Privatizing by Groping for Stones
Chapter 3: Evolution of the Shareholding System Reform
3. Evolution of the shareholding system reform 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...
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