Confronted with ever intensifying international competition,
enterprises in China, whether state-owned or not, have to make
adjustments constantly in order to keep abreast with the ever
changing market conditions. In business operation they must follow
the market rules without relying on the government for protection.
Experience from 24 years of reform and opening up shows that
government's protection does not take effect squarely. It is the
industries without or receiving little protection that are actually
more competitive, such as household appliances, textile and light
industry. Presently some brands of Chinese household appliances are
in no way inferior to the famous brands from Japan, Korea and
Europe in terms of both function and quality. The manufacturers in
these industries are beginning to enter the international market.
On the other hand, those highly monopolized industries that
received more administrative protection, such as telecommunications
and financial services are precisely the ones that found it
difficult to sustain the pressure of competition from outside.
Therefore, China's enterprises must get rid of the psychological
reliance on government's protection in order to operate in
accordance with the market rules. They must change their perception
and system in the operation of enterprises, so as to put themselves
amidst the international competition. This being done, in-depth
development of China's enterprises' marketization is assured.
(I)Non-State Owned Sector
1.Future Changes in Policies, Rules and Regulations and
Economic Environment Relating to the Non-State Owned
Sector
The 16th National Congress of the CPC convened in November 2002
stated that it is necessary for us to unswervingly "encourage,
support and guide the development of the non-public sectors of the
economy"; "We should expand the areas for the market access of
domestic nongovernmental capital and adopt measures with regard to
investment, financing, taxation, land use, foreign trade and other
aspects to carry out fair competition"; "We should improve the
legal system for protecting private property"; "We should improve
the environment for investment, grant national treatment to foreign
investors and make relevant policies and regulations more
transparent"; "We should establish the principle that labor,
capital, technology, managerial expertise and other production
factors participate in the distribution of income in accordance
with their respective contributions". Such policies greatly
improved the strength of support to the non-state owned sector, and
the non-public sector in particular.
After the 16th National Congress of the CPC, some laws and
regulations in consistency with the international practice and
beneficial to the development of the national economy will be put
forward and perfected. First of all, the much talked about the
Civil Code of New China had been submitted to the highest
legislative body of the country for deliberation and will be
promulgated very soon. In Order to improve the legal system for
protecting private property, the Civil Code (Draft ) devoted a
whole chapter to the private ownership, clarifying the basic
principle relating to property ownership law and regulations for
protecting the property ownership, which are applicable to
properties of both citizens and non-public enterprises. According
to the draft, the private owner-ship as referred to by the Code
includes the rights of natural persons and the non-public economic
entities such as the individual sector and private sector to have
full disposition of their immovable or movable properties.
Secondly, policies and regulations in discrimination of the
development of the individual and private sectors are to be cleared
and abolished, and to be replaced by those amended and improved to
support and encourage their development. The individual and private
sectors are to be guided and supported in their "secondary
pioneering" in terms of establishing the prestigious status of
their products, in accelerated asset restructuring and combining,
in active participation in international competition, in
continuously improving their own quality for bringing about
qualitative developments, and in improving their competitiveness.
Further more, the Interim Provisions on the Restructuring of
State-Owned Enterprises by Using Foreign Funds was promulgated
in November 2002 and were to be enforced for 1 January 2003.
Together with the Circular on Relevant Issues Concerning
Transferring Listed State-Owned Stocks and Legal Person Stocks to
Foreign Businesses, they form China's policy system in
relation to restructuring state-owned enterprises by utilizing
foreign funds, and will have important influence in adjusting and
optimizing the layout pattern of the state-owned sector.
The year 2003 will be the second year since China's admission to
the WTO. According to the Protocol for Joining the WTO and the
working group's reports, China will open an even wider range of
fields to the foreign businesses in the second year after joining
the WTO. For instance, the minimum registered capital for a wholly
China-owned enterprise to carry out foreign trade will be reduced
to 3,000,000 yuan; Sino-Foreign equity joint-ventures with the
foreigner holding minority shares will have full right in carrying
out foreign trade; the non-discriminative treatments between
production of products for domestic sales and those for export and
between export products and imported products are to be abolished;
national treatment is to be given to the imported products;
controls on service trades such as business, telecommunications,
sales agency and financing are to be further relaxed, so that
foreign investments are expanded to over 50 percent in some cases.
This means that China will gradually and eventually fit into the
economic globalization system. China's enterprises will engage in
heated competition with a wider range of enterprises from all
countries, including those from the developed countries, and on a
higher level.
2. Development Trend of the Non-State Owned
Sector
(1) Non-state Owner Sector to Enter a Wider Range of
Fields
The market access of the non-state owned sector is accompanied
by the strategic adjustment of the state-owned sector. For the
state-owned sector, the important aspect of the strategic
adjustment is to exit from most of the competitive industries, and
where the state-owned sector has phased out, there will certainly
be access of the non-state owned sector. On the one hand, a large
number of state-owned medium and small sized enterprises,
especially the small ones, are directly transformed into non-state
owned enterprises; on the other, the large and medium sized
state-owned enterprises are transformed into state controlled
enterprises with diversified property rights, which is not possible
without participation by the non-state owned sector. Meanwhile, as
a member of the WTO, China must keep observance of the two
fundamental rules of market access and national treatment of the
WTO. China will grant same treatment to China's enterprises
including those with foreign funds, foreign enterprises in China
and other non-state owned enterprises. This means that market
access and production and operation conditions in all competitive
industries must be equally available to all enterprises, regardless
of the type of ownership and the source of capital. According to
the commitments made by China, non-discriminative treatment is
guaranteed in prices and availability of goods and services
provided by the industries including traffic and transportation,
energy, basic telecommunications and other facilities and factors
for production. Under such circumstances, the non-state owned
sector will enter the fields once monopolized by the state-owned
sector and compete with them on equal terms.
(2) Property Rights of Non-state Owned Enterprises More
Distinct and Diversified with More Standardized Production and
Operation Activities
In the second year after joining WTO, China as a WTO member
feels the necessity to accelerate the ownership transformation of
enterprises, although there is no such requirement by the WTO on
its members. Enterprises are to be transformed at an accelerated
pace into joint stock limited companies with diversified property
rights in accordance with the requirements of the modern enterprise
system. Concerning non-state owned enterprises, even if their
property rights were distinctly divided, they have to be reformed
in accordance with the requirement of the modern enterprise system
in order to fit into the competitive environment of market
globalization. Confronted with such global competitive environment,
non-state owned enterprises, especially the family enterprises,
must absorb more investing parties to achieve expanded scale and
enhanced competitiveness. And in order to keep sustainable
vitality, non-state owned enterprises must as well strictly follow
the market rules and relevant rules and regulations. They must
design their corporate governance and incentive and restraining
mechanisms to meet the requirements of market competition, the
property rights and corresponding benefits of each investing entity
must be clearly defined, and production and operation behaviors
standardized.
(3) Businesses with Direct Foreign Investment or Wholly
Foreign-owned to Increase Rapidly
China's accession to the WTO and the promulgation of policies
for attracting foreign investment will inevitably trigger off an
influx of transnational companies into China, intensifying the
impact on China's domestic enterprises. After 24 years of reform
and opening-up, many well-known large foreign enterprises
established equity joint-ventures, contractual joint-ventures and
wholly owned enterprises in China, and their products are occupying
a larger and larger market share, significantly influencing China's
economic development. Over the years, policies and measures adopted
by the government such as high tariffs, product buy-back system and
project examination and approval system effectively protected the
domestic enterprises, so that some industries have acquired
relatively high international competitiveness, especially in
nurturing such enterprises groups like Haier, Baoshan Steel Works
and Changhong. After joining the WTO, tariff rates will be sharply
cut down and the government's administrative measures will be
further weakened or even withdrawn. For many domestic enterprises
whether to engage in face-to-face competition with foreign
enterprises for survival and development will be a decision of
vital importance. Currently there is a surge in the number of
exclusively foreign invested businesses in China, while in the past
they were mainly on equity or contractual joint-venture terms with
China's enterprises. In 2002, the contract value of equity or
contractual joint-ventures by foreign businesses in China amounted
to US$27.765 billion, which however dropped to US$25.837 billion in
2001; on the other hand, the total contract amount of direct
foreign investment rose from US$34.309 billion in 2000 to US$42.999
billion in 2001, by an increase of 25.33 percent. This means that
even on the domestic market there will be ever more fierce
competition between China's enterprises and large foreign
enterprises.
It is expected that the role of the non-state owned sector in
China's economic development will continuously be reinforced, and
will make further contribution to the growth of national
economy.
(Ⅱ) State-owned Enterprises
1. Future Changes in Policies, Rules and Regulations and
Economic EnvironmentRelating to the State-owned Sector
Concerning the market-oriented reforms of state-owned
enterprises, the 16th National Congress of the CPC put forward that
it is necessary to establish a state property administration system
that satisfies the market requirements. "The state should make laws
and regulations and establish a state property management system
under which the Central Government and local governments perform
the responsibilities of investor on behalf of the state
respectively l enjoying owner's equity, combining rights with
obligations and duties and administering assets, personnel and
other affairs"; "Governments at all levels must strictly abide by
the laws and regulations concerning the management of state
property, persisting in the separation of government functions from
enterprise management and separation of ownership from management
so that enterprises can operate independently, assume sole
responsibility for their profits or losses". The property
diversification reforms of state-owned enterprises are to be
further propelled. "Except for a tiny number of enterprises that
must be invested wholly by the state, all the others should
introduce the joint-stock system to develop a mixed sector of the
economy. Sources of investment must be diversified. The controlling
shares in lifeline enterprises must be held by the State".
Two laws will be launched after the 16th Congress of the CPC,
i.e. the Law on the Administration of State Property, which will
stipulate the exclusive contributor status of the state property in
order to truly separate the government administration from
enterprises management, and the Bankruptcy Law. In today's
world, whether there is well-developed enterprise bankruptcy system
or not has become an important sign in assessing how well a
country's market economy has developed. After 15 years of trial
use, the existing bankruptcy law of China is found evidently in
contradiction with the reality of China's reforms, and a more
mature bankruptcy law is eagerly expected. The writing of the new
Bankruptcy Law (Draft), which underwent three major modifications
and amendments, and was subject to comments and suggestions from
various government departments, provinces and municipalities, has
already been completed. The new Bankruptcy Law grants equal
treatment to both state-owned and non-state owned enterprises since
the irreplaceable status of state-owned enterprises has perished.
With the infusion of foreign and private funds, the issue of
state-owned enterprises is no longer a dilemma. With China's
joining the WTO and fitting into the global economy, state-owned
enterprises, like the non-state owned ones, will have to
participate in the competition on a higher level, except that
state-owned enterprises have to face severe challenges from more
aspects in more fields.
2. Trend of Marketization of State-Owned
Enterprises
(1)Further Separation of Government Role from Capital
and Enterprises Management
A new management system for state property will be established
in 2003 together with the issuance of relevant laws. The new system
will establish the exclusive representative of the state property,
so that the chronic problem in which a number of departments fought
for owning the assets will be solved. The contributor of state
property will be specified, which, in such capacity, will exercise
the powers and enjoy the benefits of the owner but will not behave
like an administrator. By specifying a contributor the distinction
between government and enterprises will be basically finalized. The
government's control of resources and monopoly of industries will
be considerably weakened, leaving stat-owned enterprises with much
more autonomy in decision-making on all external and internal
issues. When split away from managing capital, the government will
devote more efforts in cultivating the market system, in creating a
favorable external environment for enterprises, and in providing
support for enterprises to establish a modern enterprise
system.
(2)Transformation of Large and Medium Stat-Owned
Enterprises into Joint Stock Limited Companies to Be Conducted in
Deeper Dimensions
The establishment of modern enterprise system is the natural
requirement for developing socialized mass production and market
economy, in which direction the reforms of state-owned enterprises
are to be conducted. In the days to come, except for some special
fields (that are of national security and vital economic
significance), the large and medium state-owned enterprises will
mostly be transformed into non-wholly-state-owned enterprises, with
further diversification of investing entities and clarification of
property rights, and to establish a scientific and effective
corporate governance and an incentive and restraining mechanism
that are entirely free of government control. The standardized
operation of enterprises requires changing the operational
mechanism, so that the adaptability and competitiveness of
enterprises will be improved.
(3)Behavior of State-owned Enterprises to Be More
Market-Oriented and Standardized
At present, the behavior of state-owned enterprises is already
highly market-oriented in respect of factor procuring and price
setting. However, there are still some non-market elements in the
corporate governance, particularly in the large state-owned
enterprises. For instance, quite a number of Managers are subject
to government appointment or removal, and the distribution of the
managers' incomes is still based on the government set standards.
With the government stepping back from management of capital and
business, such situations will be greatly reduced. The Managers
will more often be selected from the growing market of professional
managers, and the wages of them will be determined at the BOD's own
discretion. At the same time, a mechanism in which the managing
institutions of the company are conditioning each other will be
further improved the gradually standardized.
(4)State-owned Medium and Small Enterprises, Particulary
the Small Ones, to Exit the State-Owned Sector
With the development of a social security system, the
state-owned small enterprises, as well as the state-owned medium
enterprises in chronic losses, will mostly or even entirely exit
the state-owned sector, by means of bankruptcy and infusion of
non-state owned sector, and become non-state owned enterprises or
enterprises with the state being an ordinary shareholder.
Enterprises with the state being an ordinary shareholder are no
longer state-owned enterprises, but are typical enterprises of
mixed ownership. What is of greater significance is the
promulgation of rules, regulations and policies concerning
utilization of foreign investment in restructuring state-owned
enterprises, or transferring the state-owned stocks and legal
person stocks of the listed state-owned companies to foreign
businesses, which will cause a wider range of state-owned
enterprises to exit. The establishment of modern enterprise system
and improvement of corporate governance will be expedited by
selling state-owned property rights to foreign businesses or
absorbing foreign investment, so as to realize sustainable
development of enterprises with higher competitiveness.
(China.org.cn November 7, 2003)
