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SOEs: Backbone of China's Economy

����This article is written by Our Staff Reporters Wang Yantian and Pi Shuyi in praise of socialism and to celebrate the 50th birthday of the People's Republic of China. The article runs in part as follows:

����As they review the 50-year development history of New China, people will not forget the contributions of State-owned enterprises, praising them as the backbone of China's economy.

����What old China left to us was a shambles. In 1949 the country had only a little over 10 billion yuan worth of fixed assets. By 1952 total industrial output value was only 34.9 billion yuan. The industrial structure was lopsided, industrial departments were single and level was low, even nails, matches and candles had to be imported.

����All neglected tasks had to be undertaken in New China. However, some Western countries imposed blockade and embargo on New China. Ordinary people needed food and clothing, farmers needed farm machinery and implements and the army needed airplanes and artillery.... They could not gain all these without modern industries. The newborn Republic urgently needed to seek a road to industrialization.

����The State-owned economy emerged as the times required. We transformed the bureaucrat-capitalist enterprises into State-owned enterprises at the beginning. During the First Five-year Plan period, the 156 projects built with aid from the former Soviet Union expanded State-owned economic strength. State-owned enterprises historically became the main force of China's industrialization.

����Our motherland needed motor vehicles. Large groups of experts, cadres and workers came from all parts of the country to gather in Changchun in northeast China. Through their hard work over a period of several years, on July 13, 1956, the first Liberation-brand motor car got out of the production line.

����Our motherland needed petroleum. Displaying a heroic spirit, the Daqing people launched a great battle for oil over the vast wilderness, after battling with heaven and earth, they finally removed in one move the label of China being oil poor, Daqing has remained to this date the file leader of China's industry and Daqing spirit is still our valuable cultural and ethical wealth.

����Based on State-owned enterprises, the State concentrated forces to launch large-scale economic construction in the 1950s-60s. The modern industrial system, which started from scratch and developed from small to big, broke down the West's economic blockade and provided products needed in economic construction and people's daily life and consolidated the newborn People's Republic.

����Today when we are advancing toward the socialist market economy, State-owned enterprises remain the pillar of the national economy and shoulder the heavy historical task of enhancing national economic strength, national defense and the cohesive force of the nation.

����On August 20 this year, the contract signing ceremony for the new Dalian Shipyard to build five 300,000-ton super-large oil tankers for Iran took place in the Great Hall of the People in Beijing. The building of such a large oil tanker is an important indication of a country's shipbuilding level. In the international competitive bidding, the new Dalian Shipyard defeated Japan's Mitsubishi and the ROK's Daewoo and some other strong opponents, taking over this contract worth US$370 million at one stroke. The new Dalian Shipyard, founded in 1990, has now developed into China's largest ship general-assembly export base. In 1962,Shanghai Jiangnan Shipyard designed and built China's first 10,000-ton-class Dongfeng ocean-going ship. The progress from making 10,000-ton-class ship to building 300,000-ton-class oil tanker marks the continuous development of China's shipbuilding industry. China has become the third largest shipbuilding country in the world.

����As we look around the economic field, we find that currently, the financial, railway, telecommunications, space, petroleum, electric power and other key areas have been basically held in the hands of State-owned enterprises; the State-owned economy also holds a dominant position in energy, transportation, posts and telecommunication and other basic sectors and in metallurgical, petrochemical, chemical, automobile, machinery, electronic and other important raw and semi-finished materials industries and pillar industries. The output of China's steel, coal, chemical fertilizer and other important industrial products has jumped to rank first in the world, electric energy production and the output of crude and chemical fiber have also placed themselves in the front ranks of the world, they are all produced mainly by State-owned businesses and State-owned holding enterprises. State-owned enterprises are the main sources of the country's financial revenue, currently the proportion of taxes they turn over to the State accounts for 55 percent of the financial revenue, effectively supporting the country's reform and construction.

����State-owned enterprises have made great contributions, but they also have various institutional defects. To adapt themselves to the socialist market economy and to develop and expand themselves in competition, State-owned enterprises can only rely on reform.

����Reform is impacting the old economic system. Under the highly centralized planned economic system, State-owned enterprises were not the genuine enterprises, but were only appendages to administrative organizations. Enterprises lacked decision-making power in operation and market competitive pressure; they also lacked the internal motive force for constant development and strict budgetary restriction. Reform aims to eliminate these institutional defects, so that State-owned enterprises will become genuine enterprises.

����Reform of State-owned enterprises began with expanding decision-making power for enterprises, it went through the experiments and explorations, including the substitution of tax payments for profits and the contract system, the enterprises are advancing toward a modern enterprise system, more and more State-owned enterprises have become the market mainstay which engage in self-management and assume sole responsibility for their own profits and losses, displaying their skills to the full in market competition.

����Reform has enhanced the overall vigor of State-owned enterprises. Statistics indicate that in the 20 years from 1978 to 1998, the average annual growth of the total industrial output value of China's State-owned businesses and State-owned holding industries came to 8.7 percent, that of the total value of assets to 16.8 percent and that of tax payments to 12.3 percent.

����The readjustment of the distribution and structure of the State-owned economy has improved the overall performance and quality of the State-owned economy. The system taking public ownership as the mainstay and allowing the common development of varied economic sectors has livened up the entire national economy. Competition among various economic sectors has spurred State-owned enterprises to enter the market and develop themselves through competition.

����Compared to the situation before the start of reform, although the proportion of the State-owned economy has declined somewhat, the overall strength of the State-owned economy is increasing, the total volume of state assets is growing. By the end of 1998, the total volume of China's State-owned assets had reached 8221.1 billion yuan. Particularly through the form of solely State-funded enterprises, holding and buying shares, the controlling power of the State-owned economy had further expanded and continued to play a leading role in the national economy, controlling the lifeblood of the national economy from beginning to end. By the end of 1998, the non-State capital absorbed by State-owned holding enterprises had run to 393.03 billion yuan, up by 21 percent over the previous year; the total asset volume occupied by State-owned enterprises in the basic industry of the national economy had stood at 5672.24 billion yuan, making up 42.1 percent of the total assets volume of all State-owned enterprises, up by 13.7 percent over the preceding year.

����In the fall of this year, the Fourth Plenary Session of the 15th Central Committee of the Communist Party of China held by the Party Central Committee specially studied the problem relating to the reform and development of State-owned enterprises and made an important decision.

����The fact that State-owned enterprises have gained unprecedented development in the reform and opening drive is not tantamount to having solved the problem concerning the reform and development of State-owned enterprises. Currently, the institutional transformation and structural readjustment of State-owned enterprises have entered the stage of tackling the most difficult problems, some deep-seated contradictions and problems have exposed themselves in a concentrated way, difficult problems are plaguing some State-owned enterprises, these include inflexible mechanisms, the decline of economic efficiency, excessive asset-liability rate, excessive redundant workers, heavy burden on enterprises and a hard life for some workers.

����Difficult problems urgently need to be resolved and complete victory must be ensured for the battle to storm the fortified position.

����Victory in this battle not only concerns the success and failure of the reform of State-owned enterprises, as well as success and failure of the reform of the entire economic system.

����State-owned enterprises are the pillar of the national economy. Increase in comprehensive national strength has increasingly become a dominant factor determining the future and fate of a country. It is impossible for China to enhance its economic strength, national defense and the cohesive force of the nation without the constant development and expansion of the State-owned economy.

����China needs the State-owned economy which gives full play to its leading role, the socialist market economy needs State-owned enterprises full of vigor.

����After years of practice, the Party Central Committee and the State Council have formed a series of important guidelines and adopted many major measures for the reform and development of State-owned enterprises, the numerous enterprises in various localities have accumulated valuable experiences. Since the beginning of this year, State-owned enterprises have checked the gliding trend of economic efficiency and a steady picking up trend has emerged. The three provinces in northeast China where State-owned enterprises are relatively concentrated and there exist big difficulties have realized dramatic reduction of losses and increase in profits. Petrochemical, machinery, electronic, light industry and textile industries have respectively increased profits, reverted or reduced economic losses.

����The Fourth Plenary Session of the 15th Central Committee of the CPC has sounded the advance for battling to win successes in the reform and development of State-owned enterprises. So long as we work with one heart and one mind, do pioneering work, work in a down-to-earth manner, we will certainly achieve the objective for the reform and development of State-owned enterprises, the backbone of China's economy will certainly become stronger.

Indepth 1999-09-06 Page1

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