Xiong Xianliang

The restructuring of the central government in 1998 played a positive role in straightening out the relationship between the government and the enterprises. The government organizations disconnected themselves from the enterprises they run, some ministries were cancelled or merged and the newly established administrations (state bureaus) will no longer directly manage enterprises. All the moves will help the disconnection. However, now there still exist in the relationship between government departments and the state-owned enterprises (SOE) widespread problems which imped the SOEs from becoming the main body in market competition, that is, enterprises with "clear ownership rights, explicit rights and responsibilities, separation of the government from the enterprise and scientific management." In the overall subject of disconnecting the enterprises from the government, two jobs need to be done in the SOE reform. First, to separate government functions as the government from its role as the owner of the enterprise assets. Second, on the basis of the disconnection, to standardize the behavior of the administrative bodies at various levels and improve the public service of the government to meet the demand of the market economy. But to date, the problems which have been solved or are being solved in the government restructuring fall into the sphere of the first job. (See part 4 of this report "Improve the Exercising Capital Ownership and Establish Unified Ownership Representing Bodies".) Now it is imperative to settle the following problems concerning the second job:

1. Consolidating the achievements of the disconnection with all the administrative bodies no longer interfering in the enterprise micro decision making on personnel, finance, assets, production, supply and marketing.

In the traditional planned economy, the government was omnipotent, enjoying both the macro economic power and micro economic power. It not only owned and directly managed the SOEs, but also intervened in many aspects of the micro decision making of the non SOEs like collectively owned economy. Some government organizations still interfere as they used to do in the internal affairs of enterprises, which have become the independent main body of the market after the formation of specialized state asset management bodies who have taken over the functions as the owners of the SOEs. For example, some government organizational or personnel departments, together with related "appropriate departments in charge", assess, appoint or remove leading enterprise leaders; some planning departments still examine and approve capital construction investment of enterprises; some economic and trade departments examine and approve technological renovation projects; some financial and auditing departments appraise enterprise finance and make decisions of punishment and fix deadline for reversing losses for ill-managed enterprises. And some labor and financial departments examine and approve enterprise distribution plans. These interference moves in enterprise micro management exceed the functions of the administrative departments, rendering enterprise managing bodies unable to play their part. Correspondingly, enterprise executives cannot be expected to be accountable for the consequence of the decisions made for their business.

These problems indicate the need for the government to thoroughly change its manner of work while adjusting the composition of the state-owned economy and reforming the SOE enterprise system. Most of the former governmental functions, such as direction to enterprise daily operations, evaluation of enterprise performances and their managers, should be carried out by supporting organizations (commonly known as intermediate organizations), such as law offices, accountant (auditing) offices, consultant companies, credit rating institutes and self managed trade organizations which have totally disconnected themselves from the government. These organizations, widely present in the countries practicing the market economy as non-governmental providers of service needed by enterprises, are usually more efficient than government administrative bodies.

2. To reinforce the government public service function in the process of streamlining government institutions and staff to ensure the quality and quantity of the supply of public goods and to avoid vacancy of public services.

Under conditions of the market economy, public services provided by the government such as national defense, foreign affairs, judicature, public security, fire fighting, post, basic education and social welfare are indispensable. However, there is misunderstanding among some people on the implication of the government’s withdrawal in principle from areas of competition. They believe that the less the government manages the better. The misunderstanding has created "vacuum" in some public service areas. (1). Enterprises with-out a higher authority in charge have emerged in large numbers, they have caused "blank points" in public service. Under the planned economy, most residents belonged to certain units which would go through the formalities for them when they needed passports to go abroad. But the non state-owned enterprises, which came into existence in the course of reform, do not take care of such business, resulting in the inconvenience for the residents. (2). The misappropriation and diversion of financial spending to other areas have diminished the financial resources supporting public services, cutting down public services, lowering their quality and worsening the environment for investment and people’s daily life. (3). The part of public services in basic education, healthcare and public facilities funded by enterprises in the past has not been taken over by the government. As a result, the service level in this regard has gone down and the enterprises find it hard to get rid of the heavy burden of "enterprises running the society."

The fundamental solution is: to clearly define the responsibility of the central government and the local governments at all levels in public service areas and improve the corresponding transfer payment system. The authorized of the size of the government institutions and government finance should first guarantee the need of the public services. At the same time, the establishment of non governmental and non profitable organizations should be encouraged to undertake public services and to bring their advantage in these areas into full play. In addition, regarding some "quasi public goods" whose utilization objects can be ascertained, they should be managed as much as possible in the way of enterprise operation so as to meet the social demand.

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