Research On Distribution Mechanism Of State-owned Capital Gains

The relationship between the state and the distribution of state owned capital gains is always changing along with the deepened reform of state owned enterprises. China’s state-owned enterprises (SOEs) are exempt from tax on profits since the "tax distribution" reform in 1994. The World Bank published in October 2005 a comprehensive report titled SOE Dividends:How Much and to Whom?, which aroused heated discussions and extensive research on the distribution of gains arising from state owned capital. It is believed that restructuring the mechanism of the distribution of state-owned capital gains is an integral component of SOE reform. From a macro perspective, a balanced distribution mechanism will facilitate to improve the allocation of public financial resources, as well as to smooth out the challenges resulting from long-term imbalances between savings and consumption. This will also be conducive to buttress domestic economic growth driven by domestic demand. From a micro perspective, a reasonable income distribution mechanism is expected to improve the efficiency of state-owned enterprises’investment, as well as to enhance a thrifty expense management by cutting unnecessary costs. Above all, a reasonable distribution of state owned capital gains will serve for well-being of the public and social stability. In view of this, the State Council published the Interim Measures of Collection and Management of State-owned Capital Gains from Central Enterprises in September 2007; In line with this, the Ministry of Finance issued the Notice on Matters of State-owned Capital Management Budget in December 2010, which is viewed as a milestone on the reform of distribution mechanism of state-owned capital gains. However, it is widely believed that the unreasonable distribution ratio of state owned capital gains and the underdeveloped supporting mechanism are still unsatisfactorily addressed.This study presents an effort on the improvement of the profit distribution mechanism of state-owned capitals, based on the background of state-owned enterprises in China. The thesis focuses on The principal-agent theory and develops with five parts, "literature review and basic theories"—"history and evolution and situation analysis"—"experiences of other countries"—"empirical trial-outs"—"mechanism construction". This research is aimed to explore ways of improving mechanism of profits distribution of state-owned capitals. Firstly, the thesis begins with a clarification of key definitions and a literature review. It is followed by a review of the historical process, basic theories and situation analysis of state-owned enterprises reform, state assets management system reform, state capital profit contribution evolution. This research ends up with an empirical research on economic consequences of new policies of state capital profit contribution. The thesis indicates that state capital profit distribution is expected to curb over capacity and enhance financial performances of state-owned enterprises. The thesis then evaluates experiences of state assets management and state capital profit distribution system in other countries. Finally, adopting principal-agent chains theory, this research proposes a framework of state assets profit distribution composed of both profit distribution proportion decision mechanism and supporting mechanism. In particular, the proportion decision mechanism should take account of a diversified landscape of different SOEs, their industry sectors and their profit structure. It should also respect the governance structure and favor a distribution model in proportion to current stage of our economic system. The mechanism is expected to bridge the gap between profit distribution and public budget. In the meantime, it should never be neglected that agents and commissions that exist in various slots of the agent chain related to state owned asset is also playing a role in influencing the effectiveness of state owned capital distribution.