Under the circumstances that China has joined the WTO and that
the global economy is becoming more and more integrated, the
international community is finding it ever more intriguing and
interesting as to how market-oriented China's enterprises have
become in their business operations after 24 years of reforms. For
this reason, an objective and impartial assessment of the
marketization of China's enterprises is of great significance both
for promoting in-depth reforms of enterprises and for the
international community to get a correct understanding of the
market-oriented operation of China's enterprises.
Ⅱ. Market-Oriented Reforms of China's Enterprises in
Retrospect
The market-oriented reforms of China's enterprises were
initiated in December 1978 at the Third Plenary Session of the
Eleventh National Congress of the Communist Party of China (CPC),
and the development can be divided into three stages in the past 24
years since then.
(I)The Initiating Stage (1978-1984)
Before the reforms, almost all of China's enterprises were
uniformly of the ownership by the whole people, that is, they were
state-owned and state run. A small number of collectively owned
enterprises did exist, but their managerial system was not
essentially different from that of state-owned enterprises.
Enterprises of any other ownership were non-existent at all.
State-owned enterprises are not enterprises in the real sense, but
are administrative institutions under the control of the Party and
the government. These so-called "enterprises" are merely
"production units" that are neither independent nor creative. They
received production quotas from the government, which would
purchase and sell the products on their behalf and the profits
would also be allocated and distributed by the government in a
unified way. Enterprises are highly reliant on the government. The
operation mechanism of such enterprises was immobile and stiff with
extremely low efficiency. Starting from such basic reality, the
government put forward the idea of "delegating power and sharing
profits" with enterprises for carrying out reforms.
By "delegating power and sharing profits" so that enterprises
would enjoy expanded autonomy and receive material incentives, the
government intends to bring forth the initiative of state-owned
enterprises in production and operation. This mainly included:
provided that the scheduled production quota is accomplished, the
enterprise may work out supplementary plans according to the demand
in market and arrange the production thereof at its own discretion;
within certain limits, part of the products may be sold by itself
at the prices set by the government; the responsibilities and
rights of the State and enterprises respectively are confirmed in
the form of an economic responsibility system, allowing enterprises
to posses a certain amount of financial resources and economical
benefits at its own disposal, so that the performance of the
enterprises would directly affect the benefits of the staff and
workers. In May 1984, the State Council confirmed that state-owned
enterprises may enjoy autonomy in ten aspects, namely, production
and operation programming, product sales, pricing, material
procuring, use of funds, disposition of properties, structuring,
personnel and labor, distribution of wages and bonuses and the
utilization of a combination of powers.
(Ⅱ)The Exploring Stage (1984-1991)
In October 1984, the Third Plenary Meeting of the Twelfth
National Congress of the CPC passed the Resolution on Reforming the
Economic system, which called for "the whole people, collectives
and individuals to go all out", and encouraged all sectors of the
economy, whether owned by the whole people, the collectives or
individuals, or with foreign funds, to cooperate with each other by
means of establishing contractual joint-ventures, equity
joint-ventures or associations. Small state-red enterprises were
allowed to be "let out" or "contracted" to collective-or
individually-owned enterprises. In 1987, the Thirteenth National
Congress of the CPC further proposed that the joint-stock system as
one of the forms for organizing properties might be tried out. The
property rights of small state-owned enterprises may be transferred
to collectives or individuals against remuneration. In December
1986, the Standing Committee of the Sixth National Congress passed
the Enterprise Bankruptcy Law (Trial), which stipulates
that enterprises in insolvency may apply for bankruptcy. In April
1988, the First Session of the Seventh National People's Congress
passed the Enterprise Law. This is the first code law for
state-owned enterprises since the funding of the People's Republic
of China. This law stipulated 13 items of rights on the basis of
generalizing the relevant rules, regulations and policies
formulated by the government in an effort to invigorate enterprises
since the initiation of the reforms. In addition, policies, rules
and regulations for protecting the non-state owned sector such as
the Interim Regulations for the Administration of Urban and
Rural Individual Industrial and Commercial Businesses, the
Law of Foreign Invested Enterprises and the
Provisional Regulations of Private Enterprises were
successively promulgated, providing legal guaranty for the
development of the non-state owned sector.
Beginning from the Third Plenary Session of the Twelfth National
Congress of the CPC, the central emphasis for reforming China's
economic system was shifted from rural areas to urban areas, and
the reform of state-owned enterprises was identified as the central
link in the reforms. During this period, the most prominent aspect
of reforms in state-owned enterprises was the distinguishing of
government and enterprise roles, and appropriate separation of the
right to own and the right to run (or "the separation of the two
rights" ). The main measures for achieving this end was to promote
the responsibility system of contracted operation, and to implement
the system of leased operation in respect of some small state-owned
enterprises.
The non-state owned sector made breakthrough advances in this
period. Between the years from 1984 to 1991, the average annual
growth rate of output by the state-owned industry was only 8.3
percent, while that of the non-state owned industry was as high as
23.9 percent, of which, the average rate for the collective-owned
industry was 19.7 percent, for urban and rural individual
industries, 45.4 percent; and for industries of other types of
economy, the average was 47.3 percent. In 1991, the output of the
non-state owned industry accounted for 43.8 percent of the total
industrial output value, an increase by 12.9 percentage points
compared to the 30.9 percent in 1984, or, an average increase of
5.1 percent annually. This reflected that the efficiency achieved
by non-state owned enterprises from marketization was far higher
than that of state-owned enterprises basically still under the
administration of the government. Compared with state-owned
enterprises, non-state owned enterprises were on the whole
independent market entities, possessing relatively independent
market rights and pursuing relatively independent economic
benefits, and their behaviors were already typical of the market
economy.
(Ⅲ)The Standardizing Stage (1992 to the
Present)
A series of speeches by Deng Xiaoping on his inspection tour to
the southern parts of China during the months of January and
February in 1992 stroke the keynote for the marketization of
China's economy. In July of the same year, the State Council issued
and enforced the Rules for Shifting the Operational Mechanism
of the Industrial Enterprises Owned by the Whole People,
which, on the basis of the 13 rights stipulated in the Enterprise
Law, further specified that enterprises were entitled to 14 rights:
i.e. decision-making in production and operation, price-setting for
products and labor, selling of products, material purchasing,
import and export, investment decision, disposition of retained
bonuses, disposition of property, decision on joint operation or
mergers, labor employment, personnel management, distribution of
wages and bonuses, internal structuring, and refusing apportioning,
so that enterprises would become commodity producers and business
operators that were adapted to the requirements of the market, that
were independently operating according to law and responsible for
their own losses and profits, that were capable of developing on
their own and were self-disciplined. In October, the Fourteenth
National Congress of the CPC made it explicit that the objective of
China's economic reforms was to establish a system of socialist
market economy. State-owned enterprises, collectively owned
enterprises and other types of enterprises were all requested to
enter the market, and to compete in the market so that only the
fittest would survive. The dominating status of state-owned
enterprises was to be displayed in participating fair competition
in the market. The joint-stock system are effective in
distinguishing government and business roles, in shifting the
operation mechanism of enterprises and in accumulating funds, so
relevant laws and regulations were to be urgently formulated or
implemented, to realize an orderly and healthy transformation of
state-owned enterprises into joint stock businesses. Thereby, the
market entity Status of China's enterprises was officially
confirmed, and China's enterprises entered a stage of standardized
development.
In November 1993, the Third Plenary Session of the Fourteenth
National Congress of the CPC passed the Decision on Several
Issues for Establishing a Socialist Market Economy System by the
Central Committee of the CPC, which stated that the "market
was to play a fundamental role concerning the resources under the
macro control by the State", that "the State was to create the
conditions for all sectors of the economy to participate in the
market competition on an equal footing, and enterprises from all
sectors would be treated indiscriminately". State-owned enterprises
were to fit in with the requirements of a market economy system in
establishing a modern enterprise system with "clearly established
ownership, well defined power and responsibility, separation of
enterprises for administration and scientific management". From
then on, the transformation of state-owned enterprises shifted its
emphasis on delegating powers and sharing profits to putting more
efforts in creating a new market-oriented enterprise system. In
December of the same year, the Standing Committee of the National
People's Congress passed the Company Law, which stated
that companies funded by investing bodies of different ownerships
were all equal by law. In 1997, the Fifteenth National Congress of
the CPC further stated that "the non-public sector is an important
component part of this country's socialist market economy", and the
statement was incorporated into the Constitution amended in 1999.
From then on, the status and the role of the non-state owned
sector, especially the private sector, in China's economic
structure were officially confirmed.
In September 1999, the Fourth Plenary Session of the Fifteenth
National Congress of the CPC passed the Decisions of the Central
Committee of the CPC on Several Important Issues in the
Transformation and Development of state-owned enterprises, stating
that the stock rights of state-owned enterprises were to be
diversified and that companies with diversified investing bodies
were encouraged in order that they were turned into companies in a
standardized procedure. In April 2001, the State Economic and Trade
Commission, the Ministry of Personnel and the Ministry of Labor and
Social Security jointly issued the Opinions on Deepening the
Reforms of the Internal Personnel, Labor and Distribution Systems
of state-owned enterprises, stating the administrative ranks in
enterprises were cancelled, the managers were no longer entitled to
treatment according to their administrative ranks that were
exclusive to the government officials. All the managers, except
those to be controlled by the fund contributor or those to be
elected or replaced according to statutory procedures, were to be
employed from the survivors of open election contests, or to be
recruited from all over the society.
This stage of the transformation of state-owned enterprises
featured the establishment of modern enterprise system (with the
joint-stock system being the priority option). By the end of 1994,
there were already 33,000 joint stock enterprises all over China,
with 78.4 percent of them finding the operation mechanism
remarkably changed after transformation, enjoying economic benefits
far higher than the national average. Encouraged by the success in
the transformation, in November 1994 the State Council picked 100
large state-owned enterprises for trial implementation of the
modern enterprise system, staging the prelude for the
transformation of system on a large scale among state-owned
enterprises. In the large state-owned enterprises undergoing trial
transformation, investing institutions or government departments
authorized by the State or other investors were entitled to
shareholders' rights in proportion to the shares held. The
contributors were not allowed to withdraw the funds, but the
enterprise property may be legally transferred. Enterprises as
independent market entities were no longer reliant on the
government, nor were they eligible to administrative ranks. Within
the enterprise, decision-making, implementation and supervision
powers were independent of each other, with their powers and
responsibilities clearly defined and mutually restraining. The
company administration was established consisting of the general
meeting of the shareholder, the board of directors, the board of
supervisors and the managerial staff, each of them performing their
respective duties in effectively exercising the decision-making,
supervisory and implementation powers. The managerial staff members
no longer kept the status of government officials, the managing
personnel was to be designated by the Board, and the enterprise and
the employees were entitled to choose each other. In respect of the
financial and accounting system, the General Principles of
Business Finance and the Accounting Standard for Enterprises
that are basically in consistence with the international standard
were implemented throughout the country. Enterprises must take out
old-age pension, medical, and unemployment and industrial injury
insurance policies for the employees. Since the pilot enterprises
took to the standardized approach right from the beginning, the
transformation achieved considerable success. On the basis of
successful experience, the transformation continued with its
in-depth development. By the end of 2001, among the 2710 pilot
enterprise groups picked up by the State Council and the
Localities, the parent companies of 1994 of them transformed into
companies, accounting for 73.6 percent of the total; among the 520
state key enterprises owned by the State or with the State as the
controlling shareholder, 430 enterprises transformed into
companies, accounting for 82.7 percent of the total. During this
period, the transformation of other state-owned enterprises was
continuously deepened in all dimensions, and a mechanism for
state-owned enterprises to exit was gradually taking shape.
With state-owned enterprises being transformed into companies,
the company stock listing was constantly expanding in size and the
relevant rules and regulations were being refined constantly. From
1992 to 2001, the number of listed companies rose from 53 to 1160;
the fund raised annually rose to 125.234 billion yuan from the
initial 9.409 billion yuan, with the fund raised in the year 2000
reaching as high as 2103.08 yuan; the ratio of the market stock
price and the GDP rose from 3.93 percent to 45.37 percent. During
this period, regulations and laws including the Opinions on
Standardizing the Joint Stock Limited Companies, the
Provisional Regulations on the Administration of Issuing and
Trading of Stocks, the Securities Law of the People's
Republic of China and the Criterion Governing the Listing
Companies were successfully issued, forming important guaranty
for the standardized operation of the listed companies.
The confirmation and protection of the market entity status of
the non-state owned sector by the policies and Laws of the State
brought about the rapid development of the non-state owned sector
in this period. This development was not only represented in the
growth rate, but also in the wide range of the areas affected. In
growth rate, between the years from 1991 to 2001, the average
annual growth rate of the state-owned industries and industries
with the State as the controlling shareholder was 17.3 percent,
while the average annual growth rate of output by the non-state
owned industry reached 24.3 percent, of which, the non-public
industries (including individually owned enterprises, joint stock
enterprises, and enterprises funded by foreign or Hong Kong, Macao
and Taiwan investors) achieved the average annual output growth
rate of 35 percent. In 2001, the output of the non-state owned
industrial enterprises reached 78.3 percent of the total industrial
output, or, 32.5 percentage points higher than the 45.8 percent in
1991, or an average annual increase of 5.51 percent. In wideness of
aspects affected, the non-state owned sector had infiltrated to
most fields of the national economy. The non-state owned sector
even partially entered some of the industries monopolized by the
State, such as banking and postal delivery.
To sum up, China's enterprises, after 24 years of reforms and
development, have made breakthrough in the market-oriented
development. There is no doubt that China's enterprises have
realized transition to market economy and the performance of
China's enterprises is already market-determined.
(China.org.cn November 7, 2003)
