From Henry Liu

Louis Proyect lnp3 at
Tue Oct 26 16:59:09 MDT 1999


Please post this on the Marxism list, LBO and Pen-l.  It is an example of the
struggle going on in influencing Chinese economic policy.  Sorry I am too busy
to be a subscriber.  Hope to be able to return after a while.

The full name of Jainyi is omitted because he used to be a Foreign Ministry




        I completely agree with you.  In my article delivered to one of the members
of the standing committee of the politbureau of CPC in last
April, I explained with ample examples and history of state-owned
enterprises both in China and West (including the US and western
european countries), and with theories, too, that the success of an
enterprise has nothing to do with the ownership structure but with the
corporate governance and management of the enterprise.  During my
approxmiately three years' of research, I discussed this issue with over
one hundred Chinese and foreign experts, scholars and managers, most of
them agreed with me after discussion.  I remember vividly my discussions
with a senior vice president of a Fortune 500 company and he agreed with
me.  I feel that the Chinese leaders are just trying to hide their
failure in managing the state-owned enterprises behind the so-called
reform theories.  Because they do not have the skill, knowledge and
courage needed to govern, improve and manage the state-owned

        The task we are facing now is how to make our views (which I think are
correct) known to the Chinese people and leaders.  We need to do

        Best regards.


>From:  Henry C.K. Liu ¹ù¤l¥ú[SMTP:hliu at]
>Sent:  Monday, October 25, 1999 11:45 PM
>>Subject:      SOE Reform
>The Decision on Some Major Issues Concerning the Reform and Development of
State-Owned Enterprises (SOEs) adopted by the Fourth Plenary Session of the
15th Central Committee of the Communist) Party of China (CPC)  made several
assumptions that may not necessarily be valid.
>1)  It assumes that private corporations are more efficient than state-own
enterprises. This is not always true.
>Experience in the US has shown that efficiency of an enterprise is the
result of good or bad management, rather than whether an enterprise is
publicly or privately owned.  Accountability for management must be present
in any enterprise.  It can be introduced regardless of the type of ownership.
>Privatization is not a panacea.  Russia is full of examples where
>privatization has resulted in total paralysis of many critical sectors of
the Russian economy.
>2) It is a myth that market economy is more productive than centrally
>planned economy.  That myth had been promoted by Reagan/Thatcher.  That
myth requires the exploitation of an underdeveloped third world to carry
the advanced economies.  As a developing economy, following market
fundamentalism will only condamn China to the rank of the exploited in the
US led globalization regime.
>3) Private ownership is not socially benign.  Once a nation permits the
>privatization of the means of production, the road to socialism becomes
>obscure.  Privatization is not economically more efficient.  It only
appears so because private corporations are not required to assume social
>The Chinese state-owned enterprises need reform.  But it is doubtful that
>privatization is the answer.  An accountable mangement system in which
>managers are rewarded and punished according to performance is needed.
But that does not require private ownership.  There are many companies in
the US that operates on mutual ownership, owned by the customers, like a
>cooperative.  A well-known example is the Prudential Insurance Company of
>America, the 3rd largest insurance company in the US.
>From the People's Daily
>Establishment of Modern Enterprise System-Orientation of SOE Reform
>                              This article is written by Chen Qingtai on
what he has gained from studying the Decision of the Fourth Plenum of the
15th CPC Central Committee. The article runs in part as follows:
>                              The Decision on Some Major Issues Concerning
the Reform and Development of State-Owned Enterprises (SOEs) adopted by the
Fourth Plenary Session of the 15th Central Committee of the
Communist) Party of China (CPC) once again stresses: "Establishment of a
modern enterprise system is the inevitable requirement for the development of
socialized mass production and a market economy, the effective way for
integrating the system of public ownership with the market economy and the
orientation of the reform of State-owned enterprises."
>                          Problems Needed to Be Resolved in the
Establishment of a Modern Enterprise System
>                          1. Realizing the separation of ownership from
the property right of the enterprise's legal person, enabling the
enterprise to become an independent mainstay of the market.
>                          2. Establishing a limited liability system,
>changing the debt responsibility relationship between the State and the
>                          3. The diversification of stock rights helps put
owners' functions in place and form a power mechanism and risk restraint
mechanism for the enterprise.
>                          4. Establishing a State-owned enterprise asset
>circulating mechanism through reform in line with a corporation system.
>                          5. Widening financial channels and enlarging the
functions of State-owned capital.
>                          6. Establishing an enterprise corporate
management structure, forming a scientific and rational enterprise
leadership structure and an organizational system.
>                          Several Difficult Problems Needed to Be Resolved
in Establishing a Modern Enterprise System
>                              Since it is necessary to comprehensively
solve the deep-seated institutional problems of State-owned enterprises
through the establishment of a modern enterprise system, then system
innovation is by no means an easy matter. Simply changing State-owned
enterprises into firms cannot solve any problems.
>                          Judging from the establishment of a modern
enterprise system in selected areas, enterprise system innovation requires
that supporting reforms must be done well. The Decision calls for mainly
tackling the following four links:
>                          1. Continuing to promote the separation of the
government from the enterprise.
>                              The separation of the government from the
enterprise means: First, the government, as the manager of the macro-economy,
no longer directly intervenes in the daily operational activities of the
enterprise; second, as the owner, the government must, through a set of
systems, arrange representatives of the owner to enter the enterprise and
ensure that power and function are in place;
>third, the government undertakes the functions of social management and
public service, and must create conditions for relieving enterprises of the
function of running social undertakings.
>                          2. Actively exploring effective forms for the
management of State-owned assets.
>                          3. Conducting reform of large and medium-sized
State-owned enterprises in line with a standard corporate system.
>                          (1) More State-owned enterprises should be
restructured into diversified share-owners' limited liability companies.
>                          (2) The company's corporate management structure
is the heart of the corporate system.
>                          4. Market-oriented transformation of the
operational mechanism.
>                              The effects of enterprise system innovation
are embodied in the operational mechanism that suits the market economy.

Louis Proyect
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