工作人员玩忽职守、滥用职权、徇私舞弊的，由其所在机关或者上级主管机关依法给予行政处分，构成犯罪的依法追究刑事责任。

第二十五条 本办法自2010年3月1日起施行。