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China - Reform of state-owned enterprises (English)

This report discusses what it terms as one of the largest institutional transformations ever--the reform of China's state-owned enterprises--and presents a framework for implementing policies to achieve progress in this area. The reforms are designed to overcome problems confronting the existing enterprise system, the most serious of which include: (1) the misallocation of resources, and (2) the deficits of state enterprises and their links to macroeconomic instability. The report focuses in detail on the component problems associated with large state enterprises--labor, financial restructuring, ownership diversification and governance, and social services. It lays out the problem of state-owned enterprises through the lens of experience from 156 state-owned enterprises in five of China's main cities: Chongqing, Harbin, Shenyang, Shanghai, and Wuhan. Its concentration is on labor redundancy and the financing of visible and invisible losses through different types of subsidies. The study examines the progress made in separating government from business decisions. It also looks at the unbundling of social services. The report concludes that greater managerial autonomy, better defined rights, new boards of directors, and pooling pensions will have minimal effect unless state-owned enterprises are required to work under an ever tightening budget constraint. A hard budget constraint means the end of subsidies and the creation of competitive markets without barriers to entry and exit. The transfer of state-owned enterprises to the nonstate sector will lock in these key reforms.




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China - Reform of state-owned enterprises (English). World Development Sources, WDS 1996 Washington, D.C. : World Bank Group.