Reform of the state-owned enterprise represents the key link of the whole economic system reform.  After many years’ efforts, the managerial system and operation system of state-owned enterprises have witnessed profound change and remarkably building market competition. In recent years, the reform of state-owned enterprise has made new progress, with government functions further separated from enterprise management, the pattern and structure of national economy ameliorated, the reform of joint stock system accelerated, the construction of modern corporate system gradually advancing, the overall quality of the enterprises ostensibly improved, its economic efficiency improved by a large margin, which have made great contribution to the development of our national economy and social progress. The profit realized and the tax turned over to the state by the state-owned enterprises and state share-holding enterprises in 2003 registered 495.12 billion Yuan and 810.45 billion Yuan, an increase of 30.8% and 16.7% over the last year, accounting for 1/2 of national industry and commerce enterprises. It proved once again the correctness of the guideline and policies concerning reform and development and the effectiveness of the measures taken by the central government. However, the reform of state-owned enterprises constitutes a process of incessant exploration and perfection. In the previous phase, the lack of necessary supporting measures and perfect regulations as well as the full fulfillment of providers of state assets resulted in some problems in the course of deepening the reform of state-owned enterprises, which aroused social concerns. Hence, it is imperative to adhere to the orientation of state-owned assets reform and standardize state-owned enterprise restructuring in the process of building the well-off society in an all-around way and perfecting socialist market economic system.

I. Promoting the strategic adjustment of the pattern and structure of national economy actively.

To adjust the pattern and structure of national economy represents an important move to do well the overall national economy and to give play to its dominant role, as well as an important measure to adjust and perfect its ownership. Since the convocation of the 15th National Congress of the CPC, have accelerated the restructuring of national economy and cropped up a flock of conglomerates with international competitiveness, with a group of small and medium-sized state-owned enterprises invigorated and a group of desperately loss-making enterprises and exhausted mine closed and bankrupted. From 1998 to 2003, the number of state-owned and state- share-holding enterprises plunged from 238,000 to 150,000 by 40%; the gained profit in contrast climbed from 21.37 billion Yuan to 495.12 billion Yuan by 22.2 times; the total volume of state-owned assets augmented from 14.9 trillion Yuan to 19.7 trillion Yuan and the net assets from 5.21 trillion Yuan to 8.36 trillion Yuan. From 1998 to 2003, the number of enterprise registered in World Top 500 mounted from 3 to 15, of which 14 remained stated-owned enterprises. Nevertheless, generally speaking, the stated-owned enterprises in China remained scattered and its overall quality needed further improving. It is accordingly of necessity to comply with the spirit of the 16th National Congress of the CPC and the 3rd Session of the 16th National Congress of the CPC and accelerate the restructuring of the national economy in a bid to do well the state-owned enterprises and enhance its vitality and competitiveness and give full play to the dominant role of the state-owned economy in the whole national economy.

In recent years, all levels of governments implemented the guideline for national economy pattern and restructuring formulated by the central government, adopting various measures ranging from restructuring, integration, merger, leasing, and contract operation to cooperative shares system, sale and etc., to liberalize and invigorate small and medium-sized enterprises. It was demonstrated through survey that the restructuring of small and medium-sized state-owned enterprises had covered roughly 85% of the total one. The small and medium-sized state-owned enterprises had, by means of restructuring, had their mechanism transformed, the identity of their staff changed and their efficiency prominently improved. From 1995 to 2003, the number of small and medium-sized state-owned enterprises shrank from 147,000 to 98,000; the realized profit surged from 2.28 billion Yuan to 196.82 billion Yuan by 85.3 times. Some problems however cropped up in the process of restructuring. For instance, some one developed “state economy exits and private economy enters” from the economic pattern and strategic restructuring, advocating “the withdrawal of stated-owned economy from any competitive regions”; some one required the whole national economy to retreat from any competitive region by means of assigning task with regulated target to lower levels, setting time limit for the schedules; some one adopted single means of restructuring, deeming the restructuring of national economy as selling state assets; some one sold state assets in a hurry as if casting off a burden, which harmed the legitimate interest of provider, creditor and the staff and aroused grievance and dissatisfaction of the staff and social concerns.

The reform in China constitutes the self-adjustment and perfection of the socialist system. To undertake strategic restructuring of the national economy is designed to optimize the pattern and structure of the national economy, improve the overall quality of the national economy, enhance the vigor and competitiveness of the national economy, give much more play to the dominant role of the state-owned economy, solidify and perfect the basic economic system featuring keeping public ownership as the mainstay of the economy and allowing diverse forms of ownership to develop side by side. It is improper to overemphasize the proportion of state-owned economy in the whole national economy; it is also wrong to ignore the dominant role of state-owned economy by advocating that the state-owed economy should retreat from any competitive region. Therefore, it is necessary to comprehensively understand and precisely master the spirit of the guideline and policies of the central government, adhering that the state must hold a controlling stake in strategic enterprises that concern the national economy and national security, but not necessarily in others. It is also imperative for us to perfect the mechanism for rational mobility of the national economy, encourage more state-owned assets to be invested in key industries and regions bearing the lifeline of the national economy, and build up the control force of the national economy. Market economic law should be observed so as to make state-owned enterprises in any industries and regions compete freely and fairly. The restructuring of state-owned enterprises should not be promoted by administrative means, such as selling state assets blindly.

The orientation and priority of the dominant role played by the national economy does not remain invariable, the amount and proportion of which varies in different industries and different regions. Among the total amount of state-owned assets of stated-owned industries and commerce around China in 2003, the national enterprises represent 56.7%, the local ones 43.3%. It can be figured out from the analysis of the total amount and proportion of the national economy in 31 provinces and cities around China that the economically developed provinces and cities accounted more whereas the economically underdeveloped ones less. With the deepening of reform, the state-owned economy will represent less in the national economy, whereas the total amount and quality of state-owned economy will be further improved and more rationally distributed. It can be drawn from the experiences of many places that the improvement of the size and competitiveness of the advantageous enterprises oriented toward market as well as the building up of state-owned key enterprises are of great significance to materialize the overall planning of local economy and the whole society and maintain local economic and social stability. All levels of governments should combine the restructuring of ownership with reform of joint stock system and take into full consideration of national economy and the overall planning of local economy and social development and arrange the mobility of state-owned economy to the effect that the increase and reduction of the amount of state-owned economy should be effective and orderly and full play should be given to the control power, influence and driving force, dominant position of the state-owned economy, the dominant position of state-owned economy be cemented so as to promote the sustained, rapid and sound development of local economy and the overall social progress. 

II Put forward the reform of joint stock system unswervingly.　

 Joint stock system represents the essential product when large-scale socialized production and market economy developed to certain phase, serving an effective organization form and operational means of modern enterprises and an important channel to give full play to the dominant role of national economy. It was expressly pointed out in the 3rd Session of 16th National Congress of Communist Party of China when summarizing the experience of reform and opening-up and especially state-owned enterprises that it was imperative to vigorously develop the mixed ownership economy including state-owned capital, collectively-owned capital and non-public ownership capital to actualize the diversification of investment subject and to make joint stock system become the major forms of public ownership. Various regions and state-owned enterprises subsequently accelerated the reform of joint stock system by implementing the spirit concerning deepening the reform of state-owned enterprises. Till the end of 2003, among 4,223 large and medium-sized key state-owned enterprises, 2,514 have been transformed to multi-holding incorporated enterprises, covering nearly 60%. The reform of joint stock system undertaken by state-owned enterprises promoted the mobile restructuring of state-owned assets, built up the control power, influence and driving force of the state-owned economy; it also promoted the establishment of corporate governance structure and the transformation of enterprise operational system and promoted the building of modern corporate system; it facilitated the enterprise financing and development of state-owned enterprises; it gave birth to a group of large-scale competitive joint-stock enterprises and achieved the better combination between national economy and other forms of ownership. It proved that to reform state-owned enterprises and especially encourage them get listed in domestic and abroad market represented an important channel to realize their pattern of national economy and strategic restructuring as well as a successful way for reform of state-owned enterprises. It is imperative to unswervingly carry out the reform of joint stock system of state-owned enterprises and energetically develop mixed ownership economy in order to adhere to the orientation of the reform of socialist market economy.

Recently, managerial buyout was put into trial use in some places and enterprises. The exploration for enterprise restructuring and means of distribution played an active role for mobilizing the enthusiasm of enterprises managers and enhance the vitality of the enterprises. However, problems cropped up in the process of implementing managerial buyout: such as acting as seller and buyer simultaneously in disguise, under-counter dealing; some took property right of state-assets or physical assets as his (her) guarantee for financing, imputing acquisition risk and operational risk to financial institutions and the acquired enterprise; some harmed the legitimate rights of the investors and the staff of the enterprises, which triggered some unrest.

　　The managerial buyout as one of the forms for the restructuring of small and medium-sized enterprises and a stimulus to mobilize the enthusiasm of managers of the enterprises shall be provided with corresponding conditions and environments. Nowadays, our socialist market economic system remains to be perfected and state assets price is lack of rational and effective discovery and formation system; the relevant laws and regulations are far from perfect and the acquisition are lack of necessary law groundings and standardized regulations; the rational financing channels are far from sufficient, with the acquisition risk assumed by the manager disproportional with its enjoyed profit; the internal supervision system remains imperfect and the implementation of managerial buyout may accelerate the control upon internal personnel and etc. the haste managerial buyout when many conditions are not met may result in loss of state assets and trigger various social conflict.

In light of the history of modern enterprises’ development, the separation of ownership and management represents the universal characteristic of large enterprises. The owners of large enterprises may not necessarily be the qualified manager in that large enterprises constitutes large amount of capital and multiplied products and matters interests of different parties and accordingly the management of large enterprises needs versatile and specified skills. As a consequence, the owner of an enterprise is inclined to entrust it to the manager with good credit and specified knowledge and skills. The mixture of government administrative with enterprise management remains a longstanding striking problem and one of the objectives is to separate the management authority from its ownership to ensure the state-owned enterprises to became an autonomous market entity and legal person entity responsible for its gain and loss. Large-sized state-owned enterprises play a pivotal role in the economic and social development of China in that many of them represents important industries and key regions mattering national security and life line of national economy. The promotion of large-sized enterprise should adhere to the orientation that ownership should be separated from the management authority, with key enterprises being controlled by state-owned assets. The managerial buyout represents the combination of ownership with management authority, which is detrimental to the formation of effective corporate governance structure, the establishment of market-oriented allocation manager mechanism and the maintenance of the control power of the national economy, going against the direction of establishing modern market system and promotion of joint stock system reform. The large total amount of stated-owned assets generally makes it difficult or even impossible for the managers to afford the stock control fund merely relying on their owned fund or the amount that can be possibly collected through legal means. Meanwhile, to carry out managerial buyout while ignoring the practical situation in China will probably lead to illegal financing and state assets lossing. Nowadays, therefore, it is improper to carry out managerial buyout in large-sized state-owned enterprises and enterprises whose controlling stoke was owned by the state.

 Most small and medium-sized state-owned enterprises, for their small amount capital, do not belong to important industries and key regions mattering national security and lifeline of national economy. Managerial buyout or stock control may be put in trial use in small and medium sized state-owned enterprises provided that it should be put forward regularly, transparently and fairly, maintaining the legitimate rights of the provider, creditor and staffs. Opinions of the State-owned Assets Supervision and Administration Commission about Further Standardization of the Work Relating to the Reconstructing of State-owned Enterprises transmitted by the General Office of the State Council at the end of last year made definite provisions on managerial buyout. All levels of governments shall strictly abide by the provisions in Opinions to implement managerial buyout. The formulation of the programs concerning state assets transfer to the manager shall be carried out by the enterprise which directly holds the state assets of the state-owned assets or be entrusted to the intermediary agency, where the manager shall not be involved in such important activities as decision-making, financial auditing, leaving-post auditing, appraisal of property and funds, property assessment, confirmation of bottom price, and state assets are prohibited selling with the manager acting as seller and buyer at the same time in disguise; the transfer of state assets must take place in the property transaction market, where the manager as well as other investors are assigned the state assets via auction; the manager who collects the fund for acquiring state assets shall comply with the relevant provisions of General Principles on Loans, shall not lend loan from state-owned enterprises or state share-holding enterprises, shall not take the state-owned property or physical assets of these enterprises as subject matter to provide guarantee, mortgage, hypothecation, discount and etc., for financing; the manager who is responsible for the transmission of business operation achievement shall not participate in the acquisition of state-owned assets. In order to guarantee the sound development of the reform of state-owned enterprises, all levels of government shall conduct strict supervision upon the implementation of the Opinions in a bid to promote the sound advancement of the reform of state-owned joint stock system.

III. Accelerate the establishment and perfection of modern property relations

The establishment of modern property relations constitutes the internal demand to perfect modern socialist market economic system as well as the vital foundation to construct modern corporate system. It was emphasized in the 3rd Session of the 16th National Congress of Communist Party of China that property rights remained the core and important contents of ownership system and brought forward that modern property relations was planned to be established feathering cleared established ownership, well defined power and responsibilities, free movement of property right. Since the reform and opening up and in particular with the incessant deepening of joint stock system reform, China has made active exploration in the reform and management of state assets and formulated a group of statutes and normative documents with regard to registration of property rights, assets appraisal, assets transfer and management of state stock rights, which played an active role for preventing state assets loss and promoting the orderly circulation of property rights. However, the reform of property right is generally backward. It is imperative to accelerate the reform of property right system and establish as well as perfect modern property right system in the interest of advancing the reform of state-owned enterprise joint-stock system and make joint-stock system become the main realization forms of public ownership.

To promote the orderly circulation of property right represents one of the important contents to establish and perfect modern property right system. To conduct property right transaction and circulation via various forms such as transfer, auction, acquisition, merger, investment in equity, debt-for-equity swap is conducive to the optimization of the enterprise and social capital structure of and the optimized allocation of resources, the improved operational efficiency of capital and accruement of enterprise and social wealth. With the acceleration of the restructuring of state-owned enterprises and the pattern of national economy, the transfer of state assets multiplied, which was instrumental to the speeded adjustment of state assets stockpile and the optimized allocation of resources. The problems cropping up in the process of state assets transfer shall also be perceived. For instance, existed and remained the negligent and loose financial auditing, insincere assets appraisal, wash sale and improving the cost as well as transfer of enterprise assets; some state assets were transferred and sacrificed without legal and transparent procedure; state assets was impaired where such illegal acts emerged as collaboration between the domestic and foreign enterprises, illegal examination and approval, concealing, transferring and even misappropriating state assets. 

Troubles cropped up in the process of transferring enterprise state assets right mainly resulted from imperfection of relevant rules and regulations as well as transaction market of property rights, and the insufficient supervision upon transaction of property rights and etc. In response, the relevant authorities adopted a series of measures with respect to promoting and standardizing the circulation and transfer of assets, promulgated a series of rules and standardized documents with regard to administration of listed companies, transfer of the state share of the listed companies to foreign investors and foreign-funded enterprises, debt-for-equity swap of stated-owned enterprises, administration upon state property right transaction, ad hoc Interim Measures for the Management of the Transfer of the State-owned Property Right of the Enterprises promulgated on December 31 last year, which prescribed location for the transfer of property rights, means of transfer, procedures of transfer, demanding that transfer of state property right should take in the transaction market. In order to guarantee the openness, fairness and equity of property right transaction and to prevent the loss of state assets, the State-owned Asset Supervision and Management Commission of the State Council had listed as pilot organizations for transaction of state assets by central enterprise China Beijing Equity Exchange, Shanghai United Assets and Equity Exchange, Tianjin Property Right Exchange. Meanwhile, state-owned asset supervision and management authorities around China had chosen their state assets exchange institutions in the interest of state assets transaction. In accordance with the incomplete statistics in the property rights exchange organizations in Beijing, Shanghai and Tianjin, the number of state property right transaction from January to August registered 2,363, with the business volume 46.76 billion Yuan.  Due to the disclosed property right transfer information, the transfer price was generally higher than the result of assets appraisal and such problems as under-count dealing, undervaluing and sacrificing of state assets were effectively avoided, which played an important role for deepening property right system reform, promoting the circulation and restructuring of state assets, optimizing the structure of national economy and preventing loss of state assets.

The transfer of state assets ad hoc relevant to price formation, involves various aspects of factors, as a consequence, to judge whether state assets are lost is a complicated task. On one hand, in case that state assets loss exists in the process of state assets transfer, we should attach great importance with it and take effective measure to solve it; on the other hand, we shall take detail analysis according to specified situations rather than equating state assets transfer to state assets loss.  Nowadays, state property right system remains in the crucial period. We should, in accordance with the reform direction set in the 3rd Session of 16th National Congress of Communist Party of China, positively put forward the construction of modern property right system, should not slow down the pace of reform because of the problems cropped up or some achievement made in the process of reform; neither should we turn a blind eye to the existing problems and let them alone. We should, through various efforts such as innovating mechanism, perfecting regulation and rules, strengthening supervisions and administration thereupon so as to promote the continuous progress of the reform of state property assets system and perfect it in the process of its reform.

 The main task in the process of standardizing state property system reform is the strict implementation of the provisions in Interim Measures for the Management of the Transfer of the State-owned Property Right of the Enterprises and the standardization of transfer of state property right transfer. First, transact in market. The state assets transfer of enterprises should be openly undertaken in the property right transaction organizations authorized by state assets supervision institutions to guarantee its openness, fairness and equity and to realize “Sunshine Trading”. Second, disclosing information. The transfer of state property assets of enterprises should, in accordance with the prescribed content, means and time, disclose the transfer information and keeps the assignees informed to prohibit under-count dealing and gradually form the market discovery mechanism governing transfer price of state assets. Third, standardizing dealing acts of property right transaction. Property right dealing institutions should, on the basis standardized transaction, take control of the key link of on-floor open-outcry dealing to promote the standardization of the procedures relevant to before-and-after dealing and give full play to the positive role of property right transaction. Fourth, intensify the supervision of property right trading. Supervision should be strengthened upon property right transaction activities undertaken by property right transaction institutions and the related organizations to ensure the fairness, equity and transparency of property right transaction. So long as we strictly adhere to the provisions relevant to property right transfer, we could effectively avoid the nonstandard acts and loss of state assets.

Reform of state-owned enterprise is an extensive and profound change. Nowadays, it remains in the stage where critical problems need to be addressed; therefore, we should make bold exploration to remove the thought and mechanism hindering our development by adhering to ideological guideline of emancipating the mind, seeking truth from facts, and upholds the spirit of advancing with time. Meanwhile, we should, in line with the guideline and policies, standardize the relevant mechanism and loose no time to put forward the reform and development of state-owned enterprises to ensure its continuous advancement along the correct direction.