Circumstances and Problems of "Shareholding Experimental Projects" in Chinese Enterprises

After trying out such policy innovations as administrative division of powers [>i>xingzheng xing fen quan>/i>], decentralized powers and profit retention by enterprises [>i>fang quan rang li>/i>], and promoting the contract responsibility system [>i>qiye chengbao zhi>/i>], and having failed to obtain any noticeable results, some economists in China proposed that large and medium-sized state-owned enterprises could switch over to the corporate system (often referred to at the time as the "shareholding system" [>i>gufen zhidu>/i>]) currently practiced in the world's market-economy countries. An economic survey team of the World Bank, in its 1985 "China: Long-Term Development Issues and Options,">sup>1>/sup> opined that the fundamental issue to be solved by the enterprise reform was the establishment of appropriate relationships between the state and the enterprises, that ownership of the property of state-owned enterprises could be dispersed among a number of different institutions (the government, banks, pension funds, insurance companies, and other enterprises), and that a modern corporate system based on public ownership could be implemented. Toward the end of 1986, when the leadership gave up its idea of conducting complementary reforms [>i>peitao gaige>/i>] and shifted its focus to enterprise reform, "shareholding experimental projects" [>i>gufen shidian>/i>] were formally started up. Up to now [1993], more than 3,000 experimental "shareholding system enterprises" [>i>gufen zhi qiye>/i>] have been set up. The work on these experimental projects has broken out of the old set patterns of previous reforms of state-owned enterprises, accumulated much experience, and is most beneficial. However, because a good many gray areas exist in Chinese economic circles in their understanding of the corporate system, these "shareholding enterprises" are frequently out of synch with current international norms that have taken shape over the past 400 years. This, plus the fact that other aspects of the marketization reform have not yet come into position, has prevented the "shareholding system" reform from attaining the expected results. In this chapter, I will conduct a chronological analysis of the circumstances and problems of the "shareholding system" reform.