MacauStudiesinManagementSeriesNo.8KeyofTransitionfromCentralPlanningtoSocialistMarketEconomyXueliWang

MACAUSTUDIESINMANAGEMENTSERIESN0.8BYTHEFACULTYOFBUSINESSADMINISTRATIONUNIVERSITYOFMACAUReformofLarge-or-Medium-ScaleStateEnterprises-KeyofTransitionfromCentralPlanningtoSocialistMarketEconomyXueliWangPUBLISHEDBYMACAUFOUNDATION

TitleAuthorSeriesEditorPublishedbyReformofLarge-or-Medium-ScaleStateEnterprises-KeyofTransitionfromCentralPlanningtoSocialistMarketEconomyXueliWangMacauStudiesinManagementNo.8NelsonJosedosSantosAntonioMacauFoundation(Apartado3025,Macau)May,1997ThecopyrightofthispublicationisjointlyownedbytheMacauFoundationandtheauthor.Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans,electronic,mechanical,photocopying,recordingorotherwise,withoutthepriorwrittenpermissionofthepublisher.PrintedbyDistributedbyPriceTipografiaWelfareLda.CulturalPlazaMacauLtd.MOP$70ISBN972-658-017-X

ReformofLarge-or-Medium-ScaleStateEnterprises-KeyofTransitionfromCentralPlanningtoSocialistMarketEconomyXueliWang

PREFACEItiswellknownthattheongoingprocessofeconomicgrowthandstructuralchangeinPRC'seconomyhasmanyimplicationsnotonlyfortheChinesepeoplebutalsoforthewholeworldeconomy.Thereis,ofcourse,amatterofsize,whenwetakeintoconsiderationthealmostcontinentaldimensionofChina.ButthereisalsoanequallyrelevantqualitativeperspectivewhenwetrytoanalyzethePRC'sgreatexperimentoncontrolledtransitiontoaspecifickindofmarketeconomy.TheanalysisoftheprocessofchangeintheChineseeconomicsystemthatWangXuelipresentinherMBAthesisisinterestinginsideresearchonsomerelevantpointsofthegreatChineseexperiment.Herresearchisaboutthereformoflargeandmediumscalestateenterprises,whichtheauthorcalls"keyoftransitionfromcentralplanningtosocialistmarketeconomy".Possibly,themostinterestingpartofthestudyistheanalysisofdifferent"casestudies"concerningseveralprocessesofreform:mergerandacquisition,"improved"contractresponsibilitysystem,leasing,shareholdingandbusinessgroup.Lookingatthesecases,theoriginalityandpragmatismoftheChineseeconomicreformersarequiteobvious.Afewgeneralremarksaboutthismegatransitiontotheglobalmarketeconomy:IncludingPRC,thereare,atpresent,morethantwobillionpeoplelivingintransitionaleconomies,thatis,economiesthatinonewayoranother,

aretransformingtheireconomicsystems(andingeneralalsothepoliticalsystem)acceptingthemarketeconomymodelasthebasicnormativereferencetotheirtransition.Oneconsequence--amongmanyothers,ofcourse--ofthisprocessofchangeiswhatwemaycall"theemergentgloballaboreconomics",thatis,anewwayoflaborinsertioninthefunctioningoftheworldeconomy.Inthisperspective,Chinaisobviouslyamajorarchitectworkingtobuilda"new"worldlaboreconomy.However,itremainsdoubtfuliftheChineseroleinthatprocessstillhasanythingtodowithsocialism.ThepresentstudybyWangXueliisnotdirectlyorientedtowardsthesequestions,thoughshestronglybelievesthatasocialistmarketeconomyisinthemakinginChina.However,thecriticalimportanceoftheemploymentproblemonthereformofthelargescaleenterprisesinChinaperhapsgivesanimportantopportunitytotesttherealsignificanceofthe"socialistmarket"model.Whatisinquestionwhenwetalkofa"new"worldlaboreconomy,orasimportantareaofresearch,ofgloballaboreconomics?Adoptingthatkindofapproach,manyrelevantproblemscometomind,likethefollowing:Whatconsequenceswilltheorganizedanddynamicentryintheworld(global)marketofhugemanpowerresourcesofthetransitionaleconomies,inparticularChina,haveintheshortandlongrunintermsof

laboreconomiesinrelationtothere-insertionofthelaborreservesinthenewmarketeconomies?Arewegoingtoobserveincreasingexamplesof"ThirdWorldwithin"inthesocalleddevelopedmarketeconomiesaswellasinthe"transitional"ones?WehopethatWangXuelicould(perhapsshould)goonwithhercareful,interestingandinterestedresearchonPRCtransitiontowhatshebelievestobeasocialistmarketeconomy.Doingso,shewillgiveussomelighttoanswerthosehugeandurgentinterrogations.Lisbon,December1996MarioMurteira

TABLEOFCONTENTSACKNOWLEDGMENTSVIIIPARTIECONOMICSYSTEMTRANSITIONANDLARGE-OR-MEDIUM-SCALESTATEENTERPRISESCHAPTERIINTRODUCTIONI.ITheExperienceofTransitionintheFormerSovietUnionandEasternEuropeHungaryPolandRussianFederation1.2CentralPlanningVsMarketEconomy1.3MarketEconomyYsSocialistMarketEconomy1.4ObjectiveoftheStudy1.5MethodologyoftheStudyCHAPTER2MACROECONOMICENVIRONMENTOFLARGE-OR-MEDIUM-SCALESTATEENTERPRISES2.1GeneralReviewofEconomicReforminChinasince19782.1.1SevenMainStepssince19782.1.2CharacteristicsoftheReformProcess2.1.3AchievementofEconomicReform3468101419212323252728

II2.2IndustrialStructureAdjustment292.3InvestmentandForeignDirectInvestment322.4FiscalandMonetarySystem342.5DevelopmentofPrivateSectorinChina362.6MacroeconomicEnvironmentSystem39CHAPTER3LARGE-OR-MEDIUM-SCALESTATEENTERPRISES443.1WhatisaLarge-or-medium-scaleStateEnterprise?443.2WhyLarge-or-medium-scaleStateEnterprise?493.2.1PositiveEffects493.2.2NegativeEffects51~~CommentsonUndergoneReformofLarge-or-medium-.)..)scaleStateEnterprisessince1978563.3.1IncreasingAutonomyGiventoEnterprises563.3.2PriceReform593.3.3TheContractResponsibilitySystem613.3.4OwnershipReform633.4ExistingDifficultiesforReconstructionofLarge-or-medium-scaleStateEnterprises66LackofCapital67HeavyDebt67TriangleDebt68Overemployment693.5OutsideFactorsthatInfluencetheProfit(Loss)ofLarge-or-medium-scaleStateEnterprises69

iiiPARTIICASESTUDYINTRODUCTION75CASEIMERGER&ACQUISITION77Story77Comments81ProcessofMerger81StateInterventioninMerger84SourceofFundinginMerger86Extension88ConditionsofM&AinApplication91RoleofBanksinM&A93ForeignCapital'sParticipationinM&A94CASE2IMPROVEDCONTRACTRESPONSIBILITYSYSTEM97Story97CommentsI00EntrepreneursinReformI00CharacteristicsofStarsI02MarketSenseinManagementI03ExtensionI05IsCRSFeasibleatPresent?I05ImprovingCRSI07

ivNewRatiosonEfficiencyofAssetsManagementConditionsofApplyingCRSCASE3LEASINGStoryCommentsLeasingExperienceinChinaStandardizationofLeasingProcessFinancialInstitutions'RoleinLeasingExtensionComparingLeasingandCRSConditionsofLeasinginApplicationCASE4SHAREHOLDINGANDBUSINESSGROUPStoryCommentsShareholding:ModelsandFunctionsOrganizationStructureofBusinessGroupWeaknessofChineseBusinessGroupEffectsofBusinessGroupProcessofShareholdingandGrouplizationExtensionNewShareholdingBusinessGroupModelConditionsofShareholdingandBusinessGroupinApplicationListinginInternationalCapitalMarket10810911111I114114115117119I19120123123133134138142144146147147151154

VPARTIIICONCLUSIONSStrategiesforReconstruction160RolesofStateandEntrepreneursinTransition163Banks--AnotherImportantActorinChineseTransition167SocialEnsuranceSystem--BackupofEconomicReform170ForeignCapital--WelcomewithCaution172BIBLIOGRAPHY175APPENDICES183IIIIIIVFinancialStatementsofYizhengChemicalFiberCompanyLtd.183NetCashFlowAndFreeCashFlowEconomicValueAddedandMarketValueAddedRiskExpectationofSevenModels186188190

viLISTOFFIGURESI.IMatrixofEconomicSystem132.1MacroeconomicEnvironmentSystem433.1ChinesePlanningStructureforStateEnterprisesafter1980556.1ParticipantsinLeasing1176.2NewTypesofLeasinginChina1197.1CapitalStructureofYCF1317.2OrganizationStructureofBusinessGroup1407.3ModelsofRelationsamongBanks,EnterprisesandTradingCompanies1498.1OutlineofCases1608.2SeparationofTwoSystems1638.3MutualInfluencebetweenBanksandEnterprises1688.4IncomeDistributionandFundingProcessinChina169

viiLISTOFTABLES2.1GNPpercapitaandIndustrialStructureAdjustment292.2GDPanditsIndustrialComponents302.3EmploymentanditsIndustrialDistribution313.1StateEnterprises'LossinChinafrom1983474.1SomeIndicatorsofECandHS794.2NumberofMESEnterprisesinChinaandAmerica897.1RatioAnalysisofYCF1287.2DividendPolicyofYCF1317.3ConnectingPointofBusinessGroup1437.4ScaleofBusinessGroup1437.5ValueofAssetsofBusinessGroup1437.6SalesperYearofBusinessGroup143

VIIIAcknowledgmentsThisdissertationistheproductofseveralmonthsresearch,inthecourseofwhichIhadthegenerousandpreciousassistanceofanumberofpeople.Iamcertainthatmyfirstgratefulacknowledgmentmustgotomysupervisor,ProfessorMarioMurteira,fortworeasons.First,heisoneofWesterneconomistswhohavegreatinterestsinChina'sreformandtransitionandalsomakegreateffortsinresearch.Second,hisunreservedsupportandprecioussuggestionsgiventomeduringthewholeprocessofwritingthisdissertationbroadenedmyviewsandgavemeinspiration.ThenextnoteofthanksmustgotoMacauFoundationforprovidingscholarshipduringmystudyinMBAandFacultyofBusinessAdministration,UniversityofMacau,especiallytoProfessorNelsonAntonio,forprovidingmethisvaluableopportunitytostudyinMBAprogram.Besides,IexpressmydeepappreciationtoallmyteachersinHarbinInstituteofTechnology,especiallytomysupervisorsthere,ProfessorYinJinruiandAssistantProfessorHuiXiaofeng,theirtreasuredopinionsassistedmeinwritingthisdissertation.AndmyfriendMr.JiangMinghuididalotinhelpingmegatherinformationonthistopic.

ixIamverygratefultoalltheprofessorsoftheMBAprogramwhohelpedmegetaccesstoknowledgeinnewthemes.IthankedallmycolleaguesandfriendsImetinMacaufortheirwarmfriendship,especiallyEcho,Song,Bernie,Samio,HensandSam.lwillneverforgetallthediscussionsheldinandoutofclassamonguswhichenlargedmyknowledge.lmustalsothankallthepeoplewhogavetheircollaborationinthedevelopmentofthestudy.Thedecisiontokeepconfidentialthenamesofthepeopleintervieweddoesnotallowmetolisttheirnames.ButtheyareexperiencedentrepreneurswhobelieveinthebrightprospectsofChinesestateenterprisesandaredevotedtotheongoingreformprogram.Theirpracticalexperiencewashelpfultodevelopsomestrategiesproposed1nthisdissertation.AlastandspecialreferencemustbemadetomyparentswhoalwayssupportandencouragemeduringmyparticipationintheMBA.ToallthesepeopleandtothosewhocareforthefutureofChina,ldedicatethispaper.

MACAUSTUDIESINMANAGEMENTSERIESEditedbyNelsonJosedosSantosAntonioQUALITYMANAGEMENT:100QUESTIONSANDANSWERSQualityResearchGroup,FacultyofBusinessAdministration,UniversityofMacauISBN972-8147-71--6164pagespaper1995QUALITY:THEORYANDPRACTICENelsonJosedosSantosAntonio,FacultyofBusinessAdministration,UniversityofMacauISBN972-8147--61-9100pagespaper1995CONSUMERVALUESANDMARKETSEGMENTATIONINCHINA:ISSUESANDIMPERATIVESFORMARKETINGMANAGERS-ANEXPLORATORYSTUDYLeonardoAnthonyNajarroDioko,FacultyofBusinessAdministration,UniversityofMacauISBN972-8147-53-8187pagespaper1995THEDYNAMICIMPACTOFCULTUREONORGANIZATIONSTadashiUmezawa,DepartmentofBusinessAdministration,TokyoKeizaiUniversitySiewHuatKongandCarlosNoronha,FacultyofBusinessAdministration,UniversityofMacauISBN972-8147-76-7152pagespaper1996QUALITYMANAGEMENTANDCHINESECOMPANIESINMACAUAntonioTeixeira,FacultyofBusinessAdministration,UniversityofMacauISBN972-8147-52-X173pagespaper1996MACAU1960s-1990s:TECHNOLOGYUPGRADINGINATOYMANUFACTURER-ADYNAMICANDINTERACTIVESYSTEMOFSTRATEGICMANAGEMENTJorgeR.S.BastaISBN972-8147-84-8170pagespaper1996DIRECTTAXATIONINMACAUCarlosNoronha,FacultyofBusinessAdministration,UniversityofMacauISBN972-658-007-2245pagespaper1996Forfurtherinformation,pleasecontact:MacauFoundationP.O.Box3052,MacauTel:(853)966777Fax:(853)968658

ABOUTTHISBOOKXueliWangobtainedherBachelorofSciencedegreeandherMasterofSciencedegreemajoringintechnicaleconomicsfromtheHarbinInstituteofTechnologyinChina.Inaddition,shehasobtainedalsoaMasterofBusinessAdministrationfromtheUniversityofMacau.SheisinterestedinstudyingtheChineseEconomyandstartedresearchonrelevanttopicssince1991.HerresearchpaperswerepresentedatseveralconferencesheldinsideandoutsideChina,covering'topicsin'Trans-nationalizationofChinese'Enterprises','ComparativeAnalysisofChineseandRussianEconomic'Reform',and'WayoutsofChangingScienceandTechnologyintoProductivity'.Herpaperentitled'TheConditions,PotentialandStrategiesofDevelopmentinNorth-EastAsia'wonthefirstprizeinthesolicitpapersponsoredbytheAssociationofRegionalDevelopmentofJapan.FurtherstudyaboutthebankingsystemofChinaandtheexchangerateoftheRenminbiisongoing.ISBN972-658-017-X