The document summarizes the reform phases of state-owned enterprises (SOEs) in China from 1978 to the present. It discusses 4 phases of reform: 1) 1978-1983 which expanded enterprise autonomy; 2) 1983-1987 which introduced profit retention; 3) 1987-1992 which introduced contract responsibility systems; 4) 1992-1997 which established a social market economy and shareholding system. Current reforms aim to restructure large SOEs while privatizing small ones to increase efficiency while maintaining social stability.

1. STATE-OWNED ENTERPRISE
REFORM IN PEOPLE’S REPUBLIC OF
CHINA
Nastran Khalid, Marium Arshad,
Sarah Zaidi

2. BACKGROUND
 Excessive interference of the state in the economy
 The results were adverse on the entire national
economy (waste of human and material resources)
 The most distinctive characteristic of the growth in
China is the development of non-state
enterprises, the share of which increased from 22
percent to 57 percent.
 In the past five decades, public ownership was the
prevalent form of economy and SOEs played a
predominant role in the economy.

3. IMPORTANNCE OF SOEs
 As a whole SOEs absorb over half (over two-thirds in
the 1980s) of urban employment and provide about
70% government fiscal income.
 There was huge unemployment due to employment
adjustment which became a threat to social stability
delaying the introduction of SOE reforms.
 Workers in SOEs could normally benefit major
welfare services (from cradle to grave welfare), such
as housing, children education and health care.

4. REFORM PHASES OF SOEs AND
SPECIFIC REFORM MEASURES
The enterprises did not have any decision-making
power in production, investment or distribution.
The aim was to release state enterprises from
central planning administration, and adapt to
market economy.
The reform process so far has gone through four
phases

5. FIRST PHASE (1978-1983)
YEARS MAIN FEATURES
1978 Expanded enterprise autonomy which was introduced to six
factories (SOEs)
1979 The central government began its own experiment (similar to that
of Sichuan) with eight firms in Beijing, Tianjin and Shanghai, and
announced a new responsibility system for profits and losses
1980 Adopted a unified profit retention rate and at the same time, a
change from profit remittances to taxes was experimented with
some SOEs
1983 All the SOEs had adopted this responsibility system. At the end,
experimental SOE were allowed to retain 3% of their profits.

6. SECOND PHASE (1983-1987)
YEAR MAIN FEATURES
1983 Only 50% of the enterprise profit was combined with taxes, the other
50% as state fiscal income
1984 This was changed to a combination of 100% of enterprise profits and
taxes

7. However, the SOEs could hardly exercise
autonomy.
The reform of ‘bank loans for budgetary
grants’ did not succeed.
‘tax for profit’ on its own was not able to help
realize enterprises’ self-operating,
responsibility for profits and losses, and fair
competition.

8. THIRD PHASE (1987-1992)
 Contract Responsibility System (CRS) was introduced.
 Contracts were often signed for 3-5 years as one
term, or sometime extended to second term or
more.
 The aim of adopting CRS was to separate property
rights and operating rights.
 The contract subject was profits and taxes that the
enterprise submitted to the state.

9. By 1992, nearly all large and medium-sized SOEs
had adopted the CRS.
It was aimed to reduce government intervention
in the operation of SOEs, and to make the
enterprise financially independent and focus on
profit rather than on plan fulfillment.
Its by-products were seen in short-termism of
SOE performance, which led to disorder in the
economy and rising prices.

10. FORTH PHASE (1992 -1997)
TARGET!- “establishment of social market
economy”
KEY ELEMENTS (autonomy and monitoring)
CHANGE IN SOEs REFORMS

11. PRINCIPAL FRAMEWORK
FOUR IMPORTANT ASPECTS:
i. clearly defined property rights,
ii. clear-cut responsibility and authority,
iii. separation of the function of government
and enterprises and
iv. scientific management.

12.  SHAREHOLDING SYSTEM
 ADVANTAGES OF SHAREHOLDING :
i. Separation of ownership
ii. Allocation of financial resources
iii. Decision making autonomy
 By the end of 1996, 4300 SOEs had been
converted into Joint Stock Companies

13. CURRENT PHASE (1998 ONWARDS)
THREE YEAR PROGRAM
• INTENTIONS:
i.Reversion of 3000 SOEs
ii. Building of 1000 large Group
• MEASURES :
i. Strong state inputs
ii. Strategic reorganization of assets

14. HOLDING THE BIG AND LETTING GO
THE SMALL
1. Transforming to Modern Enterprise System
2. Developing into large group enterprises (hold the
large SOEs)
3. Reorganization of small enterprises (sale to the non-
state enterprises)

15. SOEs NOW
 Prevalence of SOEs
 Politically-influenced management in SOEs
 Employee welfare and urban employment
provision
 Dilemma of retaining surplus workers and improving
efficiency