The Nature, Performance, and Reform Of the State-owned Enterprises

国企报告英文版封面

The Nature, Performance, and Reform Of the State-owned Enterprises

Second Edition

By the Unirule Institute of Economics

Abstract

The state-owned and state-holding industrial enterprises made a total profit of 12002.7 billion yuan from 2001 to 2013, with the total book profit of 2013 increased by 5.36 times over that of 2001. The total net profit amounted to 8608.6 billion yuan, with the total book net profit of 2013 increased by 6.12 times over that of 2001.

From 2001 to 2013, the average return on equity of state-owned and state-holding industrial enterprises was 9.08%, while that of industrial enterprises above designated size was 15.67%. 2013,that of the former is 8.73%, while that of the latter is 15.64%. Therefore, the nominal performance of state-owned and state-holding enterprises was not high enough.

Even the performance of state-owned enterprises is not their real performance, but one after enjoying various preferential policies and under such a management environment which is unfair to non-stated-owned enterprises. The unfairness is mainly embodied in fiscal subsidy by the government, financing cost, and land and resource rent, and so on.

If we compute the industrial land rent at 3% of the price of the industrial land, state-owned and state-holding industrial enterprises should pay a total rent of 6424.0 billion yuan from 2001 to 2013, accounting for 53.5% of the total nominal profits made by state-owned and state-holding enterprises. Only in 2013, the state-owned enterprises should pay 1240.9 billion yuan rent for the land if we add the land for commercial and service use into the whole amount.

The real interest rate for state-owned and state-holding enterprises is 1.6%, while that market interest rate is 4.68%. If we recount the interests which should paid by state-owned and state-holding industrial enterprises with the market interest rate, the total interest difference will be 5712.4 billion yuan from 2001 to 2013, accounting for 47.59% of the total nominal profits made by state-owned and state-holding enterprises.

The resource tax of oil is average only 26 yuan per ton. The resource compensation fee is merely 1% of sales revenue. Therefore, the real royalty of oil in China is less than 2% of its price, far below the ratio of 12.5% which is imposed on the capital venture in China. Even collection proportion for special oil gain levy below 40 dollars is too low to fully realize interests of resource owners. From 2001 to 2013, the state-owned and state-holding industrial enterprises lack to pay 560.3 billion yuan of the oil royalty. Together with those of coal and natural gas, the state-owned and state-holding industrial enterprises lack to pay 1113.8 billion yuan of royalty of resources..

From 1994 to 2006, the state fiscal subsidy for the losses of state-owned enterprises accumulated to 365.3 billion yuan. According to incomplete data, from 2007 to 2013, the state-owned and state-holding industrial enterprises received fiscal subsidy is about 274.1 billion yuan.

The real performance of state-owned enterprises can be estimated through deducting those costs without paid but should be paid and governmental subsidies, together achieving about 14975.4 billion yuans, from nominal profit of the state-owned enterprises. According to our estimation, the average real return on equity of state-owned and state-holding enterprises from 2001 to 2013 is-3.67%.

Real return of net assets

In 2013, the average staff wage of state-owned enterprises was 3% higher than that of other organizations, the average labor income of state-owned enterprises is 24% higher than that of private enterprises and 234% higher than that of non-state-owned enterprises. There is a big difference between the industries. 2008, the average income per year of employees in monopolistic industries reached 128.5 thousand yuan, which is about 7 times as that of the employees in the whole country. The ratio of the state-owned enterprises in 5 industries with highest income is highest, while that in 5 industries with lowest income is lowest.

According to regulations of existing housing provident fund system, the housing provident fund deposit ratio paid and deposited by staff themselves as well as that paid and deposited by units should be no less than 5% of the staff’s average monthly salary of the previous year, and no more than 12% in principle. A large number of state-owned enterprises and institutions of monopoly industries, however, raise this ratio to 20%. China Netcom Operations Limited once accrued 4.142 billion yuan at total amount as lump-sum cash housing allowance. State-owned enterprises also conduct residential building construction with raised funds on gratis land from free allocation by the state. In addition, some enterprises purchase commercial residential buildings and sell them to their own staff and workers at low price.

From 2007 to 2009, the average tax burden of 992 state-owned enterprises was 10%, while that of private enterprises was as high as 24%.

State-owned enterprises did not turn over any profits from 1994 to 2007. In 2009, only 6% of state-owned enterprises’ profits were turned over, and the rest was all distributed within enterprises. In 2010, it decreases to 2.2%, and then increases to 5.36 in 2013. Moreover, dividend turnover by central enterprises mainly transfers within the central enterprise system. Their significance in benefiting the common people has not been embodied yet.

Structural “Guo Jin Min Tui” phenomenon currently exists in our country. In terms of capital, the proportion of state-owned enterprises in electric power, steam, and hot water production and supply industries rose from 85.8% in 2005 to 90.3% in 2012. In terms of gross industrial output value, the proportion of state-owned enterprises in electric power, steam, and hot water production and supply industries increased from 89.3% in 2005 to 93% in 2008. The proportion of state-owned enterprises in oil and gas industry increased from 90.5% in 2005 to 98.9% in 2006, it decreases to 92.1% in 2011.

The quantitive analysis with the term, market power, on the monopolistic levels of industries shows that colored metal smelting and pressing industry, tobacco industry, oil processing industry, coking industry, nuclear fuel industry, and electric machinery industry, and so on, the monopolistic level in 2007 is higher than that in 2002. These industries are overlapped very much with those with higher ratio of the state-owned enterprises.

A resume survey of officials of ministries and commissions under the State Council shows that among 183 officials above vice ministerial level of 19 ministries and commissions, 56 people have working experiences in state-owned enterprises, the proportion for which is as high as 30.6%. In addition, a resume survey of senior executives of 123 central enterprises shows that 115 senior administrators of 47 enterprises with information disclosure have government working background, that is, each enterprise has an average of 2.45 people with such background. Therefore, identity exchange exists between management staff of state-owned enterprises and government officials.

Enterprise senior executives enter the government for policies and resources, while governmental officials enter enterprises to materialize their economic profits earned while in the position.

Administrative departments have rights to formulate regulations on the implementation of laws, instruction opinions, and departmental regulations, i.e. In other words, administrative legislation exists. Enterprise management needs to lobby the administrative departments instead of the legislature. In other words, there are “lobbying within the house.”

State-owned enterprises should have a rather clear boundary that they are suitable for production of public goods and quasi public goods in which market mechanism could not be brought into full play. Products which are purchased solely by governments or which should be stringently controlled during production progress should be supplied by state-owned enterprises, while other products should be supplied by private economy. The condition for existence of state-owned enterprises is when they supply public goods and the financing stage and can not be separated from the production stage.

The state-owned enterprise is a public organization different from ordinary governments or enterprises, whose aim is to realize public good of society rather than to make profits.

The nature of China’s current state-owned enterprise reform is capitalization of state-owned assets, that is, making profits through management of state-owned assets. Therefore, the government gradually turns into personalized or institutionalized capital when state-owned assets constantly show the attributes of capital.

As the main content of China’s market-oriented reform, the reform orientation choice of state-owned assets capitalization had both logical inevitability and historical progressiveness especially at the primary stage of China’s economic transition. However, with the establishment of market economy in our country, the historical mission of state-owned enterprise reform characterized by state-owned assets capitalization is about to come to an end. 

We should design the short-term reform plan for state-owned enterprises based on two major objectives, namely, breaking the administrative monopoly by state-owned enterprises, and regulating state-owned enterprises’ behaviors. The significance lies in that this will promote different economic main bodies to carry out adequate and fair economic competition, thus better realizing social justice and improving economic efficiency.

State-owned enterprise reform has two ultimate goals. The first goal is to change state-owned enterprises into non-profit public law enterprises, and the second one is to build up the constitutional governance framework for state-owned assets.

To realize the ultimate goal of reform, state-owned enterprises have to gradually retreat from the profit-making fields (rather than merely the competitive fields).

Author: flourishflood

Economist, Confucianist

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