Privatising China
* China Lau Yu Fan
In January 1999, the National People's Congress revised the part of the constitution which concerns the private economy. The original version of the constitution read: 'the private economy is a kind of complement to socialist public ownership'. The revision changed it to: 'the private economy is one of the important components of the socialist market economy'.
The amendment encourages Chinese citizens to engage in the private economy—and privatisation. As early as 1997, Li Peng announced the "reform" of publicly-owned enterprises and collectives which included "the changing of the leadership, joint ventures, mergers, forming share holding co-operatives, contracting out, and selling off." The last three forms of reform actually belong to one category—privatisation.
Government officials, from provincial down to the lowest level, seem to be interested mainly in selling 12 International Viewpoint #317-318 January 2000 off small-size state-owned enterprises (SOEs) and collectives. For instance, in Zhucheng, Shandong province, officials sold off 95 percent of SOEs and collectives in only two years. The same thing is happening all over China, to such an extent and at such knock-down prices that many officials concerned with privatisation have been given nicknames like 'Sell-off' Lee or 'Giveaway' Chen. Rock-bottom prices
According to one report, "small SOEs are sold only in name. In practice they are virtually given away free, or half sold and half given away... When they are sold by auction, the process is usually fraudulent... Assets worth more than 100 million Yuan are routinely sold for a few hundred thousands or even less."
One city had 12 SOEs, with assets of 100 million Yuan. Nine were sold, for only 9.6m Yuan. Only 1.7m Yuan actually reached the government bank account. In other words, the nominal income for the sale was only 9.6% of net asset value, and the actual income received was only 1.75%.' The majority of buyers were managers of the particular SOE or their cronies.
According to Chinese laws, any major change to SOEs must be discussed by the Staff and Workers' Congress — workers' delegates are entitled to consultation prior to the adoption of changes like a transfer of ownership. But it is common practice for officials and managers to ignore this requirement.
One official told delegates who were against the privatisation of their plant: "The plant is merely something similar to this cup in my hand. The cup's property rights belong to me, not to you. So I can sell it to anyone I like, just as I could give it to anyone I like. If I prefer to smash it, that is my prerogative. You guys... have no right to interfere." 2
Such an arrogant attitude naturally arouses much discontent and confrontation. In the city of Luoyang, a cement factory worth 200 million Yuan, on land valued at 17 million Yuan, were sold by the local government for just two million Yuan. Angry workers surrounded the government house for four days. When the new team of management was sent to take over the plant, they were chased away by workers, forcing the government to abandon the transfer of management for
the time being Characteristics of Chinese share holding reform
Direct sale of SOEs is a minor form of privatisation, only applicable to small- and medium-size SOEs. privatisation of large SOEs is done by transforming them into share holding
During the 1990s many large SOEs were transformed in this way. The state's still owns a majority of shares (which it says are not for sale) suddenly begun distinguishing between these shares and "legal entity shares'. It seems that these companies will be holding companies to "legal entities" ', and that this will require a redistribution of share ownership between the state and its private partners.
The reasoning is quite odd. One writer recently admitted that the purpose of this new concept is to "greatly reduce the share value of the state, thus nullifying the state's role as the biggest and ultimate share-holder". *
Nullifying the state's role as the ultimate shareholder is obviously in the interest of the private buyers-local officials and SOE managers. Given that democracy and accountability are absent from this process-and in China in general-these mysterious legal entity shares' can easily pass into the hands of local officials and managers. The 1991 Yuanye Company scandal is an outstanding example. When Yuanye was founded in 1987 in Shenzhen, the state owned 80%, and private interests owned 20%. Four years later, state ownership has shrunk to a tiny 1.4
Similar stories emerge from Russia and other ex-Soviet republics. But in Russia, and Eastern Europe, there was an effort to create the illusion of "equitable distribution" of state property. Not in China. State assets have been openly embezzled so greedily that even the formal appearance of distributing coupons for shares
According to information from an Association of China Social Investigation, 60% of China's share holding cooperative enterprises have forced their workers to buy shares. Those who refused or could not pay lost their jobs or experienced a salary cut. Only 1.1% of workers in the co-operatives concerned agree with this kind of reform.
Some SOEs now tell newly-hired workers to bring money with them on their first day, "to buy shares in the company." In one county, 80% of SOEs and collectives in forced new workers to buy shares, according to Chinese Workers, a publication of the All China Federation of Trade Unions. Those who cannot or do not pay, do not keep their
34 year-old unemployed woman worker was told to bring 25,000 Yuan for shares in her new employer. This amount is equivalent to four years wages of an ordinary worker. wanted the job, but she couldn't afford
Will worker-shareholders receive any dividends? In 1993 one factory forced each worker to pay at least 1,000 Yuan. The management promised to pay a 20% dividend. The first year, the company distributed some commodities, but no cash. Nothing was paid in subsequent years. In 1995 the plant was transformed into a share holding company. But by late 1998, no annual general meeting had been called. Management told angry workers that only those with more than 10,000 Yuan of shares could attend a shareholders' meeting. The vast majority of workers did not qualify. The new owners finally decided to impose a 50% pay cut on their employees-partners.? Bureaucratic capital forever! To hell with the workers!
It is common for small- and medium-size SOEs to raise capital from workers. But large SOEs have preferred to use the stock market. In China the reform of the SOEs into share holding companies has nothing to do with efficiency, because most of them do not make any or are making very little
"Some share holding companies are... cheating the ordinary shares holders and the accounts the directors announce are just not reliable. In order to get money, some SOEs will cheat the public by announcing that they are investing in some handsome projects but in fact they do not have the ability to
"They 'transform'loss-making SOEs into profit-making ones, and then they head for the stock market. Ordinary people who put their money in the stock market are just putting cash into a black hole," 9
In The Trap of China (1997), scholar He Qinglian summarised the changes that have taken place over the past 20 years. The first generation to get rich, in the early 1980s, were popularly called half human, half ghost' because they former bourgeois and criminals.
The middle 1980s saw the rise of a new group of rich people, nicknamed 'common folk' because they were mostly former technicians who became rich through commercial activities.
The third generation of the rich are called 'half human, half god" because they were officials from various levels. And it is they who are making the really big money, through privatisation.
Between 1982 and 1992, at least 500 billion Yuan was pocketed by officials. The October 1996 issue of Chinese Workers claims the real figure is closer to 800 billion Yuan. Scholar, Yang Fan recently argued that "power capital"-a euphemism for the more unpleasant term "bureaucrat capital"has pocketed an amazing 3,000 billion Yuan of state property over the last 20
Meanwhile, the working class has been experiencing the most difficult period since the 1950s. The official unemployment rate is 10%, which means 20 million people. Most reliable sources say unemployment is at least
We are told that share-holding reforms will eventually improve the performance of SOEs, thus benefiting the workers sooner or later. But the further the reform goes, the more losses the SOEs declare, and the higher the number of redundant workers. Indeed, massive layoffs are the most common result of share-holding reforms across
In 1998 the labour minister admitted that "things like changes in labour contracts and eventual termination of contract will increase," following SOE reform. "Collective protests will also increase." " The Daqing oil field, once a model of the 'socialist motherland', is planning to lay off half its workforce (ie 145,000 workers) as soon as it is listed on the stock market." * Notes The author is a member of the Hong Kong group Pioneer. He can be reached at <auly@chevalier.net>. This article first appeared in Asian Labour Update #31. 1. Jingji Yanjiu Ziliao (Economic Research News) , Beijing, April, 1999 2. Ibid., Dec, 1998. 3. Ming Pao, Hong Kong, 10 November 1998. 4. On reforming the regime of the enterprises, Wu Jiajun writing in Xinhua Wenzhai, Issue 5, 1994. 5. Hong Kong Economic Journal, 6/7/1998 6.Chinese Workers (Zhongguo Gongren], All China Federation of Trade Unions, Oct, 1996 7."Reform, Corruption, and Democracy, Dialogue between Han Dongfang and Chinese workers" Labour Bulletin, Oct 1998, P.155-160 8.Rule of law and credibility are necessary conditions for building a market economy, Gao Chengde, Journal of Beijing University (Philosophical and social science version), Issue no 1, 1999, P.18 9. Jingji Yanjiu Ziliao [Economic Research News), Beijing, February 1999 10. Hong Kong Economic Journal, 26/6/98 11. Ibid., 10/8/1999 12. Ming Pao, 10/1/1998 International Viewpoint #317-318 January 2000 13
* Brazil
Cardoso,
Out! Out!
Out!