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State-owned enterprises are products of centrally planned economies. Before
the reform and opening up of the mainland in 1978, state-owned enterprises formed
the backbone of all production activities in urban areas. These enterprises are owned
by the state and managed by state appointees. They are societies in miniature.
Besides carrying out assigned production duties, state-owned enterprises provide staff
welfare, housing, medical care, children’s education and retirement protection. In
general, employment contracts are for life except for transfers between enterprises by
agreement of the parties concerned.
Factories under this system go about their work and management according to
production targets set by the state. State-owned enterprises need not bother about
profit because the prices of raw material, of the finished products, and marketing are
all controlled by the state. The responsibility of state-owned enterprises is to ensure
that production targets are met. As to product quality, little attention is paid.
Translated from: Hang Seng Bank Limited. Economic Research Department. Hang
Seng Economic Monthly.
1.
Based on Source 1, list the merits and demerits of state-owned enterprises.
(Answer for reference) Merits: State-owned enterprises have their role in
the state’s economy and social welfare. Besides carrying out production
duties assigned to them , they provide staff welfare, housing, medical care,
children’s education and retirement protection. They have a stabilizing
function in society.
Demerits: Since factories under this system are
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concerned only with meeting production targets set by the state without
bothering about profit, production and management lack flexibility and
enthusiasm. Little attention is paid to product quality.
Reform of state-owned enterprises
The task to redefine and restructure state-owned enterprises for transition from a
centrally planned economy to a market oriented economy in China is very difficult.
These figures show the urgency in reforming state-owned enterprises.
Production output of state-owned enterprises in China’s total industrial output
dropped from 76% in 1980 to 29% in 1988. But, in 1988, state-owned enterprises
were still employing some 45% of workers in the industrial sector and utilizing
some 70% of total bank credit facilities. According to an estimate by the World
Bank, the growth of productivity of state-owned enterprises after reform was only
one-third to one-half of those of non-state-owned enterprises.
The main reason for the inefficiency of state-owned enterprises was that they
were not operating according to commercial principles. Further reform of
state-owned enterprises was implemented to give management sufficient discretion
in their business decisions including the right to give up certain profitless businesses,
dismiss redundant staff, cut off functions not related to production etc. so as to
ensure that they could compete with non-state-owned enterprises. In the event that
the best interest of the company could not be protected, shareholders were entitled to
replace the management. On the other hand, should there be too much intervention
by shareholders, management staff could leave and join their competitors.
A prerequisite for state-owned enterprises to operate according to
commercial principles lies in the clear delineation of the responsibilities of
shareholders and management. Shareholders put up the capital. Professional
managers run the enterprises for the best returns for shareholders.
Translated from: Hang Seng Bank Limited. Economic Research
Department. Hang Seng Economic Monthly.
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2.
Do you think the reforms of state-owned enterprises as described in Source 2 are
capable of dealing with the demerits mentioned in Source 1?
Students are free to give their answers as long as reasons are provided.
A large number of large enterprises were formed through
takeovers and restructuring. By the end of 1997, there were over
1600 industrial enterprise groups owning nearly 60% of China’s
total industrial assets. Leading enterprise groups of substantial
economic strength such as Angang, Baogang, Shanghai
Volkswagen, Yiqi, Erqi, Changhong and Haier have now joined the
ranks of top global industries. Interested students can browse
websites for introductions to these businesses.
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At present, there are many
State-owned enterprise stocks
Commission for listing in the
them? (Tune in to TV or
state-owned enterprise stocks listed in Hong Kong.
are those approved by the China Securities Regulatory
stock market of Hong Kong. Can you name some of
radio financial news.) Why do these state-owned
enterprises want to be listed in Hong Kong?