The reform of China's state-owned enterprises (SOEs) will not be completed in the short term or even in the next few years, a Chinese academic says. Zheng Yuxin , a senior research fellow and deputy director of the Institute of Quantitive and Technical Economics of Chinese Academy of Social Sciences, said reforming the sector was a difficult and complicated job. The enterprises had a complex history and their health had a direct impact on social stability. Chinese leaders had ordered that enterprise reform be given top priority, but little progress has been achieved so far. Mr Zheng said major reasons for the huge losses suffered by most SOEs in China were loss of markets and heavy tax burdens. 'China's SOEs monopolised the market before the country opened to the outside world and made very good profits,' Mr Zheng said. At the same time, SOEs were responsible for lots of social welfare expenses, including medical and retirement benefits and paid very high tax rates. He said it was common among most SOEs to have a ratio of full-time workers to retired workers still receiving benefits of 1:1. SOEs paid 33 per cent in tax, but those in special economic zones paid 15 per cent. The banks paid 55 per cent but foreign-invested enterprises paid between 15 and 33 per cent while enjoying various tax holidays. He said the Chinese Government was reluctant to allow loss-making companies to go bankrupt because of lack of a comprehensive social insurance safety net for workers displaced from SOEs which have collapsed. 'The central government is more concerned about the stability of society than whether SOEs make profits or not,' he said. This meant SOE reform would assume a plodding pace until after a national social securities system was set up to take over their welfare obligations. The central government's strategy was 'support the large but release the small'. Governments at various levels would provide support for a number of SOEs with profit potential with financing. Medium and small enterprises would be encouraged to go bankrupt or merge with other enterprises. Mr Zheng said 1,000 large SOEs with strong technical bases had been chosen by the central government as support targets. He said the 'support large, release small' policy was a sound one because the larger SOEs could boast technological strength and experienced staff after years of development.
