The Governance Of State-owned I&E Enterprises

For a long time, while studying the difficulties facing SOEs, many attribute these difficulties to the issues of property rights or ownership. A widespread explanation is that the ownership of SOE is not been clearly established. However, what the authors really care about underlying such explanation differs. Some advocate that the purpose of the ownership system reform be to extend the free operation rights of SOEs, and also some expect to realize the separation of enterprise from government administration by way of the ownership system reform. While others look forward to the clarification of the assets ownership system and the strengthening control on the state-owned assets in order to avoid the failure of the preservation and increments of the state-owned assets and to forbid the loss of the state-owned assets. In fact, such an opinion is gradually accepted by the public. The question here is how the state, the owner of SOEs, design and establish a proper system of corporate governance, in order to achieve effective supervision on operating rights.Up to now, the joint-stock reform program for state-owned I&E enterprises, including the sole state-owned limited liability companies, the listed companies, and the limited liability companies and the joint-stock companies realizing the employee shares ownership program, is basically a reform focusing on property rights. Although the reform can help achieve the separation of enterprises and the government administration and hence make enterprises the competing players in the market economic environment, the cost of the reform is unfortunately high. The public offering of stock method cannot secure the long-term development of the enterprises, and the employee shares ownership program does not take effect for the failure of the mechanism transformation.From the corporate governance's view, the governance over most state-owned I&E enterprises is in low efficiency. First, the mixture of enterprise and administration has not really eliminated. The separation of enterprise and administration means the impairment of control over enterprise by the government. However, since foreign trade sector plays an important role in the economy, the reform for state-owned I&E enterprises has gone forward under the well control by the government. That is, it has been intended to revitalize I&E enterprises without impairment of government's control over foreign trade. Consequently, concerning the equity structure, current statute highlights the majority shares by the state (or state-owned corporate). The unbalanced equity share facilitates the government to intervene the operation of firms and discourages the morale of employee. Second, although the Company Law stipulates that limited liability company and joint-stock company must set up the board of directors and the board of supervisors and hold the shareholders meeting regularly (of joint-stock company), the shareholder's meeting of many reorganized enterprises has no actual rights on decision-making, the creation and run of the board of directors do not conform to requirements, and the board of supervisors do not effect the supervision on the operation of the enterprises. Third, the efficient motivation and restrain mechanism has not been established. The traditional pattern of Planned Economy remains in the recruitment and performance evaluation of the managers. On the restriction side, the relationship among the board of directors, the board of supervisors, and shareholder's meeting, and the managers lack trade-off so as to cause the ineffectiveness of the internal control, and the mechanism of the backward supervision on managers, which comes from the indirect control and outside governance realized by way of market competition, is far from perfect.The objective of this article is to investigate the major issues in the reorganization process of State-owned I&E enterprises and to present actions against these difficulties.Chapter 1 traces the restructure courses of China's foreign trade system. The reorganiza...