Impact and Significance of State-Owned Enterprise Restructuring in China

The transformation of China's state-owned enterprises (SOEs) over the past decade has resulted in remarkable changes to the structure of the Chinese economy. Gaizhi, the Chinese term meaning "transforming the system", has become a major phenomenon in most parts of the country and in many cases has involved privatization. The term gaizhi is used to describe any form of structural change to a firm, including public offering of shares, internal restructuring, bankruptcy and reorganization, employee shareholding, open sales, leasing and joint ventures. Unlike the mass privatization programs that occurred in Eastern Europe and the former Soviet Union, the Chinese government's gaizhi programs have been gradual and low-profile. However, the significance of the Chinese reform should not be underestimated. Based on a 683-enterprise survey conducted in 11 cities in 2002,1 this paper reviews the trends of privatization, discusses the forms of gaizhi, analyzes the issues emerging in the process of gaizhi, especially the handling of state assets and land-use rights and re-employment, and compares firm performance before and after gaizhi. The aim of this paper is to give the reader an overview of the restructuring process in China, and to analyze some of the key issues. Several key conclusions have emerged from the study. First, restructuring has become more oriented towards privatization over recent years. Privatization here means an increase in the share of ownership held by private investors. Second, the so-called "loss of state assets" has occurred mainly in the form of * We are grateful for the useful and constructive comments made by the two anonymous referees and to the editors of The China Journal for providing additional insightful comments and relevant references. We thank the International Finance Corporation for allowing us to use the survey data in this paper. The views expressed in this paper are ours. 1 The authors are principal researchers in this survey. The survey adopted a research strategy that combines structured questionnaires distributed to firms selected by random sampling with face-to-face interviews with government officials and enterprise management selected to provide insights into the privatization process and its outcomes. While the sampling provides quantitative data, the interviews reveal rich qualitative information regarding different government policies and various problems that have been encountered in gaizhi.