SOE re­form key to north­east re­gion’s re­vival

China Daily (USA) - - VIEWS -

The govern­ment is de­ter­mined to re­ju­ve­nate the north­east­ern re­gion. And to achieve its goal, the govern­ment has to fo­cus on the re­form of State-owned en­ter­prises, be­cause that is the key to the eco­nomic trans­for­ma­tion of lack­lus­ter old in­dus­trial bases.

The re­form of SOEs, which com­prise a large pro­por­tion of the State sec­tor, is closely re­lated to the re­gion’s struc­tural ad­just­ments, eco­nomic trans­for­ma­tion and up­grad­ing, es­pe­cially when it comes to the re­la­tion­ship be­tween the govern­ment and the mar­ket.

Since SOEs ac­count for a large part of theNorth­east China’s man­u­fac­tur­ing sec­tor, the re­gion’s re­vival is im­pos­si­ble with­out the re­vival of the man­u­fac­tur­ing sec­tor. So the trans­for­ma­tion and up­grad­ing of the sec­tor has to be ex­pe­dited.

The prob­lem of the uni­tary in­dus­trial struc­ture re­mains very prom­i­nent in the re­gion and is one of the rea­sons of the na­tion­wide in­dus­trial over­ca­pac­ity. There­fore, the prob­lem has to be solved be­fore it causes fur­ther dam­age to the man­u­fac­tur­ing sec­tor.

Dur­ing the 13th Five-Year Plan (2016-20) pe­riod, whether the re­gion will gain from the new “tech­no­log­i­cal revo­lu­tion” and ris­ing na­tion­wide con­sump­tion will de­pend on whether it can trans­form the State-owned sec­tor’s pro­duc­tion-based econ­omy to ser­vices-ori­ented man­u­fac­tur­ing. In 2014, pro­duc­tion-based man­u­fac­tur­ing ac­counted for 35 per­cent to 40 per­cent of the en­tire ser­vice sec­tor in the re­gion’s three provinces ofHei­longjiang, Jilin and Liaon­ing, 5 to 10 per­cent­age points less than the coun­try’s av­er­age. If the three provinces can pro­mote their pro­duc­tion-based ser­vices by re­form­ing the SOEs, they can more ex­pe­di­tiously trans­form and up­grade their broad man­u­fac­tur­ing sec­tor.

To ac­cel­er­ate the re­gion’s re­ju­ve­na­tion, the pro­por­tion of Sta­te­owned cap­i­tal in the re­gion’s econ­omy has to be low­ered. In 2014, SOEs owned about 50 per­cent of the to­tal as­sets of all in­dus­trial en­ter­prises above a cer­tain level, com­pared with the coun­try’s av­er­age of about 10 per­cent. This has not only made it dif­fi­cult to re­form the SOEs, but also squeezed the space for the pri­vate sec­tor’s de­vel­op­ment.

Thus re­form of SOEs in the re­gion should be aimed at boost­ing their vi­tal­ity and com­pet­i­tive­ness. The re­form should also be aimed at re­dis­tribut­ing State cap­i­tal for pub­lic wel­fare, with­draw­ing it from gen­eral com­pet­i­tive fields and en­sur­ing it is used for im­prov­ing “na­tional wel­fare and peo­ple’s liveli­hood”.

Be­sides, more funds should be al­lo­cated to pub­lic wel­fare-ori­ented in­dus­tries, so that State cap­i­tal is used to im­prove pub­lic ser­vices, for­ward-look­ing in­dus­tries of strate­gic im­por­tance, en­vi­ron­men­tal pro­tec­tion, tech­no­log­i­cal in­no­va­tion and na­tional se­cu­rity.

The re­ju­ve­na­tion of the re­gion also re­quires pri­vate en­ter­prises’ par­tic­i­pa­tion in the SOE re­form. The pri­vate sec­tor ac­counts for more than 50 per­cent of the re­gion’s GDP, but it is 10 per­cent­age points lower than the coun­try’s av­er­age. Ac­cord­ing to the Al­lChina Fed­er­a­tion of In­dus­try and Com­merce, in 2015 only nine of the coun­try’s top 500 pri­vate en­ter­prises were from the three north­east provinces, com­pared with 138 and 91 from Zhe­jiang and Jiangsu provinces. Worse, pri­vate in­vest­ment in the re­gion has been de­clin­ing dras­ti­cally since 2015; in the first of this year it de­clined 31.9 per­cent year-on year.

To re­v­erse this trend, the three provinces have to of­fer fa­vor­able poli­cies to at­tract pri­vate cap­i­tal, and en­cour­age pri­vate en­ter­prises to in­crease their in­vest­ments. Also, they should make the SOEs more in­no­va­tive and com­pet­i­tive by fur­ther open­ing up their mar­kets. De­spite be­ing home to a num­ber of uni­ver­si­ties and re­search in­sti­tu­tions, the re­gion lacks in­no­va­tion ca­pa­bil­ity. For ex­am­ple, in 2014 the re­gion’s R&D in­put ac­counted for just 1.18 per­cent of its GDP, com­pared with the na­tion­wide av­er­age of 2.05 per­cent, and its high-tech in­dus­tries con­trib­uted only 6.5 per­cent to its eco­nomic de­vel­op­ment, 13 per­cent­age points lower than the coun­try’s av­er­age.

The re­gion should ex­pand tech­no­log­i­cal co­op­er­a­tion with coun­tries that have ad­vanced man­u­fac­tur­ing sec­tors to learn from their tech­nolo­gies and man­age­ment prac­tices, and use that knowl­edge to make SOEs more in­no­va­tive and make them more com­pet­i­tive in global mar­kets.

The author is pres­i­dent of the China In­sti­tute of Re­form and De­vel­op­ment.

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