Redesigning the Dragon Financial Reform in the Peoples Republic of China — страница 6

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8.3% compared with a 13.7% increase for all industry. And according to estimates, non-SOEs, on average, required less than a third as much investment to achieve equivalent industrial output.[34] These are serious problems. The ninth five year economic plan (1996-2000) places priority on their eradication, calling for SOEs to lay off workers to boost efficiency, and encouraging SOEs to “declare bankruptcy if their liabilities outstrip assets, if they make long-term losses and if they lose out in market competition.”[35] Up until now current reforms and lessening of government controls have not only not reigned in this problem but have also created new ones such as asset stripping of the SOE by management, workers and local governments[36]. However, the central and local

governments are still hesitant to shut down even the most inefficient SOE. Currently, 7 out of 10 industrial workers work in a SOE. The SOE provides not only a job but housing, education, pensions, insurance and often energy sources and commodity shops on site. The World Bank estimates that only 56% of total expenditure by SOEs is actually on wages, the rest is on “social spending”[37]. Therefore, any reform involving the SOEs must also involve reform and development of a social safety net. Pilot programs have been started where local governments create pension pools and are putting aside payroll taxes for education, health and unemployment benefits. It is also important to note that the question of “social security” reform is being worsened by additional factors.

Population in the PRC is progressively growing older. This phenomenon can be attributed to increase in life expectancy due to better living conditions and the one child per family policy. How Should Reforms be Implemented? Due to the interconnectedness of these areas of society, many of these reforms need to be implemented simultaneously. In May of this year the World Bank published a Country Study[38] that attempts to address these issues. The following are proposed reforms from this study. 1)     Reduce the role of government in the directing of resources. This over time would lesson the State Councils role in directing the day to day functions of the banks and eventually do away with the credit plan. Banks would be able to allocate resources appropriately and to

set their own interest rates. 2)     Improve the Central Bank’s management of monetary aggregates. This over time would improve the consistency of banking laws by ensuring that they are used and would also remove policy lending from the banks and put it into the budget where it should be. This would also allow for the development of the Central Bank as an institution. 3)     Transform state commercial banks into real commercial banks. This step would help to free the banks from the current crises of bad debt and allow them to loan money to the newly emerging private sector. 4) Improve governance, diversify ownership and lower subsidies for SOEs. In the short term this would include implementing an accounting system and independent audits, give

autonomy to the managers, getting rid of unviable businesses and restructuring those SOEs that can be. 5)     Transfer social services to the government. This would reduce the burden on newly restructured enterprises. Over time this would allow for a national system to be implemented. Conclusions In comparison with other countries undergoing transition from centrally-planned economic systems, China had the luxury of initiating its reforms at a time when it faced no macroeconomic or serious political crisis. It was able to adopt a two-track approach to economic reform: China continued state control of existing enterprises while loosening economic controls enough to permit growth of a new, nonstate sector. This was possible in part because the inefficient state

sector was a small share of the economy, compared to most socialist nations. China’s reform experience thus far has been one of “enabling” reform, allowing “marketization” instead of forcing “privatization,” getting government to “step out of the way” of the flows of commerce. The results have been good to excellent in the productive sectors, but the reform has not yet succeeded in the fiscal and monetary sectors, which are the domains of government. Here the government can’t step out of the way; it must build the proper tools and structures to manage these sectors.[39] It is in these areas, and in the efforts to reduce administration, dismantle SOEs, and provide an adequate social insurance system for displaced workers and affected citizens that China faces