'Beijing is planning a big global drive for corporate talent, seeking new chief executives for some of the top 50 state-owned enterprises.' SCMP, June 18 My reaction to this one would normally have gone no further than yeah-yeah-yeah, clap-clap-clap, except that my eye happened also to fall on the last paragraphs of the story where a mainland academic by the name of Yuan (how appropriate) gave the game away: 'Non-party members trained in the west may find it difficult in an environment where decisions are often made first by the company's party committee and then passed on down the line. 'Mr Yuan said similar recruitment efforts in the past had failed because the candidates failed to satisfy areas such as management expertise and political background. In the end the recruitment was done behind closed doors.' This raises a question that must certainly have occurred to other people: What evidence is there that anything has changed? Let's briefly review the state of play here. The red line on the chart shows you the track of the official figures for how much of the workforce is employed by state-owned corporations - 54 per cent as of the latest figures, which is down from 74 per cent 15 years earlier. The blue line shows you the percentage of total industrial sales for which state-owned companies account - 9.4 per cent as of the latest figures, which is down from 63 per cent 15 years ago. Yes, the government has indeed seen state-owned corporations account for a smaller share of total production in recent years while other sectors have accounted for a much larger share and this was indeed a planning objective. But it has only happened because the other sectors have grown so much, not because the state-owned sector was actively cut back. In fact it still produces more than it ever did in straight yuan value terms. And it is certainly more bloated than it ever was relative to what it produces - less than 10 per cent of industrial sales but still with more than 50 per cent of total employees. The result has been a steady rise again over the last four years in the number of loss-making state enterprises and, even more, in the extent of their losses. The figures are rough but they seem to indicate that the losers are dropping an average of 27 million yuan (HK$30.64 million) a year, whereas five years ago that figure was 7 million yuan a year. Now ask yourself the next obvious question. If these new executives who Beijing is now talking of bringing in to the top of state-owned corporations are really the western-trained and efficiency-minded magicians they are billed to be, what are they likely to want to do with the companies they come to run? They will want to cut back on employee numbers, won't they? They will also recommend ending unprofitable activities and they will start pitching for more investment money to modernise their facilities. This will mean more people on the street without an income at just the time that inflation is making it harder for such people to survive anyway. It will also mean more fixed-asset investment at just a time when the authorities want to tighten up lending and when the stock market has become must less disposed to rising to the bait of every new issue dangled in front of it. I shall thus rephrase my first question. What chance is there that this time round the authorities will not force the executives of state-owned corporations to submit themselves to all the usual political considerations? And I shall now answer this question. There is no chance at all. I think what we are likely to have here is some key people in Beijing fooling themselves about the real nature of the problem. They seem to think that the problem is incompetent management and that all they need do is change the management and everything will be fine. In fact I think the existing managers are very competent but are so relative to the task they face, which is trying to survive against the oppressive weight of bad commercial decisions taken on purely political grounds. They can't get rid of people, they can't change the production lines and they can't get the money to upgrade their capital stock. The most highly rated corporate executive in the entire world can do nothing in this kind of environment. Buying big-name executives may buy time for those who appoint them but will not buy success.
