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UPDATED: June 25, 2012 NO. 26 JUNE 28, 2012
Reforming Property Rights
Diversifying property rights for SOEs will provide a boost to the economy and social benefits
By Lan Xinzhen

WORKING BETTER: Yuchai Machinery Co. Ltd. in Yulin, south China's Guangxi Zhuang Autonomous Region, is one of the largest diesel engine manufacturers in the country (ZHOU HUA)

For the majority of China's 1.3 billion people, April 23, 1990, was just another day. But in Shenzhen it marked a historic moment: The first state-owned enterprise (SOE) slated for closure was going up for sale. Three other SOEs were also sold.

The sale had been a long time in the making, hampered by complexities, since property rights of SOEs had belonged to the state. However, the Shenzhen Municipal Government stood behind the sale.

Shenzhen's actions attracted attention around the world. Nearly 30 companies and individuals from China's mainland, Hong Kong and Taiwan, as well as the United States, registered for the auction. The sale was considered a start for China's long-anticipated reform to its SOEs' property rights.

During the later joint stock reform of SOEs, strategic investors were brought in, but state capital was still the biggest shareholder of SOEs.

Two decades have passed since Shenzhen sold those SOEs, and the Central Government finally prepares to change the situation that state capital are still the biggest shareholders of SOEs. The government hopes to diversify property rights of SOEs by extending their ownership structure.

This may become another major reform since the market-oriented reform of SOEs in the 1990s.

The next step

The reform will be carried out in two aspects. The first is to encourage private capital to invest in SOEs. On May 25 the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) made clear the need to introduce private capital to participate in the restructuring of SOEs, develop a mixed economy, establish a modern property rights system and further promote SOEs to transform business operation and growth patterns.

The second is to incorporate some state-owned property rights into the social security funds, Li Baomin, director of the SASAC's research center, said on May 25. "This is conducive to diversifying the property rights of SOEs," Li said.

When the SASAC proposes to actively introduce private investment during the restructuring of SOEs, the China Banking Regulatory Commission and the Ministry of Railways also issue detailed rules of encouraging private investment in the related sectors, allowing private capital to enter the long-monopolized industries by the state.

However, this failed to win acclaim from private investors with background knowledge of the difficulties of making SOE managers give up the rights.

Xie Lujiang, a professor of economics at the Party School of the Central Committee of the Communist Party of China, believes reform of state-owned property rights is necessary to improve the country's market economy. A key point of the present reform of SOEs' property rights is to "straighten out rights and responsibilities of different parities by means of contract," Xie said. Such rights and responsibilities include relationships inside SOEs, rights and responsibilities for operation, supervision and income distribution of state-owned assets as well as SOEs' social responsibilities.

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