SUN
WUKONG Some of China's SOEs aren't such
losers after all By Wu Zhong,
China Editor
HONG KONG - After three
decades of economic reforms and opening up, China
has successfully turned its former Stalinist-style
socialism into capitalism with Chinese
characteristics, some of which are unique. As
such, not all rules of capitalism are applicable
to the Middle Kingdom.
In capitalism, the
capitalists or investors who put up money to set
up an enterprise legally, financially and
operationally own it, and
naturally they share whatever
profits or losses that business makes. But this is
not the case for the state-owned enterprises
(SOEs) in China, no matter how they have been
restructured over past years.
Historically, China's SOEs were a product
of socialism. Theoretically, an SOE was considered
to be owned by all the people in the country,
hence all-people ownership used to be considered
the most perfect form of socialism. But in
practice, the state, or the government, acted on
behalf of all people to fund the SOEs and take
away their profits for its disposal. None from the
"all people" had a say.
As in other
countries, China's SOEs were very inefficient,
incompetent and unprofitable. When the late
paramount leader Deng Xiaoping launched the
economic reforms and opening up in the late 1970s,
the state sector was virtually on the verge of
bankruptcy. To embrace a free-wheeling market
economy, a restructuring soon became a must.
After Zhu Rongji took the reins of the
country's economic affairs as vice premier in the
early 1990s, many bold measures were taken to
revitalize the state sector. Privatization was one
of them. Foreign and private investors were
encouraged to take over or acquire stakes in
certain SOEs, mostly the small and medium-sized
ones.
Large SOEs, especially those in
industries deemed essential to the country's
national security, were to be restructured into
joint-stock companies and listed on overseas and
domestic stock markets, with the state remaining
the controlling shareholder.
Financially,
the government had also taken measures to bail out
SOEs such as having their debts written off. In
1994, China began to allow the big SOEs invested
in by the central government, or central SOEs, to
retain all their profits. Hence over the past 13
years, none of these SOEs has contributed a single
penny to the state coffers for public expenditure.
Had these SOEs remained loss-making, this
might not have posed a problem. But because of the
country's fast economic growth, many of the SOEs,
after the restructuring, have become profitable in
recent years - particularly those in industries
still monopolized by the state such as oil,
electricity, coal, telecommunications and tobacco.
According to official statistics, China's
state sector made a total 1.22 trillion yuan
(US$157 billion) of profits in 2006, of which
754.7 billion yuan or 62% came from the 155
central SOEs invested in by the central government
and directly under the supervision of the
State-owned Assets Supervision and Administration
Commission.
Some 69% of the 754.7 billion
yuan profits of the central SOEs in turn was
contributed by nine in the state monopolized
industries - PetroChina, SinoPec, CNOOC, China
Mobile, China Telecom, Baosteel, China Shenhua,
China Aluminum and the State Grid. (Some of these
listed companies do pay dividends to their
shareholders. The proportions for the state, the
controlling shareholder, however, have been
pocketed by their parents.)
In the first
half of this year, profits of the state sector
totaled 753.5 billion yuan, up 31.5% from the same
period of last year, of which 541.8 billion yuan
or 72% came for the 155 central SOEs. This does
not even include the profits of the approximately
1,000 cigarette companies across the country under
the State Tobacco Monopoly Administration.
According to interim financial reports,
Hong Kong-listed oil giant PetroChina reaped 81.8
billion yuan in net profit. China Mobile, the
world's largest mobile-phone operator in number of
users, reaped a daily profit of about 200 million
yuan in the first six months of this year.
The original intention of Beijing's policy
to let SOEs keep their profits was for them to
expand their businesses. However, nearly all of
them have used the staggering profits to benefit
their management and employees. Salaries of
managers and employees in SOEs in state
monopolized industries are much higher than the
average. They are also often given handsome cash
bonuses. Many of the enterprises also used company
funds to build housing for their employees, and
equipping even the lowest-ranking officials with
cars.
This results in unfairness and
injustice in social wealth redistribution, which
increasingly angers the public. Many people have
rightly complained that since the SOEs are
supposed owned by all people, their profits must
be shared by all people, instead of by such a
minority of persons working within them.
Moreover, the critics say that many of the
SOEs reaped staggering profits not because of
their competency but through price manipulations
taking advantage of the state monopoly, so they
should either hand in their profits to the state
coffers or cut prices to benefit the public.
Social injustice is a major source of
social disharmony. So ahead of the Chinese
Communist Party's all-important 17th National
Congress, which is expected to endorse President
Hu Jiantao's idea of "building a harmonious
society" as the new party line, the government
began to deal with the issue.
The State
Council, China's cabinet, has ordered central SOEs
to hand in some of their annual profits to the
Ministry of Finance beginning next year, according
to a report by the state-run Xinhua News Agency.
According to the latest issue of Caijing
magazine, SOEs in state monopolized industries
such as oil and petrochemical, telecom, coal,
electricity and tobacco are required to hand in
10% of their after-tax profits.
The
process will begin on a trial basis for some SOEs
this year. According to the latest issue of the
influential magazine, the tobacco industry and the
155 central SOEs will hand over 17 billion yuan
this year.
This new policy certainly would
help ease growing public anger over the SOE
injustice and will boost government revenues. But
the government has also become quite rich in
recent years. According to the National Bureau of
Statistics, the national coffers reaped 3.87
trillion yuan in 2006.
Therefore, in
addition to investment and re-investment, Beijing
may need to consider spending the profits from the
SOEs, or part of them, on improving public
services such as medical care and education so
that "all people" can enjoy the benefits. Or
Beijing could consider cutting personal income
taxes. After all, the money comes from the people
and should be used to benefit the people, if Hu's
"people first" principle is to be upheld.
As the Chinese say: "Wherever there is a
new policy, there is always some way to get around
it." The SOEs may not be happy with Beijing's new
policy, so they may try to spoil it. For instance,
they could possibly cook the books to reduce their
profits or even claim losses. Therefore, the
government must take more effective measures to
supervise these SOEs on their business operations
as well as on the disposal of their profits.
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