Academic journal article Journal of Applied Management and Entrepreneurship

Management and Transformation in a Transition Economy: Lessons from the Chinese Experience

Academic journal article Journal of Applied Management and Entrepreneurship

Management and Transformation in a Transition Economy: Lessons from the Chinese Experience

Article excerpt

Executive Summary

Privatization of state-owned enterprises (SOEs) has been central to transformation in emerging economies. The management of privatization in China's petrochemical industry is discussed against the background of a broad review of the literature on transformation. The research reveals that while full and rapid privatization of SOEs is desirable to create the best possible trajectory for economic growth, a simple transfer to private ownership is insufficient. Successful privatization of SOEs requires increased vigilance in aspects of post-privatization management and corporate governance.

The privatization of state-owned enterprises (SOEs) is one of the focal points of transformation in emerging economies at the beginning of the millennium. The rupture and dislocation of employer and employee habits, customs and practices in newly privatized enterprises make enormous demands on management skill and leadership, and in many instances the success or failure of privatization will determine the trajectory of a country's economic transformation.

The central question is what constitutes an acceptable reform strategy when a country is trying to move from a historically repressive political infrastructure, and a planned economy, to a new context in which the imperatives associated with globalization require a focus on markets and an open economy (Burtless, et. al, 1998; McKibbin, 1999). The management of change at the macroeconomic level places pressure on the management of change at the microeconomic level.

We provide an overview of an established model for managing macroeconomic change in transition economies (Siebert, 1999; Kennedy and Sandier, 1997), and evaluate the efficacy of this 'transformation model' in describing the management of the Chinese economy. We then turn to the issue of managing reform in Chinese SOEs, with a focus on the petrochemical industry. The privatization of Chinese SOEs contains many lessons and warnings for public enterprises in other emerging markets, especially in matters of corporate governance.

The case of China provides only one example of a transforming economy that is grappling with the privatization of SOEs. As the most singular of the transition economies, however, due to its size, growth rate and international engagement (Child and Tse, 2001), China provides a useful model for reference. The last decade of twentieth century economic reform in China could, by one measure, be seen as too little, too slow, and too late. Another view is that for a country that by the end of the century still produced half of its economic output from inefficient state-owned and state-influenced enterprises (Enright and Lee, 2000), the concessions made by China constitute an acceptable direction along the reform track.

Proponents of a transformation model (Siebert, 1999; Kennedy and Sandier 1997), argue that for the more than 30 formerly centrally-planned economies engaged in a process of economic reform towards a market economy at the end of the twentieth century, three main areas of reform were required:

* The creation of a new institutional framework;

* Macroeconomic stabilization; and,

* Microeconomic liberalization, entailing the real adjustment of firms and sectors.

Within these areas, the pace, process and sequence of reform also warrant attention.

The Institutional Framework

Transformation from a planned to a market economy requires that a radical overhaul of institutional frameworks takes place. "The rules and incentives of the centrally planned economies have to be replaced by institutional arrangements that allow market transactions, that let firms decide on their production and their investments autonomously and that let households determine their consumption, savings and labor supply on their own " (Siebert, 1999, p. 169).

A democratic legal framework is essential, and has to include the law of contract and the law of enterprises. …

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