The 15th Congress of the Chinese Communist Party: Milestone in China's Privatization

Article excerpt

China s state-owned enterprises (SOEs) have achieved significant growth and productivity gains without privatization. Despite that, the regime has since late 1993 been forced to put privatization on the agenda, a development that has reached an important milestone at the Party's 1 5th Congress of September 1997 and since. At the some time, the private sector has grown phenomenally, controlling close to half of the national economy in many respects by now. The regime has not only been ready to let private capital take over small SOEs, but has been desparate to woo private capital for capital injection into even the largest SOEs. While the regime hopes to retain control of these atter SOEs despite private equity participation, a very real possibility exists for the process to run out of the regime's control.

CHINA'S ECONOMIC PERFORMANCE since 1978, in contrast to `shock therapy's' dismal record, has been embarrassing to orthodox economics. Despite claims by `big bang' apologists that China's growth has been due to the non-state sector (Sachs and Woo 1994: 101), it has been well-established that not only have state-owned enterprises (SOE) achieved significant growth and made considerable productivity gains,1 but also that the growth of the non-state sector cannot be understood except in terms of its competition and inter-dependent relationships with the state sector (Jefferson et al 1992; Groves et al 1994; Jefferson and Rawski 1994; Naughton 1995; Lo 1997). Further, while `shock therapy' advocates counsel rapid privatization (Lipton and Sachs 1990),2 Chinese SOEs' above achievements have been made without privatization on any significant scale (Rawski 1994).3 There seems to be no need to privatize Chinese SOEs on a large scale for the state sector to continue to grow successfully.

In addition, another body of opinion has emerged that China might have discovered a unique route to economic prosperity without private ownership. It focuses not on SOEs, but on the rigorous growth of rural collective enterprises (known, together with small rural private enterprises, as township and village enterprises or TVEs). Bowles and Dong (1994), seeing the TVE 'model' as where the future of 'socialism' lies, attribute rural collectives' success to their `between public and private' property rights structure. For Bolton (1995; cf. Walder 1994), the key to success is the shortened distance between principal (local governments at the grassroots level) and agent in public TVEs, and wonder whether or not the same corporate governance structure can be extended to large SOEs.4

Since the mid-80s, some Chinese economists have been advocating SOE privatization, but to no avail. Up to 1993, the official SOE reform policy had been conceived in terms of revitalizing the majority of SOEs, as SOEs, through the state sector's self-strenghtening by means of increasing SOE autonomy, managerial incentive creation, subjecting SOEs to increasing market discipline, state developmental intervention and the like. However, this paper's aim is to show that despite the above-stated achievements of Chinese SOEs under such a policy regime, and the belief among certain Western scholars that the TVE 'model' might herald a possible non-private future for SOEs, between late 1993 and late 1994, the Chinese regime had come to accept the inevitability of a shrinking state sector, not simply through faster non-state sector growth (as had been occurring since the 80s), but through policies newly adopted by itself. These policies are: 1. to allow private capital to penetrate into 'pillar' and 'basic' industries (not to mention competitive ones) in the form of private equity participation in large SOEs which were to be transformed into corporations (limited liability and shareholding companies)5; 2. sanctioning de facto and de jure privatization of small SOEs. While the regime avoids talking about privatization, the latter development has progressed rapidly since 1995. …


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