Advance and retreat: The new two-pronged strategy of enterprise reform in China

Problems of Post-Communism

Volumn 48, Issue 5, 2001, Pages 52-61

  Ma, Ngok ^a   Mok, Ka ho ^a   Cheung, Anthony B L ^a  

^a NONE

Author keywords

[No Author keywords available]

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EID: 0035538431     PISSN: 10758216     EISSN: None     Source Type: Journal    
DOI: 10.1080/10758216.2001.11655951     Document Type: Article

References (100)

1. The scholarly literature applies several different terms to the type of system currently in place in China, Cuba, and North Korea, and in Soviet Union and Eastern Europe before 1989. This paper designates the system as "state socialism," because the authors see the control of resource-distribution processes by a Party-state as its most distinctive characteristic. See Ivan Szelenyi, "Social Inequalities in State Socialist Redistributive Economies," International Journal of Comparative Sociology 19, no. 1-2 (1978): 63-78; Victor Nee and David Stark, eds., Remaking the Economic Institutions of Socialism: China and Eastern Europe (Stanford: Stanford University Press, 1999).
2. The scholarly literature applies several different terms to the type of system currently in place in China, Cuba, and North Korea, and in Soviet Union and Eastern Europe before 1989. This paper designates the system as "state socialism," because the authors see the control of resource-distribution processes by a Party-state as its most distinctive characteristic. See Ivan Szelenyi, "Social Inequalities in State Socialist Redistributive Economies," International Journal of Comparative Sociology 19, no. 1-2 (1978): 63-78; Victor Nee and David Stark, eds., Remaking the Economic Institutions of Socialism: China and Eastern Europe (Stanford: Stanford University Press, 1999).
3. Kenneth Lieberthal, Governing China: From Revolution Through Reform (New York: Norton, 1995).
4. See Keun Lee, Chinese Firms and the State in Transition: Property Rights and Agency Problems in the Reform Era (Armonk, NY: M.E. Sharpe, 1991); Russell Smyth, "Toward 'the Modern Corporation': Recent Developments in the Institutional Reform of State-Owned Enterprises in Mainland China," Issues and Studies 34, no. 8 (August 1998): 102-13.
5. See Keun Lee, Chinese Firms and the State in Transition: Property Rights and Agency Problems in the Reform Era (Armonk, NY: M.E. Sharpe, 1991); Russell Smyth, "Toward 'the Modern Corporation': Recent Developments in the Institutional Reform of State-Owned Enterprises in Mainland China," Issues and Studies 34, no. 8 (August 1998): 102-13.
6. Susan Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993).
7. Raymond Lau, "Zhongguo hui zoushang siyouhua daoluma?" (Will China Go on the Path of Privatization?), Hong Kong Journal of Social Sciences 13 (winter 1998): 107-38.
8. W.T. Woo, W. Hai, Y. Jin, and G. Fan, "How Successful Has Chinese Enterprise Reform Been? Pitfalls in Opposite Biases and Focus," Journal of Comparative Economics 18 (1994): 410-37; Zengxian Wu, "How Successful Has State-Owned Enterprise Reform Been in China?" Europe-Asia Studies 49, no. 7 (1997): 1237-62.
9. W.T. Woo, W. Hai, Y. Jin, and G. Fan, "How Successful Has Chinese Enterprise Reform Been? Pitfalls in Opposite Biases and Focus," Journal of Comparative Economics 18 (1994): 410-37; Zengxian Wu, "How Successful Has State-Owned Enterprise Reform Been in China?" Europe-Asia Studies 49, no. 7 (1997): 1237-62.
10. Shaoguang Wang, "The Compatibility of Public Ownership and the Market Economy: A Great Debate in China," World Affairs 157, no. 1 (summer 1994): 38-49. A State Council survey of the CEOs of 2,752 state-owned enterprises showed that 59.6 percent cited the heavy burden of social services as the major factor for their losses. About 50 percent blamed it on poor internal organization, while only 25 percent thought that unclear property rights and the lack of enterprise autonomy were the major reason. See Chi-wen J. Lee, "The Reform of the State-Owned Enterprises," in China Review 1996, ed. Maurice Brosseau, Hsin-chi Kuan, and Y.Y. Kueh (Hong Kong: Chinese University Press, 1996), pp. 263-80.
11. Shaoguang Wang, "The Compatibility of Public Ownership and the Market Economy: A Great Debate in China," World Affairs 157, no. 1 (summer 1994): 38-49. A State Council survey of the CEOs of 2,752 state-owned enterprises showed that 59.6 percent cited the heavy burden of social services as the major factor for their losses. About 50 percent blamed it on poor internal organization, while only 25 percent thought that unclear property rights and the lack of enterprise autonomy were the major reason. See Chi-wen J. Lee, "The Reform of the State-Owned Enterprises," in China Review 1996, ed. Maurice Brosseau, Hsin-chi Kuan, and Y.Y. Kueh (Hong Kong: Chinese University Press, 1996), pp. 263-80.
12. Liaowang zhoukan 47 (1993): 10.
13. Renmin ribao (November 17, 1993): 1-2.
14. Lau, "Zhongguo hui zoushang siyouhua daoluma?"
15. Shu-yun Ma, "Foreign Participation in China's Privatization," Communist Economies and Economic Transformation 8, no. 4 (1996): 529-47.
16. You Ji, China's Enterprise Reform: Changing State/Society Relations After Mao (London: Routledge, 1998), p. 169.
17. See Zeqi Qiu and Yongnian Zheng, "Xiagang and Its Sociological Implications of Reducing Labor Redundancy in China's SOEs," in China's Political Economy, ed. Gungwu Wang and John Wong (Singapore: Singapore University Press, 1998), pp. 227-47.
18. Li Zijing, "Zhongyang jingji gongzuo huiyi neiqing" (Insider News on the Central Economic Work-Meeting), Cheng Ming 255 (January 1999): 29-31.
19. The common practice was to move most of the productive assets to other firms before bankruptcy. As a result, the creditors would get little after liquidation, leaving the government to assume most of the losses and debts of the SOE. See Xiaobo Hu, "Informal Property Rights and Their Formalization in China: A Political Economic Analysis," in China Review 1998, ed. Joseph Cheng (Hong Kong: Chinese University Press, 1998), pp. 281-303; Tian Feng, "Zhu Rongji tongqi jiapochan" (Zhu Rongji Criticized False Bankruptcies), Qianshao 74 (March 1997): 32-34.
20. The common practice was to move most of the productive assets to other firms before bankruptcy. As a result, the creditors would get little after liquidation, leaving the government to assume most of the losses and debts of the SOE. See Xiaobo Hu, "Informal Property Rights and Their Formalization in China: A Political Economic Analysis," in China Review 1998, ed. Joseph Cheng (Hong Kong: Chinese University Press, 1998), pp. 281-303; Tian Feng, "Zhu Rongji tongqi jiapochan" (Zhu Rongji Criticized False Bankruptcies), Qianshao 74 (March 1997): 32-34.
21. Zhou Wendou, "Zhaizhuangu: ruhe shihao zuihou di 'sha shou jian'?" (How Can the Last Card of Debt-to-Equity Swaps Be Well Utilized?), Hong Kong Economic Journal (September 22, 1999).
22. Renmin ribao (December 14, 1999): 12; ibid. (October 14, 1999): 9.
23. Renmin ribao (December 14, 1999): 12; ibid. (October 14, 1999): 9.
24. Ming pao (October 21, 1999): B5.
25. South China Morning Post (September 19, 1999).
26. See Ren Weiwen, "Zhonggong sizhong jiangding guoqi gaige xinluxiang" (The Fourth Plenum Will Set New Directions for SOE Reform), Hong Kong Economic Journal (July 2, 1999): 15; idem, "Jiang Zemin zhudao guoqi gaige di zhanlue tiaozheng" (Jiang Directs the Strategic Adjustment of SOE Reform), ibid. (August 20, 1999): 15; Hua Long, "Zhonggong sizhongquanhui di guoqigaige siwei" (The SOE Reform Thinking of the CCP CC Fourth Plenum), ibid. (September 22, 1999): 38.
27. See Ren Weiwen, "Zhonggong sizhong jiangding guoqi gaige xinluxiang" (The Fourth Plenum Will Set New Directions for SOE Reform), Hong Kong Economic Journal (July 2, 1999): 15; idem, "Jiang Zemin zhudao guoqi gaige di zhanlue tiaozheng" (Jiang Directs the Strategic Adjustment of SOE Reform), ibid. (August 20, 1999): 15; Hua Long, "Zhonggong sizhongquanhui di guoqigaige siwei" (The SOE Reform Thinking of the CCP CC Fourth Plenum), ibid. (September 22, 1999): 38.
28. See Ren Weiwen, "Zhonggong sizhong jiangding guoqi gaige xinluxiang" (The Fourth Plenum Will Set New Directions for SOE Reform), Hong Kong Economic Journal (July 2, 1999): 15; idem, "Jiang Zemin zhudao guoqi gaige di zhanlue tiaozheng" (Jiang Directs the Strategic Adjustment of SOE Reform), ibid. (August 20, 1999): 15; Hua Long, "Zhonggong sizhongquanhui di guoqigaige siwei" (The SOE Reform Thinking of the CCP CC Fourth Plenum), ibid. (September 22, 1999): 38.
29. South China Morning Post (September 22, 1999).
30. Ibid. (September 20, 1999).
31. The resolution did not define "strategic industries," but some China analysts include the defense industry, coinage, chemicals, telecommunications, energy, raw materials, engineering, tobacco, and public utilities. See Guangming ribao (November 9, 1999); South China Morning Post (September 29, 1999).
32. The resolution did not define "strategic industries," but some China analysts include the defense industry, coinage, chemicals, telecommunications, energy, raw materials, engineering, tobacco, and public utilities. See Guangming ribao (November 9, 1999); South China Morning Post (September 29, 1999).
33. The resolution did not explain the difference between "large" and "small." Some say the line was drawn at the asset value of 50 million yuan ($6 million). SOEs with fewer assets can be let go. South China Morning Post (September 22, 1999).
34. Hong Kong Economic Times (October 2, 1999): A16; Ming pao (October 21, 1999): B5.
35. Hong Kong Economic Times (October 2, 1999): A16; Ming pao (October 21, 1999): B5.
36. Hong Kong Economic Journal (August 4 , 1999): 10.
37. Yi Min, "Guoqi gaige miandui guanjian shike" (SOE Reform at a Critical Juncture), Wide Angle 325 (October 1999): 24-27.
38. South China Morning Post (November 3, 1999).
39. Zhongguo zichan xinwen (August 31, 1999).
40. Ta kung pao (March 7, 2000): A2.
41. See Sing Tao Daily (September 20, 1999); South China Morning Post (September 9, 1999).
42. See Sing Tao Daily (September 20, 1999); South China Morning Post (September 9, 1999).
43. Hong Kong Economic Times (December 16, 1999): A2.
44. The Hong Kong government made this estimate in its 2000-2001 budget. See Hong Kong Government, "Scaling New Heights," speech by the financial secretary on the 2000-2001 budget (March 8, 2000). An analyst at Morgan-Stanley put the figure at $20 billion. See Apple Daily (November 17, 1999): B3.
45. The Hong Kong government made this estimate in its 2000-2001 budget. See Hong Kong Government, "Scaling New Heights," speech by the financial secretary on the 2000-2001 budget (March 8, 2000). An analyst at Morgan-Stanley put the figure at $20 billion. See Apple Daily (November 17, 1999): B3.
46. The concept of soft-budget constraints, as proposed by Janos Kornai, means that "the strict relationship between the expenditure and earnings of an economic unit (firms, household, etc.) has been relaxed, because expenditure will be paid by some other institutions, typically the paternalistic state." The "softness" implies that the amount of expenditure allocated is usually a result of bargaining. See Janos Kornai, "The Soft Budget Constraint," Kyklos 39, 1 (1986): 3.
47. The banks can sell the debt-converted shares on the market. However, in view of the vast number of shares converted from debts, they cannot sell many shares without a significant depreciation in value. Thus it is reasonable to expect the banks or the asset-management corporations to keep most of the shares as assets in the short to medium run.
48. Peter Dittus and Stephen Prowse, "Corporate Control in Central Europe and Russia: Should Banks Own Shares?" in Corporate Governance in Central Europe and Russia, vol. 1, ed. Roman Frydman, Cheryl Gray, and Andrzej Rapaczynski (Budapest: Central European University Press, 1996), p. 31.
49. For discussions of inertia lending in Eastern Europe, see Jan Winiecki, Post-Soviet-Type Economics in Transition (Aldershot: Avebury, 1993); Lajos Bokros, "Privatization and the Banking System in Hungary," in Privatization in the Transition Process: Recent Experiences in Eastern Europe, ed. Kopint Datorg (Geneva: United Nations, 1994), pp. 305-18.
50. For discussions of inertia lending in Eastern Europe, see Jan Winiecki, Post-Soviet-Type Economics in Transition (Aldershot: Avebury, 1993); Lajos Bokros, "Privatization and the Banking System in Hungary," in Privatization in the Transition Process: Recent Experiences in Eastern Europe, ed. Kopint Datorg (Geneva: United Nations, 1994), pp. 305-18.
51. Eva Voszka, "Centralization, Re-nationalization, and Redistribution: Government's Role in Changing Hungary's Ownership Structure," in Strategic Choice and Path-Dependency in Post-Socialism: Institutional Dynamics in the Transformation Process, ed. Jerzy Hausner, Bob Jessop, and Klaus Nielsen (Brookfield, VT: Edward Elgar, 1995), pp. 287-324; Eva Voszka, "Spontaneous Privatization in Hungary," in Privatization in the Transition to a Market Economy: Studies of Preconditions and Policies in Eastern Europe, ed. John Earle, Roman Frydman, and Andrzej Rapaczynski (New York: St. Martin's Press, 1993), pp. 89-107.
52. Eva Voszka, "Centralization, Re-nationalization, and Redistribution: Government's Role in Changing Hungary's Ownership Structure," in Strategic Choice and Path-Dependency in Post-Socialism: Institutional Dynamics in the Transformation Process, ed. Jerzy Hausner, Bob Jessop, and Klaus Nielsen (Brookfield, VT: Edward Elgar, 1995), pp. 287-324; Eva Voszka, "Spontaneous Privatization in Hungary," in Privatization in the Transition to a Market Economy: Studies of Preconditions and Policies in Eastern Europe, ed. John Earle, Roman Frydman, and Andrzej Rapaczynski (New York: St. Martin's Press, 1993), pp. 89-107.
53. Jan Winiecki, "The Applicability of Standard Reform Packages to Eastern Europe," Journal of Comparative Economics 20 (1995): 347-67.
54. For details of the programs, see Herbert Baer and Cheryl Gray, "Debt as a Control Device in Transitional Economies: The Experiences of Hungary and Poland," in Corporate Governance in Central Europe and Russia, pp. 68-110.
55. In the Czech program, SOE shares were converted into coupons and distributed to all adults who paid a nominal fee. Investment funds soon mushroomed to purchase the coupons from the citizens. With well-known brand names, better financial background, and a good retail network, the banks quickly became the financial institutions that owned the most shares in the voucher-privatized companies. See Peter Kenway and Eva Klvacova, "The Web of Cross-Ownership Among Czech Financial Intermediaries: An Assessment," Europe-Asia Studies 48, no. 5 (1998): 797-809; Karla Brom and Mitchell Orenstein, "The Privatized Sector in the Czech Republic: Government and Bank Control in a Transitional Economy," Europe-Asia Studies 46, no. 6 (1994): 893-928.
56. In the Czech program, SOE shares were converted into coupons and distributed to all adults who paid a nominal fee. Investment funds soon mushroomed to purchase the coupons from the citizens. With well-known brand names, better financial background, and a good retail network, the banks quickly became the financial institutions that owned the most shares in the voucher-privatized companies. See Peter Kenway and Eva Klvacova, "The Web of Cross-Ownership Among Czech Financial Intermediaries: An Assessment," Europe-Asia Studies 48, no. 5 (1998): 797-809; Karla Brom and Mitchell Orenstein, "The Privatized Sector in the Czech Republic: Government and Bank Control in a Transitional Economy," Europe-Asia Studies 46, no. 6 (1994): 893-928.
57. Michael Kapoor, "Back on Track?" Business Central Europe 4, no. 35 (October 1996): 49-54.
58. Economist (November 15, 1997): 87-88.
59. For example, the collapse of Kreditni Banka was triggered by a KPMG audit. See Ben Slay, "Banking Scandals Send Political Reverberations," Transition 2, no. 22 (November 1, 1996): 41-45.
60. Business Central Europe 6, no. 60 (April 1999): 34.
61. See Wai Ting, "Ideology and the Ethos of Reform," in China Review 1994, ed. Maurice Brosseau and Chi-kin Lo (Hong Kong: Chinese University Press, 1994), chap. 3.
62. Poor management and imprudent investment decisions were cited as major reasons for GITIC's bankruptcy. Fraud and asset stripping were definitely factors as well. In 1999, eight people were arrested in Hong Kong for embezzlement and fraud involving $26 million. Ta kung pao (December 21, 1999): C1; Sing Tao Daily (June 9, 1999).
63. Poor management and imprudent investment decisions were cited as major reasons for GITIC's bankruptcy. Fraud and asset stripping were definitely factors as well. In 1999, eight people were arrested in Hong Kong for embezzlement and fraud involving $26 million. Ta kung pao (December 21, 1999): C1; Sing Tao Daily (June 9, 1999).
64. Apple Daily (January 19, 1999): B2.
65. Hong Kong Economic Journal (March 16, 1999).
66. Sing Tao Daily (June 2, 1999).
67. Hong Kong Economic Times (December 14, 1999); Hong Kong Economic Journal (September 2, 1999): A2.
68. Hong Kong Economic Times (December 14, 1999); Hong Kong Economic Journal (September 2, 1999): A2.
69. Hong Kong Economic Times (December 3, 1999).
70. The report cited the extension of 60 billion yuan ($7.2 billion) and 100 billion yuan ($12 billion) in bonds in 1999 and 1998 respectively, which increased investment in their fixed assets as the major reason for the improvement of many SOEs. See Ta kung pao (January 8, 2000): A2.
71. Zhu Rongji, "Guanyu 1999 nian guomin jingji he shehui fazhan jihua zhixing qingkuang yu 2000 nian guomin jingji he shehui fazhan jihua caoan di baogao" (Report on the Implementation of the 1999 National Economy and Social Development Plan and the 2000 Draft Plan on National Economy and Social Development), Ta kung pao (March 7, 2000).
72. Ibid.
73. Ta kung pao (March 5, 2000): C7.
74. Ibid.
75. Xiang Xiaocheng, "Guoqi sannian tuokun yu zhaizhuangu" (Turning the SOEs Around in Three Years and the Debt-Equity Swaps), Wide Angle 331 (April 2000): 30-33.
76. See Shu-yun Ma, "The Chinese Route to Privatization: The Evolution of the Shareholding System Option," Asian Survey 38, no. 4 (April 1998): 379-97.
77. Ma, "Foreign Participation in China's Privatization."
78. Listing of Chinese SOEs in Hong Kong began in early 1990s, when SOEs purchased controlling stakes in Hong Kong-listed companies, obtaining "backdoor listings" on the HKSE. The Chinese and Hong Kong governments later regularized the procedures, and regular listings started after 1993. Ma, "Foreign Participation in China's Privatization."
79. Zhengquan shibao (October 15, 1999).
80. China Statistical Yearbook (Beijing: State Statistical Bureau, 1999), p. 577.
81. Business Central Europe 7, no. 73 (July/August 2000): 57.
82. Among the 27.5 million shares listed by October 1999, 17 million belonged to the state or state-owned legal persons (62 percent), 7 million belonged to salable A-shares (25.5 percent), while B-shares and H-shares (shares listed in Hong Kong) made up 2.5 million shares (9 percent). Renmin ribao (October 19, 1999).
83. Hong Kong Economic Times (December 3, 1999).
84. Rui Si, "Sidaiyinhhang miandui rushi" (The Four Major Banks Facing WTO Entry), Wide Angle 330 (March 2000): 27-29.
85. Ibid.
86. Hong Kong Economic Times (December 6, 1999); He Wannan, Guoyou zichan danchu gulu chongchong (Worries Ahead for the Fading of State Ownership), Renmin ribao (October 19, 1999).
87. Hong Kong Economic Times (December 6, 1999); He Wannan, Guoyou zichan danchu gulu chongchong (Worries Ahead for the Fading of State Ownership), Renmin ribao (October 19, 1999).
88. He, Guoyou zichan danchu.
89. Ying Weiwei and Wang Wei, "Guoyou jingji zhanlüe tiaozheng jinruyige xinjieduan" (A New Phase in Strategic Adjustment of the State Sector), Liaowang zhoukan 51 (December 20, 1999): 36-37.
90. China Securities Regulatory Commission, "Guanyu qiye jingwai shangshi youguan wenti di tongzhi" (The Notice on Related Issues of Overseas Listing), Zhonghua renmin gongheguo guowuyuan gongbao (PRC State Council Gazette), no. 29 (September 1999): 1294-1296.
91. Hong Kong Economic Times (October 14, 1999): A6.
92. Sing Tao Daily (January 16, 1999).
93. For most of 1998 and 1999, the China Enterprise Index on the HKSE hovered around 300 to 600. Hong Kong Monthly Digest of Statistics, January 2000 (Hong Kong: Hong Kong Government, 2000), p. 120.
94. Unicom controls long-distance telephone, data, and Internet services throughout China, and mobile telephone services in about half of the country (mostly eastern China, covering Shanghai and Beijing). Xin Pengjun and Liu Yan, "Zhongguo liantong fazhan kaikuang jianjie" (A Brief Introduction on the Development of China Unicom), Zhongguo jingying bao (July 18, 2000). CNPC produces 65 percent of the petroleum and natural gas in China and is the fourth-largest listed petroleum company in the world.
95. Hong Kong Daily News (April 2, 2000): B2. The original goal of CNPC was to raise $7 billion, but eventually it could only raise $3 billion. The stock prices fell below the initial offering price shortly after CNPC went on the market.
96. Zhengquan shichang zhoukan (July 1, 2000).
97. See Melanie Manion, "Corruption and Corruption Control: More of the Same in 1996," in China Review 1997, ed. Maurice Brosseau, Hsinchi Kuan, and Y.Y. Kueh (Hong Kong: Chinese University of Hong Kong Press, 1997), pp. 33-56.
98. Staniszkis used the term "political capitalism" to refer to the phenomenon of Party elites transforming their political power into economic capital in the course of market transition. See Jadwiga Staniszkis, "'Political Capitalism' in Poland," East European Politics and Societies 5, no. 1 (winter 1991): 127-41.
99. Ivan Szelenyi, "The Rise of Managerialism: The 'New Class' After the Fall of Communism" (paper presented at the Collegium Budapest, 1995); Gil Eyal, Ivan Szelenyi, and Eleanor Townsley, Making Capitalism Without Capitalists: Class Formation and Elite Struggles in Post-Communist Eastern Europe (New York: Verso, 1998).
100. Ivan Szelenyi, "The Rise of Managerialism: The 'New Class' After the Fall of Communism" (paper presented at the Collegium Budapest, 1995); Gil Eyal, Ivan Szelenyi, and Eleanor Townsley, Making Capitalism Without Capitalists: Class Formation and Elite Struggles in Post-Communist Eastern Europe (New York: Verso, 1998).