Eva Cheng
Since the mid-1990s China has embarked on a major program to privatise its industries. Beijing has dressed its privatisation efforts as an attempt to "diversify the ownership structure", and promised to confine the denationalisation of industry to the "smaller firms" and the "less-essential" sectors.
Since the early '90s, some of China's most important firms, overwhelmingly state-owned, have been listed on the stock markets of China, Singapore, London, New York and Hong Kong. Such listings could be a key means to privatise a core section of China's economy, but the Chinese government has denied having such an intention. To back this claim, Beijing ruled that some 70% of the shares issued in China's stock exchanges be "non-tradable", thus giving the impression that these shares would remain in state hands.
However, on April 30, the China Securities Regulatory Commission (CSRC) announced that the non-tradable shares wouldn't be issued anymore and all existing non-tradable shares would eventually become tradable on the stock exchanges under a program that will start immediately with a few firms.
As at end of March, 1379 companies, mostly state-owned, were listed on China's two stock exchanges. These companies had a combined market capitalisation of 3480 billion yuan (US$425 billion). About US$300 billion of these shares were "non-tradable".
The designation "non-tradable shares" is, in fact, a misnomer. They are only non-tradable on the stock exchanges and they can be sold through private negotiations. During the 14 months ended in October 2001, for example, the "non-tradable shares" of some 250 listed firms were traded through 35 "auction houses".
The firms listed on the stock markets are among China's most important, involved in power generation and distribution, telecommunications, and natural resources processing. Their total market capitalisation in the year to March 2005 hovered between 26% and 37% of China's GDP.
The latest CSRC measure is a less disguised step in Beijing's long creeping effort to restore capitalism in China. According to a 2004 study of privatisation in China by Stephen Green, through the off-exchange sales of "non-tradable" shares between 1996 and 2002, 590 listed firms in China underwent a change in control, resulting in 200-250 of being transferred into private control.
Non-listed firms
Privatisation is also galloping along among the non-stock exchange listed state and collective firms, through the formation of private firms and the massive inflow of foreign capital.
Under the banner of "enterprise reform", there has been a big push since the early 1990s to corporatise (along with creating a shareholding structure) even the non-listed state firms.
Rather than being a unit of a nationally planned industry, state firms have increasingly become atomised profit-oriented enterpries. Under a so-called responsibility system, managers are contracted and delegated full authority to run a firm so long as they meet designated profit targets.
Meanwhile, in the 1990s a second tier of industrial firms took-off, especially in the rural areas. Under fiscal decentralisation in the early 1990s, provincial and sub-provincial authorities swapped the benefit of funding from Beijing for taxing power over their jurisdictions. They took control of the industrial units in their administrative areas, even though they are formally "collectively owned", i.e, owned by a group of people such as a town or village.
The township and village enterprises (TVEs) are the most numerous and smallest scale in the collective sector. But in 1996, TVEs accounted for 39% of China's industrial output. At that time, the "state-owned enterprises" accounted for 28% of the country's industrial output and"individually owned firms", 15%.
Pressure to make ends meet at these sub-national levels compelled these local government authorities to run the "collective firms" in practice as capitalist enterprises. But these firms still had residual access to government tax, credit and other concessions. For this reason, many de facto private firms chose to hide behind the facade of being a "collective firm".
In 1997, then premier Zhu Rongji declared that Beijing's goal was "seizing the big, letting go of the small" state-owned enterprises (SoEs). The political inhibition to privatise the "smaller" state firms was thus significantly reduced, though what constitute the "big" has never been clearly spelled out. From 180,000 in 1997, the number of SoEs plunged to 159,000 in 2002.
According to the November 20, 2003, People's Daily, by 2002 more than half of China's 159,000 SoEs had launched "enterprise reform" — a euphemism for corporatisation or partial privatisation. The government paper quoted Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), as saying that "85% of China's small SoEs have realised multi-level property rights through reforms" — another coded phrase for partial or full-scale privatisation.
In the clearest indication yet of which SoEs might be considered "big", the SASAC was formed in March 2003 to take over as custodian of 196 "centrally owned enterprises" from various ministries. These 196 firms had a combined asset value of 6900 billion yuan (US$841 billion) in 2003 and accounted for 64% of all SoE profits.
Privatisation speed-up
Taking the cue, the provincial and city governments sped up the privatisation of SoEs under their control. At an "investment symposium" in Nanjing, Jiangsu province, in June 2003, for example, 72 contracts worth 18 billion yuan (US$2.2 billion) were signed, including the controversial sales of several public utilities.
Many provinces also declared plans to reduce their SoEs drastically over the next few years.
The speed of the sell-off worried the SASAC, according to a PriceWaterhouseCoopers (PWC) 2003 study "China's State Enterprises: Riding the Waves", leading the commission to publicly voice the danger of a "loss of state assets" and urge that all such sales be conducted through the "ownership transaction centres".
Are the 196 "big" firms totally off limits from being privatised? According to the PWC report, SASAC director Li said in July 2003, while these 196 firms "would never be privatised", it was Beijing's goal to "diversify their ownership" over time.
Despite Beijing's efforts to obscure its privatisation agenda, it has become clear that its residual so-called state sector no longer forms part of a centrally planned economy that is geared to meet, however imperfectly, social needs. Many of its "SoEs" today are in fact quasi-capitalist firms.
Even bearing in mind the watered-down nature of these formal categories, according to the January 20 People's Daily the "state sector" in 2003 contributed less than 40% of GDP.
Since 1997, Beijing has repeatedly assured the Chinese public it would keep in state hands the SoEs that "hold the lifeline of the economy". However, the assurances have always been vague. There is growing evidence that even these strategic industries are being prepared for privatisation.
In March 2003, the State Development Planning Commission declared that 30 industries that were previously closed to private capital would now be opened up. They include banking, telecommunications, education, medical services, auto industries, civilian satellites, large equipment manufacturing, large-scale integrated circuits and tourism.
On January 7, 2004, the State Council, China's cabinet, announced "the introduction of private capital into areas such as infrastructure, monopolised industries and public utilities will be encouraged and supported".
On January 5 this year, the State Council issued a circular that declared its support for "non-state" capital involvement in infrastructure, monopolised industries and public utilities.
On February 24, the State Council declared that private capital would be allowed into areas "not specially banned by laws and regulations". The official Xinhua news agency stated on May 4 that private capital can now access areas such as power generation, telecommunications, railways, civil aviation and petroleum refining.
In fact, private capital is already operating in aviation and petroleum refining. Over the last few years, Shenzhen's Baoan Airport, Shanghai's Hongqiao International Airport, Xiamen's Gaoqi International Airport and Hainan Island's Meilan Airport have issued shares on China's stock markets. The privately owned Junyao Group has acquired the Three Gorges airport in Hubei province and 18% of Wuhan Airlines.
In December 2004, more than 100 private oil and gas firms in China jointly formed the China Chamber of Commerce for the Petroleum Industry. According to Xinhua on May 4, private oil refineries, with annual refinery capacity of almost 100 million tonnes, are supplying more than 10 provinces with fuel. It added that there are more than 80,000 private oil and gas stations, or 53% of China's total oil and gas outlets.
According to the February 4, 2005 People's Daily, there are 3.44 million private firms, employing 47.14 million workers.
In July 1, 2001, on the Communist Party's 80th anniversary, general secretary Jiang Zemin officially declared the party had opened its membership to "private entrepreneurs". The move was only a catch-up on reality. According to the 5th national survey of private enterprises released in 2003, 29.9% of CP members in 2001 were "private enterprise owners", rising from 13.1% in 1993. According to the 6th national survey of private enterprises, the CP's capitalist membership rose to 33.9% in 2004.
From Green Left Weekly, June 1, 2005.
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