China sends loss-making firms to the wall

CHINA'S debt-ridden, long-term loss-making state enterprises should apply for bankruptcy, the Communist Party said yesterday. It added that those businesses which were failing would be 'eliminated in the market competition'.

The government will try to turn some enterprises into limited liability companies which must shoulder responsibility for their profits or losses, relieving the state of responsibility for the businesses. Smaller state-owned enterprises could be contracted, leased out, or privatised, the party central committee said, but did not specify how this transformation would get under way without creating huge unemployment. About one-third of China's state enterprises are losing money.

The restructuring of the public enterprises will be part of an ambitious 'second phase' of economic reform to create the so-called socialist market economy by the year 2000. Under the wide-ranging reform blueprint, details of which were published yesterday, China is planning to push ahead with far-reaching restructuring, touching everything from a new social security system, banking, the legal system, an inheritance tax, property rights, competitive wages, to more accountants, auditors and lawyers.

Although eclectic in its outlook, diplomats yesterday were disappointed at the lack of firm deadlines or any sense of the priorities among the smorgasbord of reformist plans. Many proposals will also be far harder to put into practice than to outline in theory. A number, including the proposed crackdown on corruption, have been priority policies for some time with only very limited results. Part of the proposed reform of the tax system, for instance, is for the cash-strapped central government to claim a greater proportion of the revenues of the rich coastal provinces; but actually prising money out of them may prove a challenge.

The programme has been under discussion for six months and has had to negotiate hurdles set by the hardline opponents of fast-track reform. In the end the reformers appear to have had the upper hand, and the document enshrines the long-term aim of China's 89-year-old paramount leader, Deng Xiaoping.

Fourteen years of piecemeal reform coupled with fast economic growth have left China with the chaos of an overheating economy, rampant corruption, and banking, financial and management systems that cannot restore order. Since the summer, an austerity programme has sought to cool down the economy by cutting bank lending, putting up interest rates, and clamping down on unauthorised development zones.

The 25-page document issued yesterday, following last week's four-day plenary meeting of the party's Central Committee, outlined the structural changes that the government says it is now planning and stresses the need for faster reform. As a package, these moves will finally jettison the remnants of the centrally planned economic system, allowing market forces to play the central role, but keeping public ownership as the basis of the reformed economy.

'Fundamentally speaking, some of the contradictions and problems that have arisen in the high-speed growth of the Chinese economy stem from the fact that the drawbacks of the old structure have not been thoroughly eradicated and the new structure has yet to take shape,' the plenum decision said. Therefore, all efforts should be made by the party and government to speed up the reform, it added.

Short shrift was given to any notion that the economic reforms outlined in the blueprint might be accompanied by a shift in the country's political system. 'Greater efforts should be made in comprehensive improvement of social order. Political stability and unity should be consolidated and developed,' the accompanying communique said. Party grassroots organisations will be built up and others delivered 'from their state of incompetence and slackened morale'.

Underlining the refusal to allow any form of political pluralism, the police yesterday confirmed the arrest on Monday of two members of Peace Charter, a new pro-democracy movement, only hours after the group was formed.

'Qin Yongmin and Yang Zhou have been detained and we are investigating their case,' said a spokesman from the Public Security Bureau in Peking.