To accelerate the reforms of SFTEs is an important step for the development of China s foreign-related economy and trade

To accelerate the reforms of SFTEs is an important step for the development of China's foreign- related economy and trade

Since the introduction of a socialistic market economy, China has been determined in achieving its goal of the foreign economic and trade system “ consistent policy, equal competition, self-responsibility and open operation. Naturally the reform and strengthening of SFTEs became a strategic part in this endeavour. In September 1999 the central government reaffirmed its resolve for strategic adjustment in its national economic structure and emphasized the acceleration of reform and strengthening of the state-owned enterprises (SOEs). Regarding foreign trade it was made clear that SFTEs would have to meet the requirements of the modern enterprise system and speed up the system innovation process. Through reformation , reorganization and transformation, SFTEs expedited the pace of renovating their internal operation mechanism and pursued resource optimization. As a result they have basically attained the goal of transforming into independent operations with self-responsibility, self-development and self-discipline, thereby assuming the role of market players. SFTEs have also engaged in various types of equity restructuring. Some have conducted employee buyout (EBO), and an increasing number of SFTEs are turning into public companies either inside or outside China. At present there are 20 SFTEs that have been listed on the stock exchanges in Shanghai and Shenzhen. As a result their internal management mechanism and operations began to come into alignment with the norms of modern enterprises. The road for the reforms of SFTEs is still paved with enormous tasks , and the future of China's foreign trade hinges heavily on the outcome of the reforms .

Further relaxation on trading rights

In 1978 there were only a dozen specialized companies that were engaged in foreign trade activities. In 1986 this number rose to over 1,200. In 1996 the number of companies vested with foreign trading rights surged to over 12,000, including over 5,000 which were specialized trading houses . Soon after, more and more production- based enterprises, research institutions, collective and private firms were granted permits to import and export. The ban on joint ventures to engage in foreign trade was lifted. The foreign trading rights are changing from an approval system to a registration system. By the end of 2001, 38,000 companies of various business lines and ownership structures were granted import and export trading rights.

The core of SFTE reform is to solve the problems in the operating mechanism

The problems plaguing SFTEs are multifold, among the most outstanding of which are: excessive government involvement, singular equity ownership, inadequate corporate governance, shortage of motivation, insufficient regulation and oversight. The modern enterprise system is the irreversible therapy to further reform of SFTEs. It is imperative for large and mid- sized SOEs to adopt proper corporate governance in order to take on the role of market players. The aim is to usher in a system with clear equity structure, specific rights and responsibilities, separation of government and enterprises as well as scientific management. Increased government support will be given to small and mid- sized SFTEs on a selective basis. A certain number will be chosen to launch the reform programme which includes reorganization, combination, acquisition, merger, leasing, contract operation, equity dispersion and displacement. These measures will be instrumental to vitalize and substantially improve their performance. SFTEs should strengthen internal management, consolidate business portfolios and take full advantage of their business categories. Financial management, particularly capital management and investment, should be further strengthened . A collective approval system is one of the important solutions to combat faltering investment decisions.

Sorting out of historical problems is the prerequisite for further development

Many SFTEs are ridden with debts and a redundant workforce. These constitute a bottleneck in the way of enterprise reforms. According to statistics from the Ministry of Finance during the period when the initial reform of contract responsibility system was experimented on between 1988 and 1990, SFTEs were burdened with a debt of 9.89 billion renminbi. Coupled with other operating losses due to government directives, the accumulated debts for SFTEs topped 5.50 billion renminbi by the end of 1988, and their asset and liability ratio reached a low of 88.4 per cent. In 1988 alone 60.5 per cent of SFTEs across the country sustained an overall loss of 6.14 billion renminbi. Some of the debt burden resulted from the poor performance of SFTEs and some was caused by government policy disorientation. As a result it exacerbated the balance of debt and liability and weakened the competitiveness of SFTEs, thus adding to the difficulties of enterprise reform.

The state has increased its effort to offset the bad debts in the SOEs' reform process. Special attention has been given to the priority industries and businesses and the debt burden of a group of firms was resolved. In 2001 the state began to introduce the 'equity for debt' programme which alleviated some of the debt-ridden firms with promising products. Because of the so-called peculiarity of SFTEs, however, little has been achieved in their debt alleviation. The growth of some SFTEs has been undermined by their debt burden, and some stalling SFTEs will remain on the waiting list for bankruptcy.

To promote the reform and development of SFTEs through foreign investment

Encouraging and supporting SFTEs to devise various means to absorb foreign investment, and developing and bolstering the state economy are effective ways to revitalize the non-performing state assets and strengthen the control of state economy. The inflow of foreign investment, capital, advanced technology and management expertise is, therefore, an indispensable element. In the process of SOEs' reforms and continuous opening- up to the outside world, the state will permit the concession of certain assets to foreign parties by SFTEs. Restrictions over equity percentage to be held by foreign parties will be alleviated in identified industries. Various forms of participation by foreign investors are encouraged in the reorganization and restructuring of SOEs. These measures are believed to be important vehicles in pushing forward the transformation of SFTEs and improving their performance.

To promote the 'stepping out' strategy for SFTEs through offshore contract manufacturing

Offshore contract manufacturing (OCM) is an effective means to spur the reform and growth of SFTEs. At present over 80 SFTEs have obtained such licences to engage in OCM. The state has mapped out favourable measures in capital financing, taxation , foreign exchange and labour expatriation in support of these activities. Resourceful large and mid-sized SOEs are given priority to set up subsidiaries overseas to extract their market potential.