Shareholding System Reform in China

Shareholding System Reform in China

Privatizing by Groping for Stones

Shu-Yun Ma

Since the 1980s, there has been a global wave of transfer of state assets to private hands. China is a relatively late participant of this worldwide trend, yet, in the last decade it has emerged as one of the largest privatizing countries. Shu-Yun Ma argues that China’s privatization is not based on any grand blueprint; rather, it is privatization by ‘groping for stones to cross the river’, a well-known metaphor often attributed to Deng Xiaoping, meaning that the reform simply proceeds on a trial-and-error basis without being guided by any theory.

Chapter 3: Evolution of the Shareholding System Reform

Shu-Yun Ma

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, economics and finance, asian economics, financial economics and regulation, political economy, politics and public policy, political economy

Extract

In the 15th Chinese Communist Party Congress held in September 1997, the shareholding system (gufenzhi) was endorsed as the ‘mainstream reform programme’ for state-owned enterprises (SOEs) (MB, 12 September 1997). This represented an important move of China to improve economic efficiency in the state sector. In 1996, this sector accounted for 53 per cent of the country’s total investment, and 16 per cent of national employment. There were some 113 800 industrial SOEs. They created a loss of 79 billion yuan, which the state had to cover. In fact, from 1978 to 1996, losses made by industrial SOEs increased by almost nineteen-fold (ZTN, 1997). Since 1978, the Chinese government has been trying different schemes to revitalize SOEs, and the shareholding system represented a major departure from the previous attempts. While all previous programmes focused mainly on the managerial aspects of enterprises, it is only the shareholding system that touched on the nature of ownership of SOEs. The essence of the shareholding system reform (gufen jingji gaige) is to convert SOEs into shareholding enterprises (SHEs). Shares are issued to the state, enterprises, and individuals. This has made it possible for private individuals to acquire at least partial ownership of formerly completely state-owned enterprises. Despite repeated denials by the top leadership, the shareholding system reform is a form of privatization, in the sense that it provides a channel through which state assets are transferred to private hands. However, unlike the rapid privatizations in many East European countries, it took 13 years – from...

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