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China: 'Survival of the Fittest' Drives Privatization

  • Robert Lyle

Hong Kong, 15 September 1997 (RFE/RL) - Chinese leaders say they are launching a massive privatization of state assets -- invoking a new principle of "survival of the fittest."

But none of these leaders has made the least mention of drawing on the experience of the nations which have pioneered the road toward market economies -- the countries of Central and Eastern Europe and the old Soviet Union.

Chinese President Jiang Zemin opened the 15th communist party congress in Beijing Friday by saying that the next step of China's economic program was to diversify ownership of tens of thousands of ailing state enterprises.

On Saturday, Prime Minister Li Peng added his own call for bold measures in a restructuring of the state sector itself. Li said any form of business organization and operation could be adopted as long as it promoted people's living standards, national strength, and productivity.

Exactly how the "new" ideas are to be translated into reality is now the subject of wide speculation, especially in Hong Kong where the world's financial leaders will be gathering over the next two weeks for broad ranging discussions on the global economy.

China will be in the spotlight during these annual meetings of the International Monetary Fund (IMF) and World Bank. Of special interest will be Beijing's planned next phase of reforms.

Sunday, a group of senior Chinese ministers responsible for economic measures, said in Beijing that the program faces challenges and difficulties because China had no precedent for such a move.

But they said there was no alternative. Wang Zhongyu, Minister of the State Economic and Trade Commission said, "it is simply impossible to turn around all state-owned enterprises."

Wang acknowledged that at least 30 percent of state-owned firms are effectively bankrupt and newly released statistics show that a huge chunk of the state sector has been losing money for years.

"In the process of setting up the market mechanism," said Wang, "we must push forward with the principle of survival of the fittest."

China started a pilot privatization program in 58 cities last year, declaring over 1,000 state firms bankrupt and merging nearly 1,200 others. Wang said it will be extended to 111 cities this year. He said that nationwide, more than five million people lost their jobs in the first steps toward commercialization -- making enterprises operate on a profit-making basis -- and privatization, but that nearly half of those have found new jobs.

Wang said that more than 30,000 million yuan ($3.6 billion) has been set aside this year for off-setting bad debts from state enterprises. He said, however, that eventually those "loans" will be converted into equity portions of the enterprises which will be sold off as part of privatization.

The ministers said they expect that most collectively owned enterprises and smaller state-owned companies will be sold to workers and managers as "joint-stock co-operative firms."

The state will retain control of some key sectors of the economy, such as utilities and transport, but otherwise, state enterprises will privatized through increased stock issues.

Deputy Minister of the State Commission for Restructuring the Economic system, Zhang Haoruo, said that in fact "the state will not necessarily maintain majority stakes in all the listed firms."

"For strategic industries," he said, "the state will maintain majority controls, but for other industries, the state will not be the majority shareholder."

There are dissenters, of course, since there will be no political changes in the Communist party's ruling position.

The editor of the party central committee's magazine, Xing Bensi, said that it was a "misunderstanding" to believe the adjustment of state ownership meant only a western shareholder system.

Xing, a close ally of Jiang's, told the Xinhua news agency that the idea of selling most state enterprises was "impossible" because "such a method will not work and only leads to chaos."

He said, however, that as long as individual workers have a stake in the ownership of firms the enterprises are still "publicly" owned if not "state" owned.

Premier Li said that there must be diverse types of public ownership and he encouraged officials to boldly explore any "new form" of public ownership.

In the end, observed economic analysts in Hong Kong, the semantics of "public" ownership over "state" ownership may be what allows China to remain "socialist," while steadily becoming an all-round capitalist economy.