Chen Xiaohong, Zhang Wenkui & Li Zhaoxi

Research Report No 187, 2002

I. Foreword

In China, the reform of the state asset management system is an important issue closely linked to the reform of the state-owned enterprises, for it involves such specific issues as who should decide and implement the plans of state enterprise reform.

China started the reform of the state asset management system of the state-owned enterprises in the 1980s. While defining the basic principles of the modern enterprise system, the Third Plenary Session of the 14th CPC Central Committee also laid down the state asset management principle, namely, the "centralized state-ownership, various levels of government supervision and automatic enterprise management". The Fourth Plenary Session of the 15th CPC Central Committee further stipulated the sixteen-word principle for state asset management system, namely, "state ownership, various levels of management, divided supervision responsibilities and authorized management", and gave local governments more power in the reform of the state asset management system and the state-owned enterprises.

However, many major problems of the state asset management system, including the basic orientation and specific policy management, especially the relations for ownership rights have not been solved effectually. Although the sixteen-word principle promoted the reform of state asset management system, it is hard to be implemented. For, it remains quite ambiguous in issues such as the meaning of authorization, who should be authorized and the corresponding necessary conditions. With the functions of ownership rights of the central government enterprises dispersed in various government departments, enterprises feel at loss as to whom to turn to when implementing decisions that need approval from agencies exerting the functions of ownership rights or giving authorizations. This affected timely decision and efficiency of enterprises. Although local governments actually control local state-owned enterprises and hold relevant responsibilities, they do not have the ownership rights in legal terms and, therefore, cannot decide reform plans for the large-sized state-owned enterprises. There is coexistence of plans for incomplete management structure, interference of "shareholders" that bypass their immediate leaders and "insider control".

This report will put forward some views and proposals on the relationship for rights for state-owned assets, the management system and the enterprise management structure.

II. Clarifying Ownership Rights and Establishing a State Capital Management System Where the Central and Local Governments Exercise Their Respective Ownership Rights

1. Clarifying ownership rights of the central and local governments over state assets while adhering to "state-ownership"

China has many state-owned enterprises. The rational clarification of the ownership rights of the central and local governments over state assets is a basic issue related to the establishment of the framework of the state asset management system.

The academic circle always has different opinions on this issue. Some of them propose to maintain the system of "state-ownership and various levels of management" and formulate new stipulations on "authorized management" to give local governments greater power. Others think that the "various levels of management" should be changed into "various levels of ownership".

We believe that although the emergence of the system and the principle of "state-ownership and various levels of management" have their historical rationale, they no longer suit the actual conditions at present. It is necessary, therefore, to adjust and define the ownership rights of the central and local government investors.

· China has already recognized the publicly acknowledged basic principle of the market economic system of "whoever invests owns" and has set up corresponding legal system, which deviates from the principle that gives no regard to investors but centralization;

· Various levels of governments already possess the ownership rights at least over enterprises invested by the current levels of governments or over the state-owned enterprises whose management rights have long been delegated to the current levels of governments by the higher levels of governments; therefore, any effort that refuses to admit the existing economic and legal relations is apt to lead to short-term acts;

· China’s public finance system is in effect a hierarchical system and will be further developed and perfected with the completion of China’s taxation and public finance transfer payment system; the state-owned enterprises with "centralized ownership" in the past should be truly divided into the state-owned (central government owned) enterprises, local public-owned enterprises (or may be called local state-owned enterprises in consideration of historical continuity) or state and local government jointly owned enterprises based on their respective shares;

· In countries of market economy, state-owned enterprises or local public-owned enterprises are generally called public enterprises or public institutions owned by autonomous entities; the public-owned enterprises of state autonomous entities are the state-owned enterprises and the publicly-owned enterprises of local autonomous entities are the local public-owned enterprises.

However, even if it is just viewed from the implementation level, there are still problems if the "various levels of ownership" is immediately adopted. First, there is the problem of ambiguous targets of "various levels of ownership". Should all local government-financed enterprises or enterprises whose management rights are delegated down by the central government to local governments be owned by the latter? What are the basis and conditions for doing so? The delegation of power in the past was based on preconditions of "various levels of management" but not of "various levels of ownership". More importantly, the state "centralized ownership" system in the past was related to the entire state economic systems, especially the public finance, banking and social security systems. To change the "centralized ownership" system, it is necessary to appraise consequential interactive impacts of many relevant factors. They include issues such as who should be the owners of the "delegated" enterprises closely linked to the national economy, corresponding responsibilities of various parties, their relations with major enterprise reform policies, (i.e. social security and debt-stock swap of enterprises), the completion of the hierarchical public finance system and the process to improve the corresponding taxation system.

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