State firms 'will still drive economy'

PUBLISHED : Wednesday, 02 June, 2004, 12:00am
UPDATED : Wednesday, 02 June, 2004, 12:00am

State-owned enterprises will remain the driving force behind the mainland economy despite the government's privatisation efforts, according to analysts.

Arthur Kroeber, managing editor of the China Economic Quarterly, said that instead of relinquishing control over SOEs, the government was instead selling off small, inefficient companies while building up 197 large state-owned conglomerates.

'This is not eastern Europe, where the goal was to decrease state control, but an effort to make state control more efficient,' Mr Kroeber said at a seminar on China's private economy. 'As a class, the people who rule don't believe the state should get out of the economy.'

Since being formed last year, the State-Owned Assets Supervision and Administration Commission has started selling off more than 159,000 SOEs, quite often to the firms' existing managers.

The remaining 197 firms that officials are keeping in state hands control 7.1 trillion yuan in assets, compared to the 18 trillion yuan in assets that belong to the 159,000 firms that have or will be privatised.

James Brock, a Beijing-based private consultant, added that many of the recently privatised firms were only partially privatised.

Most management teams are only allowed to buy a minority stake - such as up to 30 per cent - in their firms but are saddled with full responsibility to maintain the company's profitability.

In most cases, the government still retains controlling shares.

'Overall, I find the Chinese bureaucracy to be very good and quite motivated. Even local officials tend to be good businessmen,' Mr Brock said.

The management buyouts leave the government in a win-win situation. It obviously benefits if a firm earns profits, goes up in value, or is offered for resale to new investors. If it goes under, the management bears full responsibility.