Seeking cure for property reform
By Zhu Qiwen (China Daily)
Updated: 2004-09-22 10:25

A battle of ideas over the reform of property rights of State-owned enterprises is sweeping across the country.

Such a debate is imperative because clear thinking is a matter of urgency on this issue.

The Chinese Government has made up its mind to speed up its revamp of State sectors as the country presses ahead with its market-oriented economic reforms.

But lack of clarity in policy and perception can bog down both efficiency and fairness of the critical property right reform of State-owned enterprises (SOEs).

Lang Xianping, an independent finance professor of Hong Kong Chinese University, first raised questions on the legitimacy of some SOE property right reforms last month.

By analyzing publicly disclosed information, Lang has cast doubt on managers of several star Chinese corporations for sweeping off State-owned assets through enterprise ownership restructuring.

He therefore concluded that the direction of the transformation of the country's "property system" was erroneous.

As a whistle blower, Lang is praiseworthy for drawing the needed limelight on such a vital topic related to State-assets worth trillions of yuan and theoretically every citizen in this country.

His sensitive argument touches on one of the most complicated problems the nation faces now.

To build and perfect the market economic system, the Chinese authorities must accelerate the strategic readjustment of layout and structure of the State sector of the national economy. And the property right reform is central to the reform of SOEs.

In absence of effective regulation and supervision, irregularities are blindingly obvious in many State enterprises' property right reforms.

Being vigilant against such widespread wrongdoings is crucial to the success of reforms.

Lang's statement is also sensational by upholding protection of State-owned assets and the common people's interests.

Not only those who lost their jobs during painful reshuffles of SOEs but also those aged workers, who have to live on insufficiently-funded pension accounts after retirement, have a particularly huge stake in how the current property right reform is carried out.

During previous years of central planning, many of these workers devoted so much to the development of SOEs that they were far less paid in terms of their contribution.

For them, the most important aspect of the SOEs' property right reform is fairness. The reform should be fair enough to compensate the employment and pension benefits the State once implicitly promised in exchange for a low salary level.

So, Professor Lang's criticism of the ongoing property right reforms which turned out to benefit mostly the management of SOEs has struck a chord with many people.

However, the point is that the conclusion Lang jumped to is unwarranted, and the solution he suggested looks more like a recipe not for cure but for disaster.

Zhou Qiren, a renowned economist with the China Centre of Economic Research of Peking University, was a steadfast proponent of market-oriented property right reform. He has stood out responding directly to Lang's challenges.

Zhou emphasized the complexity of defining the entrepreneur-like managers' contribution to the development of SOEs and many other enterprises without clear-cut ownership structure.

He thus laid an extra stress on the necessity to differentiate various cases from each other during the course of property right reforms.

As a matter of fact, a large number of managers of SOEs were only officials appointed by governments at all levels. The poor performance of SOEs indicated that quite a large proportion of them have made little contribution to development of the State sector. So it is necessary to take measures to prevent such people from using property right reforms to swallow up State assets.

On the other hand, a group of ingenious entrepreneurs had grown up during the transformation of SOEs into efficiency-oriented market entities. Over the past two decades, some of them had successfully steered the growth of some small local enterprises into star companies with a sharp competitive edge both in home and overseas markets.

Ironically, some of the target companies Professor Lang had singled out happened to be such cases.

Lang insisted that the biggest problem confronted by the SOEs at present in China is not the absence of proprietors but the shortage of trust responsibility for professional managers.

He compared such professional managers to housekeepers, saying housekeepers cannot become masters for their good house keeping. In other words, SOEs managers should not become the shareholders via property right reforms.

As an expert who has long been engaging in case studies, Zhou strongly disagreed with such a blanket denial of those entrepreneurial managers' due rights.

Thanks to lack of clear-cut property right arrangement during early years of reforms, most entrepreneur-like managers in SOEs have no legal means to secure their due interests in line with their contribution.

Zhou argued that there is a need to allow the entrepreneur-like managers to negotiate with the government, the investor of SOEs, case by case, about how to price their individual contribution.

Zhou believed that an egalitarian approach was essentially unfair to those entrepreneurs. And more importantly, constant improvement of the efficiency of the national economy, to a large extent, hinges on the establishment of an incentive mechanism that adequately rewards entrepreneurial spirit.

Understandably, the Chinese authorities cannot cut the property right reform of SOEs due to the magnitude and fast changes of the issue.

More free and frank discussion on such a critical issue will only help enhance the decision-makers' grip of reality.

Though Professor Lang's argument may appear too idealistic to properly reflect the process of SOEs' reforms, the question he raised about fairness is really a hard one the authorities must be ready to answer before further pushing ahead the reform of property rights.

The institutional basis for higher efficiency Zhou underlined is an even more compelling issue the decision-makers should address. As its economy is increasingly opened to the outside world, the country can no longer put off property right reform. By boosting entrepreneurial spirit, the reforms will allow the country to better tap its abundant human resources.

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