Research On Soft Budget Constraint Of State-Owned Enterprises In China

State-Owned enterprises are the pillar of the national economy and are one of the main characters of the socialist market economy. The reform of the state-owned enterprises is the core of economic system reform which is significant to the success of the whole reform. So the vigor and enterprising of state-owned firms are related to the development and stability of socialist society. After 30 years reform, State-owned enterprises in China have changed dramatically and made a rapid progress. However, it should be noticed that there is a large gap between State-Owned enterprises in China and ones in the developed market economy countries. For example, some large State-Owned enterprises in China are burdened by the problem of enterprise-run society. Some of them are trouble in the superfluous staffs and lack of independent innovation ability to acquire the core technology which comes from foreign countries. Some of them rely seriously on the loan from banks and keep high asset-debt ratio. In a whole, the efficiency of State-Owned enterprises is lower than those under other ownership. The problems in State-Owned enterprises are involved with the deep-seated reason of Soft Budget Constraint.The conception of Soft Budget Constraint is initially introduced by the Hungarian scholar Kornai. With 30 years development, the theory of Soft Budget Constraint has been one of the frontier modern economic theories. It is used to analyze different social economic problems, combined with economic fundamental theories such as enterprise capital construction, property frontier and economic development. One of the research fields of Soft Budget Constraint theory is to analyze the enterprise activity under different social system. The article applies the theory of Soft Budget Constraint to analyze State-Owned enterprises in China in order to seek efficient governance pattern to tighten budge constraint and propose reference for the selection of reform mode and method of State-owned enterprise. The article is arranged as following:First, the article analyzes the main contents of Soft Budget Constraint theory. The contents include the conception of the Soft Budget Constraint, formation mechanism of the Soft Budget Constraint, development of the Soft Budget Constraint theory and its application. Finally the researches on State-Owned enterprises among the Soft Budget Constraint theory are discussed.Second, the article analyzes the formation mechanism of State-Owned enterprise. First, the article constructs the basic model of Soft Budget Constraint of State-Owned enterprises according to the analytical thinking of dynamic promise inconsistent of DM model. Second, the existing forms of Soft Budget Constraint are given. Finally, the reasons for the Soft Budget Constraint are discussed. The Soft Budget Constraint reflects the relationship between nations and State-Owned enterprise. The Patemalism leaves the governments of socialist countries to provide aid regardless of pay. Moreover, the prior development strategy of heavy industries makes the State-Owned enterprises lose the spontaneity ability. Policy burden of State-Owned enterprises leads to policy depletion. As a result it is inevitably that government compensates on the loss of enterprises. The regulation of government to State-Owned enterprises gives it large right to charge enterprises and existence of official management institution makes Soft Budget Constraint of State-Owned enterprises possible. All reasons mentioned above analyze the problem of Soft Budget Constraint from the aspect of government, political man and political interests. Except that, the problem of Soft Budget Constraint can be analyzed from the internal economical system. At this time, time inconsistent problem is the main reason for Soft Budget Constraint. Under this way, the character of centralization is emphasized as a main analytic point of view. So the article examines the effects of different centralization patterns on Soft Budget Constraint, such as centralization of the bank credit system, centralization of government finance right and centralization of production. Furthermore, insider control can lead to Soft Budget Constraint. Because the enterprise control power can bring managers great individual benefits. When enterprises are in trouble, managers are stimulated to seek external assistance to keep the survival of enterprises and control position of him. So the problem of Soft Budget Constraint takes place.Third, the article discusses the existence patterns of Soft Budget Constraint of State-Owned enterprises, in other words, the effects of Soft Budget Constraint on the State-Owned enterprises. From aspect of the influence of Soft Budget Constraint on State-Owned enterprises, the role is negative and can been seen from enterprise management and input-output conditions. It is the most important that it converts the anticipation of the manager and causes the problem of moral hazard and adverse selection. Once the anticipation of aid comes into being, enterprise activity will be influenced instantly. The influence not only includes the negative effect on enterprise efficiency but also includes other aspects such as finance structure, product supply and independent innovation ability. No matter which influence happened the existing problems and disadvantages of the State-Owned enterprises can be manifested. The existing problem of Soft Budget Constraint limits advantages of State-Owned enterprises and leads to many problems. So it is an important task to solve the problem of Soft Budget Constraint for the reform of State-Owned enterprises.Finally, the article studies the governing problems of Soft Budget Constraint of State-Owned enterprises from aspects of supporting substance, budget constraint substance and perfect degree of market system. As for supporting substance, it is key to tighten budget constraint how believable commitment are made to convert the anticipation of budget constraint substance to future aid. Now that centralized system is one of the reasons for the Soft Budget Constraint, decentralization reforms such as fiscal decentralization and credit decentralization can be carried out to solve the problem. As for budget constraint substance, ownership is not the determinant of Soft Budget Constraint, so it doesn't mean to tighten budget constraint by the conversion of the public ownership. Only if some conditions are satisfied, privatization can tighten budget constraint. Actually, if there is the separation of ownership and managerial authority, the problem of principal-agent, moral hazard and adverse selection and Soft Budget Constraint appear. Privatization itself can't solve the problem of Soft Budget Constraint. Compare with privatization, reorganization may be a better method to tighten budget constraint. Moreover, now that insider control is one of reasons for Soft Budget Constraint, it can tighten budget constraint to solve the problem of insider control. The article concludes that it can reduce the moral hazard behaviors of managers to tighten the incentive and constraint mechanism of the managers of enterprises. Relative to the multiple targets of State-Owned enterprises, it can solve the problem of enterprise-run society and reduce the burden of enterprises to establish and improve market system. In one side, market system needs to be improved to efficiently solve the information asymmetry. In the other side, social security system should be strengthened and the problems such as pension security, medical security and unemployment security should be charged by the government not by the enterprises. Rather than simply relying on proper right reform, only in this way the problem of Soft Budget Constraint can be solved to make the reform of State-Owned enterprises success.