The State-owned Enterprise Reform And Capital Market Development

Ever since Ch ina adopted reform and opening--up policy,i ts nat ional economy has been increasingl y d iversi fi ed, butstate ownership still remains as a dominant factor in thenat ional economy and plays a dec isive role in the state economygrowth. State--owned enterpri ses (SoEs) represent the leadingforce of the state's publ ic ownership and they have madegrati fying achievements in the past twenty yeas and haveprov ided a lot of constructive experience and approach for thefurther deepening of SoEs reform. However, currently a numberof problems still hinder the reform and development of SoEs,and such problems as excessively high liability radio, loweffi ci ency serious shortage of funds and stagnant managementmechani sm need to be resolved quickl y. Releasi ng SoEsdifficulties has become a key task in the course of thedevelopment of the national economy and Chinese government hasstressed that the SoEs' problems must be resolved in threey e a r s.How to effectively improve SoEs' condition and pushforward their reform? Many experts have revealed their theoryand methods The argument that to promote SoEs reform throughcul tivating and developing capi tal market has become the focusof theoret ical di scussion, Comrade Deng Xiaopi ng has poi ntedout that finance is the core of modern economy. Developingmarket--driven economy and especially capital market is a waythat S0Es reform wi Il have to take. Capi taI market is amarketplace for enterpri ses to acqui re long--term fund, whichcons ists of stock market and bond market land etc. Therefore,the thesis focuses on stock market when d iscussing thefunction of capi tal market in promot ing S0Es reform.The thesis starts form analysis of the problems that S0Esare facing and di scloses stable development of S0Es. Therepeated construct ion on c irculat ion of state--owned sharesand corporate shares constraints asset repeated bui lding andmerging acti vi ties. However, these prob1ems are temporary inthe course of development, and further measures shal l be takento regu late the capital market.\owadays, the problems that S0Es are facing include thefol lowing. First one is the over1oad debt, which is reflectedin two aspects, excessively high ratio of I iabi I ity to assetsand high percentage of non--performing assets. Both of the twoaspects are interre1ated. After Chinese government adopted a#change treasury fund al1ocat i on to bank loan" pol icy startingfrom 1983, S0Es had to obtain funds from state--owned banks forproject construct ion and techn ica1 transformat ion. Lowefficiency of S0Es brought about serious 1osses and theenterprises had to borrow more new Ioans to repay the pastloans. This vicious cycle has resulted in huge amount of bankdebts to S0Es wi th the average 1evel exceeding 80%. The secondproblem is severe shortage of capi ta1. Most of the S0Es obtainfunds from state--owned banks. Third1y, it is common that S0Esmake investments and construct ions repeatedly andpurposelessl y. Th is has led to tremendous was te of state--ownedassets. A great number of S0Es have no potent ia1 for expend ingproduction and they have to dec1are bankruptcy.The problems mentioned above resulted from a Yariety ofreasons, inc1uding both the obsolete of tremendous state--ownasset and defects in enterprise's management. Current1y twomajor theories are prevai 1 ing on the cause of S0Es losses---argument of excessive debts and of improper financings t r u c t u r e.In the author's opinion, both of the two viewpoints arepartia11y wrong and fa11 to catch the essence of the problems.High 1 iabi1ity ratio wou1d not necessarily 1ed to huge 1ossesto enterprise and indirect financ ing may not necessari lyresult in low efficiency. The essential reason for S0Es'prob1ems l ie in poor management of enterpri se re1ated to thetradi tional centra1ly p1anned economy. Therefore, the key toreso1ution of S0E...