NCPA - National Center for Policy Analysis

Selling Privatization In China

August 25, 1997

China's Communist Party hierarchy is trying to sell privatization and other economic reforms to the people in order to keep the state sector from financial collapse and push China to the next level of economic development.

  • According to a June 1997 World Bank report, about half of China's 118,000 state-owned enterprises lost money in 1996 -- up from one-third in 1995.
  • Public-sector industries now consume some 75 percent of domestic credit, and at least 20 percent of bank loans are non-performing.
  • Urban unemployment is already near 15 percent.

Mergers are supposed to consolidate unwieldy, massively over-built industries ranging from cars to consumer appliances, and thousands of government-owned factories are to be sold or pushed into bankruptcy. But rather than plunging into true capitalism, Beijing intends to nurture some 1,000 conglomerates, using Korea and Japan as models.

  • The pain will come when 15 million workers in the state-owned industries -- 12.5 percent of the workforce at state enterprises -- are laid off in coming years.
  • Shanghai has already idled 230,000 workers in an effort to consolidate its bloated textile sector -- sending 150,000 to re-training centers.

On the positive side, four years of tight money policy reduced retail inflation from 24 percent annually in 1994 to just 1.8 percent in the first half of 1997 -- with the economy growing at a 9.4 percent annual rate. Also the new effort to shape up China's economy includes reforming its national pension and health-care systems to relieve the social welfare burdens of employers.

Source: Dexter Roberts, Mark L. Clifford and Matt Miller, "Overhauling China Inc.?" Business Week, August 25, 1997.


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