1. Substantial Achievements Made in Industrial Restructuring

Industry is a significant support and leading force in the development of China’s national economy. Since 1989, based on the already made achievements, China’s industrial economy has stridden forward new and important paces. Long-term shortage in industrial products has already become history. Industrial development has played a quite significant role in promoting a continuous, rapid and healthy development of the national economy, raising people’s living standard and accelerating the realization of China’s modernization. However, contradictions still exist in the irrational industrial structure, hampering an even better development of the industrial economy. On the one hand, there’s significant redundancy in production, especially processing capacity of ordinary industrial products, on the other hand, China has to spend a great amount of foreign exchanges to import high tech industrial products with high added value. On promoting industrial restructuring, optimization and upgrading, China has adopted a series of significant measures.

First, to actively adopt high and applicable advanced technologies to reform our traditional industry. Focusing upon increasing variety, improving quality, enhancing efficiency and achieving a sustainable development, we actively introduce, digest and absorb advanced foreign technologies to renovate our traditional industries and backbone enterprises with priorities. In the recent 13 years, a total investment of RMB 4,140 billion has been made in technological renovation, registering an annual increase of 13.1 percent, forming additional fixed assets valuing at RMB 3,170 billion. From 1999 to 2001, the government has allocated RMB 35.54 billion from treasury bonds as interest subsidy to support technological renovation of enterprises, arranging a total of 2222 projects. Supporting technological renovation with treasury bonds not only eases contradictions of irrational industrial structure, but also effectively promotes enterprises’ enthusiasm in technological renovation and stimulates social investments. In the recent four years, interest subsidy funds from China’s treasury bonds, with strong leveraging effects, has triggered RMB 435.4 billion worth of social investments, among which there are RMB 272.6 billion worth of banking loans. While speeding up technological renovation of existing enterprises, China has made great efforts to foster new growth points, e.g. automobile industry and modern logistics, and to develop high-tech industries including electronic information, biological engineering and new materials, driving industrialization with informatization to promote a leap-forward industrial development.

Second, to accelerate the establishment of enterprise-oriented technological innovation system. Enterprises are entities for technological innovation. Since 1993, China has actively pushed forward the establishment of technological research centers in key enterprises and enterprise groups, strengthening construction of sectoral technological development bases and speeding up the construction of technological innovation service system catering for small and medium-sized enterprises. To date, the number of enterprise technological centers with state certification have reached 289, another 2000 plus certified by provincial governments. Technological centers are established in almost all industrial enterprises in the 520 key state enterprises. For those certified enterprise technological centers, the state extends necessary policy and capital support, encouraging and supporting them to reform distribution as well as human resources systems to build up, in advance of the others, an encouragement system and a human resources system which benefit the innovation of technical personnel. The establishment of the enterprise technological innovation system has played quite a significant role in achieving effective integration of research and economy and realizing industrial optimization and upgrade.

Third, to intensify the efforts on eliminating lagging production capacity and weak enterprises. Some effective ways to optimize China’s industrial structure, improve overall industrial quality and raise resource allocation efficiency are: to shut down those factories and mines with poor production quality, waste of resources, severe pollution and inadequate safety measures through economic, legal and necessary administrative measures, to eliminate lagging facilities, technologies and techniques, to force those long-term loss making and insolvent enterprises who have no hope to turn around to go bankrupt, and to actively yet steadily close down those exhausted mines. Since 1998, the textile industry has reduced a total of 9.4 million lagging cotton spindles, 280,000 wool spindles. The coal industry has shut down a total of 58,000 small mines. In the sugar industry, 9 saccharin plants have been closed or shift to other products, and 128 small sugar refineries shut down. In the iron and steel industry, a total of 88 small plants have been closed and the building materials industry has eliminated a total of 94.50 million tons of cement production capacity in small cement plants and 28.55 million weighing tanks of glass production capacity in small glass plants. Thermal power units with a total capacity of 12.30 million kilowatts have been shut down in the electric power industry. Since 1997, China has stepped up efforts to write off the banks’ bad loans, using bad loan reserve specifically for merging, bankruptcy and shutdown of state-owned enterprises. A total RMB 140.9 billion worth of bad loan reserves have been used to carry out policy bankruptcy in 2075 projects, enabling lots of long-term loss-making and insolvent enterprises without any hope for turning around and many exhausted mines to exit the market. All this not only promotes the strategic reshuffle of state-owned enterprises, but more importantly, accelerates the establishment of the mechanism of the survival of the fit.

Fourth, to actively promote energy saving, comprehensive utilization, and prevent and control pollution. In order to achieve sustainable industrial development and deal properly with relations between industrial development and environmental construction, China has developed the following guidelines: emphasizing both development and conservation of resources with the latter comes first, while improving resource conservation and utilization efficiencies. Under this guideline, China has stepped up its technological reform efforts in those industries and enterprises with high energy consumption and severe pollution, promoting vigorously clean production technologies including water saving, energy conservation and comprehensive utilization, actively developing new and renewable energies and strengthening the reutilization of these renewed resources. Meanwhile, China has strengthened its legal efforts in energy saving and comprehensive utilization. In Jan. 1, 1998, “The Law on Energy Conservation” came into effect, and “The Law for the Promotion of Clean Production” was passed at the 28th session of this year’s 9th National People’s Congress, which symbolizes a new era for China’s energy conservation and environmental protection.

Through 13 years of efforts, supplying capacity of China’s industry has been greatly strengthened, and great progress has been made in the country’s restructuring and reform efforts as well as structural optimization and upgrade.

First, rapid growth of industrial gross, some important industrial products taking a leading position in the world. From 1989 to 2001, the annual growth of industrial added value had been 12.5 percent, reaching RMB 4260.7 billion in 2001. During the same year, the steel production reached 152 million tons, and 1.16 billion tons for raw coal, 660 million tons for cement, 8.414 million tons for chemical fiber, 210 million weighing tanks for flat glass, all ranking first over the world; Power generation reached 1.4808 trillion kilowatts, ranking the world’s second.

Second, technological equipment has dramatically improved among key industries and enterprises. China has already mastered core and key technologies in some significant technical facilities, narrowing greatly the gap with advanced international competitors. Our self-developed 600,000 kilowatts thermal power generation units, 500,000-volts high voltage power transmission and conversion equipment, their performance parameters have all reached the late 1990s’ international level. The metallurgical industry has completely eliminated open-hearth furnace steel making, and also improved continuous casting ratio from 60.86 percent of 1995 to 90.51 percent of 2001, closing up to that of the developed countries. Large-scaled power generation equipment, metallurgical as well as petroleum and petrochemical facilities are largely produced independently, and even exported to many developing countries.

Third, some irrational spectrum in industrial structure has been corrected to some extent, and China has formed a number of advantaged industries and products. Through optimization of enterprises’ organizational structure, industrial centralization extent in key sectors has been further enhanced. Taking the automobile industry for example, production capacity of China’s First Auto Work, Shanghai Automotive Company and Dongfeng Motor Company jointly constitutes 48.1 percent of the total. High-tech industries including electronic information have enjoyed consecutive high growth rates, playing a more and more important role in China’s overall industry. From 1996 to 2001, annual growth in total output value of China’s high tech industry has reached an average of 20 percent, 12 percent higher than economic growth of the same period. China’s certain industries including textile, coal, building material and non-ferrous metal enjoy comparative advantages all over the world, taking up a comparatively larger market share. China’s textile and garment products make up 13 percent of world’s overall trade value, taking up the world’s first for years. From 1989 to 2001, China’s exports of finished industrial products have increased 5.4 times, representing an annual increase of 16.7 percent. Industrial product accounted for 90.1 percent of China’s total export, comparing with 71.3 percent in 1989.

Fourth, independent research and innovation capabilities of enterprises have been greatly strengthened. In year 1997, State Economic & Trade Commission selected a first batch of pilot enterprises for technological renovation, among which were Shanghai BaoSteel Group, Sichuan Changhong Group and Qingdao Haier Group. In recent 5 years, these pilot enterprises have developed 5239 new technologies or products, 4333 items applied for patents, realizing a total sales value of RMB 553.1 billion on newly developed products, which greatly strengthened their competitiveness in the market. Some enterprises have already established good brand and corporation image in international markets, becoming one of those enjoying international fames. Anshan Steel have made great contributions to China’s metallurgical industry and initial industrialization in the old days, now it has completed researches on the first set of equipment capable of continuous rolling and casting on 1700mm medium and thin plates, enabling China’s continuous rolling and casting technologies to reach advanced international level and even better for unique innovations. China’s large-scaled program-controlled automatic switchboard with independent IPR has achieved breakthrough, taking up above 90 percent of domestic market and realizing batch quantity exports.

Fifth, great achievements made in energy conservation and the resources’ comprehensive utilization. China’s energy consumption for every RMB 10,000 yuan of GDP has dropped to 2.65 tons of standard coal in 2001 from 5.52 tons in 1989, a total conservation of standard coal 900 million tons. In other words, we have reduced 18 million tons emission in sulfur dioxide and 390 million ton in carbon dioxide. From 1996 to 2000, China’s total output value through comprehensive utilization of “three industrial wastes” has climbed up to RMB 124.7 billion, representing an annual growth of 16.4 percent. These positive developments in China’s energy conservation and comprehensive utilization have played quite an important role in saving energy, improving environment, strengthening enterprise competitiveness and enhancing quality as well as efficiency in the growth of the industrial economy.

II. State-owned Enterprises Have Seen Continuous Growth During the Process of Reform and Readjustments.

State-owned enterprises are the backbone of our national economy, therefore, their reform plays a key role in China’s overall economic system reform. Since year 1989,esp. the fourteenth CPC Party Congress, we have been pushing forward reforms in state-owned enterprises, strategically readjusting layout of our national economy, promoting strategic reorganization of state-owned enterprises, improving modern enterprise system, reducing enterprises’ burden, enabling enterprises to strengthen management and meanwhile, pushing forward various supplementary reforms. Through 13 years of unflagging efforts, state-owned enterprise reforms have made substantial progress and great achievements, stepping unprecedented great paces towards the establishment of a market economic system.

First, the overall strength of state-owned enterprises has improved constantly, playing a key role in economic and social development. From year 1989 to 2001, industrial added value completed by state-owned and state-controlled industrial enterprises has increased form RMB 389.51 billion to 1465.21 billion, representing an average annual growth rate of 11.7 percent, 2.37 percent higher than the average annual growth rate of GDP, which is 9.3 percent. Product sales income, profit realized and net value of fixed assets have increased by 12.3 percent, 10.2 percent and 15.5 percent respectively. The employees of state-owned and state-controlled industrial enterprises account for about 50 percent of the scaled industry.

Second, the layout of state-owned economy has been optimized, and its overall quality has been obviously improved. The irrational layout, extra-long battlefront, dispersed distribution, unpronounced focus and unsatisfactory overall quality have impeded state-owned enterprises from enjoying even better development. Since the fourth Plenary Session of the Thirteenth Party Congress, esp. since the Fifteenth Party Congress, this situation has been greatly improved. By the end of year 2001, China has 903 state-controlled listed companies, controlling and impacting RMB 630 billion worth of social capitals; and 52 state-owned H share companies, plus state-controlled red chip companies, China is capable of controlling and influencing US$ 38 billion worth of foreign capital. State-owned economy has played a predominant role in important industries and key sectors including petrochemical, oil, electric power and metallurgical, all of which concern greatly to the state livelihood. At the same time, the state-owned economy has supported, led and guided the overall development of the entire social economy. From year 1989 to 2001, the number of state-owned industrial enterprises has declined from 102,300 to 46,800, while profits realized has increased from RMB 74.3 billion to 238.856 billion.

Third, the organizational structure of state-owned enterprises has been greatly optimized, forming a number of excellent and strong enterprises through fierce market competition. Under the traditional system, the organizational structure of state-owned enterprises, characterized by “small and all-inclusive”, “large and all-inclusive”, was quite irrational, without building up specialized production and reasonable scales. This is one of the important reasons that long impeded competitiveness of state-owned enterprises. In recent years, through various measures including merging, combination and restructuring, this situation has been greatly improved. Among China’s 520 key state enterprises, there are 514 state-owned and state-controlled enterprises, accounting for only 0.3 percent of China’s industrial enterprises. However, the total volume of their assets in 2001 account for 59.2 percent of China’s entire industry, while the ratio of turnover is 41.9 percent, profit and tax 47.6 percent and profits realized 49.4 percent. Large-scaled state-owned and state-controlled enterprises played an increasingly important role in Fortune 500. In 2001, the number of mainland state-owned enterprises enlisted in Fortune 500 has increased to 11 from 5 in 1998, reflecting improvement in overall strength of China’s large-scaled state-owned and state-controlled enterprises. Listed according to sales volume, China’s top 10 enterprises in 2000 were unexceptionally state-owned and state-controlled enterprises. In 2001, China’s 34,000 small state-owned and state-controlled enterprises have realized a profit of RMB 5.7 billion, marking great improvement in overall quality of small and medium-sized state-owned enterprises.

Fourth, a modern enterprise system has been basically established and the enterprise operational mechanism has been further transformed. To establish a modern enterprise system is the goal of the reform in state-owned enterprises. By the year 2001, among China’s 4371 backbone enterprises, 3322 have carried out corporate reforms, accounting for 76 percent of the total. Many state-owned enterprises including Petro China, Sinopec, CNOOC and China Mobile have been listed in overseas stock markets one after another, marking substantial progress in establishing a modern enterprise system for state-owned enterprises. The long-existing situation that enterprises never going bankruptcy has been fundamentally changed, which initially formed the competitive mechanism figuring the survival of the fittest. A mechanism in which executives may either be promoted or demoted, employees either recruited or dismissed, income either increased or decreased is generally established. During four years from 1998 to 2001, through structural optimization and streamlining, state-owned enterprises have sharply reduced their staffs, reflecting a great pace forward in the transformation of operational mechanism.

Fifth, with great progress in separating administrative functions from enterprise management, state-owned enterprises have largely become legal and market entities responsible for their own operation, profits and losses. In order to transform government functions and to separate administrative functions from enterprise management, in 1998, the Chinese Government carried out significant reforms and readjustments in their administrative management system, reducing ministries and commissions under State Council down to 29 from 40 originally, changing most specialized economic authorities into state bureaus under the supervision of the State Economic& Trade Commission. More than 200 functions are handed down to enterprises, intermediaries and local entities from various State Council departments. Since 1998, profit-oriented on-going enterprises established by the army, armed police and political-legal organs were all handed over to localities, operational entities established by the Party and government organizations were disconnected from them. As a result, a total of 6408 profit-oriented operational enterprises established by armed forces, armed police and administrative and judicial organs and 297 military provision enterprises have been handed over to localities, 530 operational entities established by the Party and government organizations have been disconnected from them. By the end of year 2000, 9 state bureaus originally under State Economic & Trade Commission had been eliminated, including internal trade, coal, mechanics, metallurgy, petrochemical, light industry, textile, building materials and non ferrous metals industries, whose functions were then incorporated into State Economic & Trade Commission. In order to further transform functions, China has carried out reforms in administrative approval system from the second half of year 2001, focusing on reducing administrative approval procedures. To date, 56 sectors and units under State Council have abolished a first batch of 789 administrative approval procedures, marking substantial progress in China’s administrative approval system reform. Central and local governments have also strengthened supervision upon state-owned enterprises, establishing supervisory board system and nominating consecutively 75 chairmen of the supervisory boards. To date, supervisory board chairman and board members have been sent to 180 state-owned enterprises, and some state-owned banks and insurance companies.

Sixth, burden on enterprises further reduced and social security system initially established. Due to various causes, state-owned enterprises have been long burdened with heavy debt and shouldering many social functions. Starting from1999, together with reforms of state-owned commercial banks to deal with bad assets, China has implemented debt to equity swap in some state-owned enterprises. Through careful examination, 580 enterprises have swapped debt to equity, involving a total value of RMB 405 billion. Taking into consideration their own specific situations, various local governments have actively helped with diverting redundant personnel as well as unnecessary social functions. In order to ensure a smooth promotion of enterprise reform and economic structure readjustment, China has accelerated its pace in establishing social security system. Three security lines including basic living security for laid-off workers, unemployment security and minimum living security for urban residents have been established. By year 2001, central budget had allocated RMB 110 billion worth of funds to ensure basic living of laid-off workers from state-owned enterprises and timely and full distribution of pensions to state-owned enterprises retirees. In recent years, enterprise reform and structural readjustment have been greatly strengthened, while our society has largely remained stable, in which social security system has played quite a significant role.

III. Periodic Achievements Made in Rectifying and Regulating Market Economic Order

Rectification and regulation of market economic order are urgent needs for ensuring normal operation of China’s economy, necessary choice in expanding opening up to the outside world and significant measure in improving the market economic system. Over recent 13 years to deal with problems existing in market economic order, China has adopted a series of rectification measures, including implementation of “Income and Expenditure Separation System” for financial capital budget, strengthening fund management for out budget use and pushing forward government procurement system as well as bidding system for construction projects. Since April 2001, countrywide rectification and regulation in market economic order has been implemented. Focused on resolution of outstanding problems in key sectors where people’s immediate interests are involved and community responses are strong, China has intensively organized campaigns against crimes including production and sales of fake products, smuggling and illegal multi-level marketing, and conducted comprehensive rectification towards cultural, construction, trading and travel markets as well as gas stations, strengthening tax supervisions and safe production management. While severely punishing illegal activities in economic fields, China has also intensified efforts to tackle with fundamental causes, achieving periodic results in rectification and regulation of market economic order.

First, major cases have been investigated and dealt with and criminals and law-breakers have been severely punished. Administrative law enforcement bodies and public security agencies have been acting in concert to crack down on illegal activities sabotaging the market economic order. Since the launching of the campaign to rectify and regulate market economic order in last April, by the end of the third quarter of this year, industrial and commercial officers alone have investigated and punished 1.25 million cases, involving a sum of about 15 billion yuan, fined and confiscated 3 billion yuan, uncovered and destroyed up to 40,000 dens of various kinds, and handed over 4,000 cases to judicial bodies. Other law enforcement agencies have also further strengthened their enforcement efforts. Up to the present stage, China has been quite successful in curbing the spread of crimes sabotaging the socialist market economic order.

Second, market supervision and enforcement system have been established and improved. In order to further improve market law enforcement, the State Council has raised the institutional level of the State Administration of Industry and Commerce as well as The State Press and Publication Administration, reinforce the staff and set up State Bureau of Quality Supervision. In addition, the State Council has issued “Provisions on Administrative Responsibility Ascertainment for Exceptionally Serious Safety Accidents” and promulgated “Decisions on Relatively Concentrating Administrative Punishment Power”. A nationwide campaign to relatively concentrate administrative punishment power has been under way, which has enhanced the authorities of law enforcement agencies.

Third, a set of policies, laws and regulations have been enacted and perfected. In order to guarantee there are laws to go by in rectifying and standardizing market economic order, the State Council has issued a series of administrative laws and regulations, including “Provisions on Rectifying and Standardizing Market Economic Order” and “Decisions on Prohibiting Regional Barriers in Market Economic Practices”. The Standing Committee of the National People’s Congress has examined and approved laws closely related to rectifying and standardizing market economic order, which include Trademark Law, Copyright Law, Law of Occupational Disease Prevention and Control, Law of Medicine supervision and Law of Safe Production. Some local governments have also enacted local laws and regulations in the light of local conditions. The Supreme People’s Court and the Supreme People’s Procurator have made related judicial interpretations in time in accordance with specific problems concerning the application of laws in the course of rectifying and standardizing market economic order.

Fourth, the establishment of nationwide social credit system has been accelerated. In order to eradicate the root of market economic disorder, departments of the State Council and some regions have speeded up the establishment of enterprises economic credibility records system and individual credit system. Industrial and commercial bodies, banks, customs, tax authorities and administration of foreign exchanges have initially set up the system of recording bad conducts for enterprises, which has achieved good effect. In March this year, the State Council embarked on an effort in drawing up enterprises and individual credibility legislation and implementation plans, credit information revelation system with government departments as the main body and credit information collecting system with social intermediary as the main body have been brought into full play and establishment of credit system has been incorporated into a legal framework.

Although China has made remarkable achievements in the readjustment of industrial structure, reform of state-owned enterprises and rectification and regulation of market economic order, some problems still exist and demand prompt solution. Unreasonable industrial structure and institutional problems with state-owned enterprises have not been effectively tackled and market economic order still calls for further rectification. To carry out the guidelines of the 16th Party Congress, we should press ahead with industrial structure’s realignment, its optimization and upgrading, aiming to put the economy on the track of a new type of industrialization which is characterized as high technological content, high profitability, low resources consumption, little environment pollution and full use of personnel resources. We should also push forward reform on state-owned enterprises, speed up the establishment of modern enterprise system, remove institutional obstacles that impede the development of state-owned enterprises. In the efforts to rectify and regulate the market economic order, we should try to seek both a temporary solution and a permanent solution to tackle the disorder of the market economy at root and in structural level, in order to provide a more favorable environment for economic and social development.

(China.org.cn November 11, 2002)