Reforms to alter practices down on the farm

THE management of state-owned farms is undergoing reforms in three ways.

In an opening move to reform operation, the existing administrative body of a farm is abolished and government entities - such as county and rural governments - are set up to manage directly its executive and economic activities.

This step can eradicate conflicts between the original administration and local government on the governing of the farm. However, it brings some new problems.

With the abolition of its original administration and the introduction of government into its management, leaders of a farm also are leaders in the government.

This means the government directly manages the farm operation.

But the government, which focuses its attention on executive and administrative matters, does not have resources to oversee the farm's economic development.

By token of the same argument, the farm will find it difficult to expand operations and be competitive in the market.

The second step in reforming a state-owned farm is to transfer executive and administrative functions to its premises.

This can save human resources by combining the management of the farm's economic activities and executive administration of the locality.

Again, this kind of reform leads to its own problems. To start with, it does not look right and proper for a state asset to exercise executive and administrative functions on the locality.

Besides, leaders of the enterprise will not have enough extra energy to ensure good administration of the area.

On the other hand, as they must carry out their government duties, the time they can allocate to the farming enterprises is limited, threatening to restrict growth of the farm operation as an enterprise.

The proper way of reform is to divide the enterprise aspects from political aspects.

To do this, the existing executive body of a state-owned farming enterprise is spun off to form an executive organisation under the local municipal or rural government.

The enterprise should also be transformed into a limited company and become an independent legal entity with autonomy in operation.

The sole investor in a state enterprise is the nation. To convert that state enterprise into a limited company involves the addition of more than one investor.

Therefore, in the conversion, the existing net assets of the enterprise can be treated as state-owned shares while new investment is drawn from other investors.

The new limited company is a holding company, whose subsidiaries are state-owned industrial and commercial enterprises in the farm's premises.

The subsidiaries also are independent legal persons with autonomous operation.

The privately owned industrial and commercial enterprises in the premises are not administered by the limited company but by the spun-off executive organisation under the local government.

They operate and pay tax according to law.

Since the early 1980s, the fundamental operation unit of a farm has been the household. This should hold after farm reforms in order to pacify farmers.

Later, they should be encouraged to accomplish economies in scale by merging or contracting.

Those who contract land out for other farmers to work can engage themselves in industry and commerce at the same time.

Professor Li Yining is head of Beijing University's department of economics and management and is a standing committee member of the National People's Congress.