The 21st Century Business Herald: What is the latest progress on the reform of SOEs and state-owned assets management system in major cities?

Shao: At present, major reform has been seen in small and medium-sized state-owned enterprises, while plans for the bigger ones have been on trial or under assessment.

Referring to the ownership reform, more than 90 percent of small and medium-sized state-owned enterprises are involved in the program. One thing worth mentioning is that new ownership structures have been initially established in east China's middle and small-sized SOEs, but for state-owned businesses located in the poorly developed western area and old industrial cities, progress seems slower.

As restructuring and mergers progress, by the end of last year, we had closed up to 3,658 bankrupt state enterprises, with 7.19 million employees involved. Actually, we are drafting a new four-year plan to bring an end to the 2,100 loss-incurring enterprises being kept afloat by government and hope to properly accommodate the transfer of 3.5 million laborers to the market by 2008.

What is your next step in the reform process of big SOEs in major cities?

In addition to pushing forward the reform within a legal framework, improving the procedure efficiency and regulating the flow of state-owned assets, we still have to be rational in deciding which way to take for specific enterprises, and to reduce reform costs to the minimum.

Though the reform shows signs of initial success, we are still worried about the transfer of state assets in terms of the proportion, believing that a large part of them have been in transactions to business operators and employees. Internal transfer would be the easiest solution for ownership reform without giving the reins over to outsiders, thus it will not face much resistance in the process. However, because of the unequal access to information, it might enable some people to reap unfair gains during the reform process.

At the same time, without introducing the capital, products, techniques and corporate governance measures that the enterprises really need, the reform might not be helpful for the future development of the involved businesses.

The bigger the enterprise, the more help it needs from outside partners with adequate capital, advanced techniques and products, as well as fresh ideas in corporate governance. In most cases, strategic alliance with outsiders proves better for future development, at least more effective than relying on internal operators.

Of course, the lack of an authoritative government agency to well protect state assets should also be blamed for excessive internal transfers.

How will the reform of big SOEs be carried out?

In a macro perspective, the big SOEs will withdraw from the economic sectors where they have no competitive advantage, to leave the market space to small and medium-sized enterprises. Meanwhile, as for the key industries vital to national well-being, the livelihood of the people and national security, such as infrastructure construction, it would be better to allow SOEs to hold major shares.

The national economy and livelihood of the people is a dynamic concept, and much thought needs to be given to key industries relating to economic security as well as the core enterprises playing leading roles in the industries.

The increasing number of mergers and acquisitions of China's leading industrial companies by overseas investors are of great concern, forcing us to make transactions transparent to the public. It is very likely that we will devise a method by which the whole process can be placed under public supervision.

For other big SOEs left in market-oriented competition, the business strategies, to pull back or to enter into the market, will be decided by their shareholders based on their interests and benefits. Frankly, this issue was not listed on our agenda until the country's state-owned asset management system was installed by and large recently. Now, after state-owned assets supervision and administration commissions at all levels are in place to exercise the power of investors on behalf of the government, they will make the final decision.

To sum up, I think the readjustment in structure of state assets should be classified into three major components. For the industries where SOEs have no competitive advantages, they will gradually drop out; however, they should remain active in major industries of vital importance. For other average industries, the government should set up a good business environment to allow businesses featuring various types of ownership to compete on an equal footing. As for the role of SOEs in these fields, it depends on the maintenance and increment in value of state-owned assets as well as the natural selection of stakeholders.