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Commentary: Going bankrupt for efficiency
( 2003-07-23 07:05) (China Daily)

Improvement of the overall efficiency of State assets depends not only on the efforts of the authorities in building large State-owned enterprises (SOEs) into market giants, but also a speedy end to loss-making businesses.

Given the significance of large SOEs to the national economy, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) would naturally give priority to sharpening their competitive edges.

The country's total State assets amounted to 11 trillion yuan (US$1.3 trillion) by the end of last year. And the 190-odd large enterprises under the newly established SASAC's direct supervision owned a total of 6.9 trillion yuan (US$830 billion) worth.

Though as many as 11 Chinese firms are ranked among the global top 500 companies now, the gap between leading domestic enterprises and their foreign rivals remains fairly huge in terms of both scale and profitability.

A firm grasp of the reality recently led the SASAC to establish a performance appraisal system from next year. The State assets watchdog made it clear that the new appraisal system is aimed at goading large SOEs to focus on key businesses such as energy, transport and telecommunications, and strengthen core competitiveness.

Such intensive supervision is crucial to the transformation of large SOEs, the most valuable portion of State assets, into lucrative profit centres.

However, efforts are also urgently needed to target the other end of the spectrum that includes more than 2,000 local SOEs on the brink of insolvency.

It has been reported that the SASAC is accelerating a policy of allowing these loss-makers to go bankrupt.

The benefit of such a move is evident.

Between 1995 and 2002, altogether 7,798 State-owned enterprises went bankrupt. At the same time, the aggregate profit of key SOEs and State-holding companies jumped by 2.3 times to 263.6 billion yuan (US$32 billion) in the past five years.

Further bankruptcies will be extremely painful for unemployed workers, especially at a time when the country's unemployment pressure continues to mount.

But the need for those loss-makers to be allowed to go bankrupt requires the authorities to face the difficulties and its responsibilities squarely.

Therefore, special policies should be promptly adopted to cushion those who lose their jobs under the impact of bankruptcy.

The renewed commitment of the authorities to facilitate bankruptcy will surely breath new energy into the efficiency-orientated reform of SOEs. But the tough, worker-related questions should be answered first and quickly.

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