Academic warns on venture woes

PUBLISHED : Saturday, 15 January, 1994, 12:00am
UPDATED : Saturday, 15 January, 1994, 12:00am

ECONOMIC reforms in China which have resulted in a proliferation of joint ventures between the government and private enterprises might create conflicts of interest and open the way for corruption as the reforms progress, says an academic.

Leading a group of graduate students on a tour of China, Professor David Beim of the US Columbia University reckons the inter-penetration between the public and private sector will become a potential source of conflict on the role played by the government.

He said nearly all municipalities were involved in some form of joint venture, creating a trend in which government officials became entrepreneurs.

''Nowhere in the world can we see such a high level of entrepreneurship in a government,'' he said.

This problem of ambiguity in ownership would not surface soon because both sectors' objective - achieving growth at any cost - overlapped.

Still confusion persisted as to who was the ultimate equity owner of the company.

''But five to 10 years down the road, when the objectives of both sides diverge, problems will emerge,'' Professor Beim said.

The Government, when tackling environmental problems in the future, would find that the enterprises posing the hazards were partially government-owned.

This would apply also to the employment of child labour and corruption.

''When the Government tries to address these social issues, it will probably end up dealing with other government officials,'' he said.

Besides, these joint ventures offered hugely tempting chances for people in the private sector to advance private goals through their public position.

''In this way, these joint ventures will become the institutionalisation of corruption,'' he said, adding that ultimately these enterprises would either be considered as contributing to developing a capitalist market or as a source of corruption.

On the other hand, he believes that China's rapid economic development opens up financial opportunities for foreign banks.

The insatiable appetite for infrastructure financing and the high savings rate had to be linked up by efficient intermediaries such as banks, he said.

''Besides, there is no retail banking in China. People deposit their money into the bank and that's the end. It is not a service industry as in the West,'' he said A viable banking system would not only fill in these gaps, but also support the development of the fledging securities market on the mainland, he said.

Professor Beim said the existing banking system would help ease problems arising from the absence of information, by checking on the performance of a sector lacking proper financial disclosure.

Furthermore, the nature of banking as a relationship industry would encourage all parties to resolve problems.

''On the securities side, when things go wrong, they will be taken to the court,'' he said.

While foreign banks are still prohibited from operating in yuan, he believes changes are forthcoming as a result of the banking reforms.

The likely changes brought about by the new banking laws might include a further sub-division of sectoral banks, specialising in agriculture, communications and long-term development.

''We will see the policy function of the banks separated from its commercial aspect and a further proliferation of commercial banks,'' he said.