Meeting the Challenge of Chinese Enterprise Reform Book

This paper argues that despite China ' s impressive growth since the beginning of economic reform in 1978, inefficiencies still burden many of the state owned enterprises (SOEs) that comprise the core of the country ' s industrial sector. Reform of SOEs has been proceeding, including a 50-point program announced by the Government in November 1993 that contains major reforms to be introduced. In addition, competition from non-state sector firms has eroded the market share of SOEs; however, China ' s " SOE problem " will not simply wither away as a result of such competition. If China is to capitalize on its past successes, it must proacactively restructure the overall SOE sector and intensify enterprise reform. The paper develops a diagnosis of the " SOE problem " in terms of three dimensions: 1) poor corporate internal incentive and governance systems; 2) distortions in the policy and regulatory environment; and 3) lack of well-developed factor markets - for labor, capital and technology. Utilizing this diagnostic perspective, an assessment is made of Chinese enterprise reform experiments, both past and planned efforts. It is suggested that the articulated objectives for future reforms hold the promise for solving many of the major problems and the challenge before the Chinese authorities is to design a program that implements these objectives.