Listing not the answer

PUBLISHED : Friday, 02 September, 1994, 12:00am
UPDATED : Friday, 02 September, 1994, 12:00am


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JUST because China's state sector has been much maligned does not mean that no state enterprise is up to scratch.

Given the size of the state sector, it is not difficult for the China Statistical Information and Consultancy Service to work out a list of enterprises which show a profit.

What is difficult, however, is to force the even longer list of state enterprises mired in red ink to take a leaf or two from the experiences of the three giant steel enterprises - Baoshan Iron and Steel Group, Shougang Iron and Steel Corp and Anshan Iron and Steel Corp.

They have bucked the trend by not joining the rush to list on the stock markets, but that has not stopped them running efficient and profitable businesses.

Since China's experiment with stock markets, many state enterprises entertain the mistaken belief that a flotation offers a panacea for decades of mismanagement and waste.

That illusion must be dispelled.

It is true that listing forces enterprises to restructure their operations and that their subsequent performance is the key determiner of the price of their stock.

But unless senior managers of state enterprises thoroughly understand the responsibilities that come with a flotation, going public may not produce the intended results.

The case of the three steel mills shows that companies do not have to seek a listing to be profitable and efficient.

Indeed, they show that the organisational structure of an enterprise is not linked to its profitability. What is important is that it clearly grasps the basic concept that its survival ultimately depends on the bottom line, for which it is solely responsible.

Entrepreneurs in capitalist economies such as Hong Kong have little difficulty understanding this concept. But driving it home in a vast economy where enterprises are often bailed out has proved to be no easy task.

A positive start has, however, been made. Beijing is forcing some enterprises awash in red ink to face bankruptcy - a bold but potentially de-stabilising step.

A few have made the successful transition, but many are slow on the uptake. Reforming enterprises is a long-haul task, but Beijing will have to drive home the message - shape up or sink.