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Equity Structure should be Readjusted for the State-Owned Enterprises
1999-02-16
Zhang Wenkui
1. The necessity of adjusting the equity structure of the solely state-owned companies and the state holding companies.
The adjustment of the equity structure of the solely state-owned companies and the state holding companies is necessitated by various factors
First, the overly extensive distribution of the state-owned capital and the holding position of the state-owned capital in most major enterprises in various industries have resulted in a series of problems, such as the inadequate capital fund of the enterprises. Just as noted in a study report in May 1997 presented by a DRC Research Group on the "Strategic Restructuring of State-Owned Enterprises (SOEs)", the very limited state-owned capital at the present is difficult to support the colossal state- owned economic sectors and has been distributed to as many as hundreds of thousands of state-owned enterprises like "spreading pepper powder", thus causing lots of thorny problems. Since the reform of establishing modern corporate systems began in 1994, this situation has not improved visibly. According to a State Statistical Bureau survey of more than 2,000 state-owned enterprises that have completed corporate transformation, at the end of 1997 the solely state-owned companies accounted for 27.8% of the transformed enterprises. Of the registered capital of all the multiple share-holding corporations among these enterprises, the state capital accounted for 73.6% of the total, the collective capital for 1.9%, the corporate capital for 13.5%, the personal capital for 4.7% and the foreign capital for 6.3%.
The excessively extensive layout of the state-owned economy and the excessively large proportion of the state equity have made it difficult to ease the problem of capital inadequacy facing the enterprises. According to a State Statistical Bureau survey of the 2,562 incorporated central and provincial level enterprises, the asset- liability ratio of these enterprises at the end of 1997 stood at 61.6%, only 1.5 percentage points lower than in the previous year. Even for the 100 enterprises that were slated in 1994 by the state for the experiment on the establishment of modern corporate system, their asset-liability ratio was still as high as 65% after four years of hard efforts, or only 2.6% lower than before the experiment. Based on the current scale of the liabilities of the state-owned enterprises, the decline of asset-liability ratio of the state-owned enterprises by every one per cent will require an input of RMB￥ 60 billion. This obviously is beyond the ability of the state finance. Therefore, we should combine the efforts of increasing assets and reducing debts with the strategic restructuring of the state-owned economic sectors and transfer the state-owned equity shares to the public and corporate entities so as to utilize the relatively abundant social capital and increase the rate of capital sufficiency of the enterprises.
At present, China's reform is at a critical stage, when there are so many areas and fields where state finance is badly needed. On one hand, liquidating and regrouping the bad assets of the banking system, making up the deficiency of the social security fund and providing the minimum living security for the laid-off personnel all require heavy state financial inputs. On the other hand, the balance of the Chinese government debts has reached a considerably high level and these requirements can not expect to be met by heavy government borrowings. Under such circumstances, the realization of part of the state equity shares will be a practical way out. The incomes from the realization of the state equity can be used to repay the debts of the enterprises or make up the capital fund of the state-owned enterprises that have to be maintained These funds will not only help improve the economic structure, strengthen the key areas and revitalize the economy but can also be used to fund the expenditures in other aspects.
Second, the fact that the state equity monopolizes or constitutes the overwhelming majority of the shares of a company has become a serious obstacle to the establishment of an effective corporate governance structure in such a company. The corporate governance structure is the soul of a modern corporate system and is established on the basis of the corporate properties being jointly owned by shareholders. The shareholders entrust the hired senior managers to perform the day- to-day management right of their enterprises on their behalf and at the same time engage the directors to exercise the regular whole-process supervision over the operating activities of these managers. Excessive concentration of equity is not conducive to the establishment of an effective corporate governance structure. In particular, the excessive concentration of the state equity in a manner that the powers and functions of the owners are exercised by the administrative authorities is even more likely to lead to a situation in which the shareholders interfere in the day-to-day decision-making or the company is "controlled by insiders". Both cases are detrimental to the effective operation of the corporate governance structure. At present, the phenomenon that the state equity monopolizes or constitutes the overwhelming majority of the shares of the state-owned enterprises that have been incorporated is very common, and most of the enterprises conducting experiment with modern corporate system have been re-established as the solely state-owned companies. Statistics at the end of 1997 indicated that in 465 or 62% of the 750 companies listed on the stock exchanges, the largest shareholder (normally the holder of state shares) possesses equity five times that held by the second largest shareholder (normally the holder of corporate shares). This is an indication that the problem of the listed companies being monopolized by one single large shareholder is very serious. In this case, one practical and feasible method is to establish, by selling part of the state equity and introducing non-state shareholders that have closer interest relations, a mechanism by which the shareholders, owners and managers share weal and woe and counterbalance each other. This method will help rationalize the corporate governance structure.
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