• PAGE ONE
• INDEX
• HOME

China urged to speed up reforms in State-owned units

Our Bureau

MUMBAI, Sept. 13

THE process of reforming China's enterprises, an essential element in the transformation to a market economy under way since 1978, is now at a critical juncture.

Financial problems of China's businesses have reached a point where they are now a drag on real growth and could pose serious risks to the country's long-term economic health. Enterprise reforms have become more urgent given the increased co mpetitive challenges likely to emerge with China's prospective admission to the World Trade Organisation.

These are some of the key observations in a new OECD publication, `Reforming China's enterprises'. In overall terms, the study concludes that progress is being made on a broad range of reforms necessary to ensure that China's enterprises are able to comp ete in a global economy.

However, more needs to be done and there needs to be substantial progress in several key areas over the next several years to sustain and secure the success of the reform process.

After examining a host of problems facing the economy that need to be addressed, the study makes a series of recommendations.

These include greater efforts in the medium-term to address problems of non-State enterprises, specifically to improve their access to external financing; expedited measures to strengthen State-owned-enterprises' (SOE) corporate governance mechanisms to curtail Government interference and reduce the dominance of insiders; and completion of reforms to improve financial discipline by ending or at least segregating commercial bank loans that are being made for policy or other non-commercial purposes.

The study has also identified the following: Liberalisation of the current mergers and acquisitions process to allow more scope for market forces and economic considerations; adoption of a narrow definition of the SOE core to include only those industrie s where continued Government involvement is essential on economic grounds; accelerated and increased emphasis on increasing Government revenues and reforming the tax system; and a broadening of financial reforms, in particular to accelerate the developme nt of bond market; and of smaller banks and other financial institutions as alternatives to the four large State commercial banks.

The study of enterprises reform in China was undertaken as part of the OECD-China programme of dialogue and cooperation initiated in 1996.

This study seeks to apply insights derived from the experiences of OECD and other economies about the fundamental economic processes involved in systematic economic changes that are relevant to China, a communication from OECD said.