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Research Update

Research Update

21

March

2017

Report Meeting of China Macro Economy Forum ( 2017Q1) is Held in Renmin University of China

On Mar. 18, 2017, the report meeting of "China Macro Economy Forum (2017Q1)", jointly hosted by the National Academy of Development and Strategy (NADS), the School of Economics of Renmin University of China (RUC), and China Chengxin Credit Management Co.,Ltd., was held in RUC, the theme of which was "New Thinking Mode of New SOE Reform in the New Era".

Participants of the Forum included Liu Yuanchun, Vice President of RUC and Executive Dean of NADS, Hu Naiwu, First-grade Professor at RUC, Chu Xuping, Director of Research Center of State-owned Assets Supervision and Administration Commission, Jin Bei, Member of the Chinese Academy of Social Sciences and Director of CARE, Zhang Wenkui, Deputy Director of Enterprise Research Center of Development Research Center of the State Council and Chief Expert of Basic Area of SOE Reform, Wang Jianing, Chief Editor of Reform and Director-general of Chongqing Think-tank, Yang Ruilong, Co-Director of the Research Institute of Economics of RUC, Professor Liu Fengliang, Executive Vice Director of and Director of the Personnel Department of the Graduate School of RUC, Guo Jie, Dean of School of Education and Training of RUC, Yan Yan, Chairman of CCXI Credit Rating Co., Ltd and Co-Director of the Research Institute of Economics of RUC, Zhu Rong, Joint Deputy Director of the Research Institute of Economics of RUC and other experts and scholars.

Session I of the Forum was moderated by Yan Yan, Joint Deputy Director of the Research Institute of Economics of RUC.

In addressing the Forum, Vice President Liu Yuanchun expressed warm welcome and sincere thanks to all distinguished guests present at the meeting. He stated that SOE reform is the most important part of ownership system reform. The successful SOE reform is the one of cornerstones in building the mode and road with Chinese characteristics. Therefore, the direction of SOE reform is also the direction of the whole reform. The most important part is how to treat the process of SOE reform with historical lens and how to apply creative thinking and practice in SOE reform under circumstances of "new normal". He suggested that there are three key points. Firstly, we have to reduce the debt level of SOEs and zombie enterprises, making them more effective and efficient. In the new normal, SOEs are faced up with such problems as high debt level, bad micro-performance and a series of operational shortcomings. However, are solutions the same as the traditional ones? Shall we need more creative ideas? The answers are positive. Secondly, we need to construct new kinetic energy, core of which is applying five development ideas. The most important one is creativity. In the process of constructing new kinetic energy in creative way, transformation and upgrading composes the key elements. It is worthwhile thinking whether SOE could be the main force of creativity and general transformation and upgrading. Thirdly, China's rise has to deal with the change from the era of commodity export to the era of capital export, from rule follower to rule maker. During this transforming process, what do SOEs function? What kind of position they should stand? From 2016 statistics, "going out" has been accelerating. The annual growth rate of past years has passed 50%. Under such circumstances, we will find that high debt level and enterprises with bad performance can’t be avoided. Therefore, we should consider in theory and in practice whether current situation and quality of "going out" can help us achieve national rejuvenation. Shall we control the speed of "going out" and strength the overall deployment in the process?

Yang Ruilong, Co-Director of Research Institute of Economics, released the theme report of the Forum on behalf of the topic group: “New Thinking Mode of New SOE Reform in the New Era--Logic,Method and Practice of SOE Classified Reform”.

The Report points out that after 30 years’ reform, China's SOEs have undergone significant changes. According to the statistics, since the beginning of the new century, SOEs have showed a downward trend in a general. However, impacted by 2008 global financial crisis, they began to appear contrarian growth. Since the new century, SOE assets has also been rising continuously, especially after 2008, the asset limit of SOEs has been increasing. SOEs profitability showed a polarization: on the one hand, the profitability of profitable enterprises continued to rise; on the other hand, unprofitable firm continued to be under deficit. Since 2008, this polarization effect was more serious. SOE micro efficiency index, such as profit margins, total return on assets, rate of return on net assets, profit margin of sales and the multiplier of interest rate, showed a reversal trend. The total amount of tax paid by SOEs continued to rise, but its proportion of fiscal revenue decreased; the number of employees in SOEs remained stable, but the proportion of urban employment continued to decline; the efficiency of SOEs in various areas show great differences.

The socialist market economic system is the goal of China's reform. As its basic system, socialism determines that we need to adhere to the dominant position of public ownership. As a developing country, China is experiencing transformation. We have to make a number of state-owned enterprises bigger and stronger. In order to make market play a better role in the allocation of resources, we must make great effort to develop private economy and reform SOEs. Therefore, the state-owned economy and the private economy should not be mutually exclusive, but can be interrelated and win-win. We must confirm that they play a central role in respective areas.

The report argues that exploring the ways to reform SOEs in the framework of state ownership is logically problematic because it is difficult to solve these two problems: the first one is separation of government administration and enterprises management; the second one is transferability of ownership, which are also the fundamental reasons for contract responsibility system and shareholding system are so hard to eradicate the SOEs’ traditional disadvantages. Therefore, in fact, rather than transforming all state-owned enterprises into market-oriented, we should implement function-oriented classified methods from the dimensions of product nature and industry characteristics to lay down different reform types to SOEs in various areas, which mean that public goods producers should apply the state model, monopoly ones should apply the model of state-owned and state control. For those who take part in the market competition, we should conduct shareholding reform for some of them and privatization for the rest. At the same time, the scope and area of SOEs should be defined by different segments of innovation chain to build a coordinated cooperation framework, in which nation and people can both benefit in the process of implementing innovation-driven development strategy.

What we need to do is to promote the mixed ownership reform of SOEs under the principle of classified reform, which means that we need to promote “long-term oriented” mixed reform in the field of public goods, “control oriented” mixed reform in the field of nature resources and “mobility oriented” mixed reform in the field of competitiveness. The classified reform requires state-owned asset management system reform. In the area of public goods, State-owned Assets Supervision and Administration Commission (SASAC) should exercise double-barreled functions of managing firms and assets; in the area of nature resources, SASAC should exercise double-barreled functions of managing assets and capital with the latter as priority; in the area of competitive area, SASAC should exercise the function of managing capital. With the cooperation among the stakeholders, the creativity should be encouraged in different lays and levels of SOE managing system. In public goods area, the managing system of state-owned and state-run ones can combine inside-decision with outside-supervision. In nature resourses area, state-owned and state-controlled enterprises can construct the managing system of shared governance by board of directors, shared supervision by supervisory board and contingent governance by related units. In competitive area, shared governance and contingent governance have to be combined. On the basis of advocating managing system creativity, excitation mechanism will be constructed accordingly. In public goods area, promotion and reward can be combined for top managers, with promotion as priority. In nature resources area, excitation methods which is mainly relying on promotion while reward as subsidiary can be applied for middle management (appointed by the Organization Department of the Central Committee of the CPC) and top management; for the top managers appointed by SASAC and local governments, consideration must be given to both the promotion and reward. For professional managers, market-oriented compensation can be applied. In addition, market-oriented compensation should be the main method of excitation for SOE’s managers in competitive areas.

Session II of the Forum was moderated by Liu Fengliang, Executive Vice Director of and Director of the Personnel Department of the Graduate School of RUC and Research Fellow of NADS. All experts and distinguished guests present at the meeting carried out deep exploration and exchange of some issues on China's macro economy.