Jiang Ping: State-owned enterprises are still private legal persons!

(This article is a speech by Professor Jiang Ping at the high-level forum "Re-positioning State-Owned Enterprises" hosted by the Unirule Institute of Economics on August 28, 2010. It is compiled from a recording transcript, unrevised by the author, with the title added by the editor.)

I believe state-owned enterprises themselves have a dual nature, possessing both a public and a private aspect. Or, from the perspective of ownership nature, they are public, but from a legal analysis and a market economy perspective, they should have a private aspect, or in some sense, the private aspect is even greater than the public one. I will analyze this from three aspects.

The first issue is that from the nature of ownership, they belong to the public, but from the nature of legal persons and enterprises, they belong to the private. Just as a colleague from the Ministry of Commerce Research Institute asked me earlier: What is the nature of foreign-invested enterprises in China? Are they foreign or Chinese? I said that from a legal standpoint, they are Chinese; one cannot say they are foreign just because they are foreign-invested. However, people often perceive foreign-invested enterprises as foreign. This is not based on the form of investment but on social status. China has always distinguished enterprises by ownership nature, dividing them into public and private, but this is not a legal distinction between public and private legal persons. Legally, the distinction between public and private legal persons is a crucial standard. Worldwide, there are various perspectives: some based on the act of establishment, some on efficiency or function, and others on the means of dependence. In short, a public legal person is one based on state power, while a private legal person lacks such a foundation. From this perspective, it should be said that in our country, there is no premise that state-owned enterprises are public legal persons, nor have they ever been legally treated as such. Therefore, from a market entity perspective, they, like private enterprises, Sino-foreign joint ventures, and foreign-invested enterprises, fall within the category of private legal persons. However, many in our country are accustomed to viewing state-owned enterprises as public legal persons, which is a significant misunderstanding. Let me give an example. A few years ago, when I exchanged views with a Taiwanese scholar, he asked about the status of National Taiwan University. Of course, it is a university, a public institution, and educational in nature. He said that during the Japanese occupation, National Taiwan University was a public legal person, so it held a considerable amount of land, much of which was enjoyed as a public legal person, i.e., as a state entity. In Taiwan, among all national universities, it was prominent in enjoying public legal person status. A few years ago, Taiwan sought to change this, converting National Taiwan University's status from a public legal person to a private legal person. Just because it is national does not mean it should be a public legal person; it should have the same status as all other national universities. This changed the land use rights of National Taiwan University from the privileges of a public legal person to being the same as private universities—whether national or private, they all have equal status. From this, it is clear that the status of public and private legal persons should be significantly different.

A scholar just mentioned that our country's state-owned enterprises have evolved from being managed by multiple departments to being managed by a single institution, which is a significant improvement. Multiple management had become no management and no accountability, but now it's under the supervision of the State-owned Assets Supervision and Administration Commission (SASAC), which is definitely a big step forward. However, everything has both advantages and disadvantages. Having a specialized agency to manage them, especially with the number of enterprises—originally over 150 under the central SASAC, now below 100 and decreasing—creates a clear sense of affiliation in these enterprises: they know they belong to SASAC, and local state-owned enterprises also have this concept of being under SASAC's management. This leads to SASAC at all levels still viewing the state-owned enterprises under them as within the scope of their public power, which they can directly exercise. In this context, I believe there are absolutely some valid reasons for Shanxi's coal mines transitioning from private to public ownership, such as issues of scale operation and intensive mining. Safety is not absolute and can be improved and perfected through systems. However, Shanxi forcibly consolidated private mines from Zhejiang and other places through shareholding, essentially changing the independent legal status of these private mines into that of shareholders. From this perspective, it not only disregards the independent legal status of private enterprises—since they are independent legal entities that cannot be altered by orders—but also disrespects the rights of state-owned enterprises as independent legal entities. Mergers and equity changes with other enterprises must follow legal procedures and cannot be resolved through administrative orders. Therefore, state-owned enterprises are publicly owned due to their ownership structure, which creates a close relationship with public power. This makes it very convenient for public power to be exercised over state-owned enterprises.

Second, I want to discuss that enterprises aim for profit, but the public nature of an enterprise does not equate to its public utility; the two should not be conflated. Worldwide, public utility enterprises are mostly publicly owned, though this doesn't mean private enterprises are barred from engaging in public utility activities. However, when private enterprises engage in public utilities, the state has specific laws to supervise and restrict them. Taking Taiwan as an example, there is a special regulation for supervising private public utilities, which details the areas private public utilities can enter, along with rules on service fees, approval of regulations, and specific methods for reverting to public ownership after the business period ends. Our country currently lacks a dedicated law for public utilities; there is no clear definition of what constitutes a public utility, no specific regulations for them, and no detailed methods for determining which areas should allow private enterprise entry. As Director Shao Ning just mentioned, there is a clear distinction between public utilities and competitive industries. Public utilities serve the general public, so they require special rules and regulations regarding user fees and access.

We can say that such regulations are necessary, and they involve a major issue of debate: monopoly. Whether public utilities or state-owned enterprises should be subject to antitrust laws was a point of significant controversy during the formulation of our antitrust law. This involves two issues. First, whether state-owned enterprises are subject to antitrust laws is not clearly stipulated in all countries, but I've seen some countries like Japan and Germany explicitly state that state-owned enterprises are also subject to antitrust laws, meaning they cannot use a monopoly position to strengthen themselves and disrupt market competition. Our country does not have a clear provision on this, neither stating applicability nor non-applicability, leaving it ambiguous. For various reasons, it seems our antitrust law mainly applies to foreign-invested and private enterprises, while state-owned enterprises appear exempt. However, as Director Shao Ning just said, a significant portion of our state-owned enterprises are competitive.

Second, whether public utility enterprises are subject to antitrust laws is also not clearly defined in our antitrust law. Article 7 of our antitrust law states that for industries where state-owned enterprises hold a controlling position, relate to the lifeline of the national economy and national security, or are subject to exclusive operations and sales by law, the state protects their legitimate business activities. This raises the question of what constitutes industries related to the national economic lifeline and national security, with no specific provisions. Comrade Shao Ning mentioned eight enterprises with monopoly characteristics, such as those in electricity, telecommunications, and mobile services, but the scope of industries related to the national economic lifeline and national security is broader, including military and other sectors. Thus, there is a problem with this vague and unclear wording: how can it be made more specific to define what relates to the national economic lifeline and national security? This effectively gives the National Development and Reform Commission (NDRC) significant authority. For example, civil aviation is a crucial area, yet private enterprises can enter it, as seen with Henan Airlines reverting to Kunpeng, a private entity. However, a civil aviation division within the NDRC can influence key national policies for civil aviation development, leading to a situation where a division chief was arrested due to excessive power—power that even the head of the Civil Aviation Administration lacks. This creates a scenario where decisions about monopoly status or legal status are often made by a division chief.

Third, there is a sharp conflict between the public ownership of enterprises by the whole people and the private interests of the enterprise as a legal entity. After state-owned enterprises were restructured into companies, the issue of profit distribution for state-owned shares has drawn attention. The SASAC has now determined that state-owned shares should pay dividends, as Director Shao Ning explained in detail. This has alleviated the issue to some extent, but the rough guidelines for state-owned share dividend payments remain questionable. The thresholds are still too broad, and not all enterprises pay dividends based on their actual profits; there is a tendency toward a one-size-fits-all approach. Some argue that the distinction between paying dividends to the state and retaining profits for enterprise development is insignificant, as even if paid to the state treasury, the funds could still be allocated as subsidies or development support for state-owned enterprises, though this seems increasingly rare.

There seems to be a specific subsidy for petrochemicals, along with others. Therefore, the nature of the enterprise—whether its shareholders are public or private—should be clearly delineated. Enterprise profits should be distributed as dividends to shareholders, and if the shareholders are public, the dividends should go to the state treasury. This should be clear, and the rules should be fairer and more scientific. State subsidies for certain industries should also be transparent and follow established guidelines, making the boundary between public finance and the private interests of state-owned enterprises clearer, more transparent, and easier to understand. In some countries, state-owned enterprise employees are treated as civil servants, not entirely like private enterprise employees. To my knowledge, there are legal restrictions on strikes by employees of such enterprises, such as in the postal sector, which can be considered both an enterprise and a public service. Postal employees are often treated as civil servants because many postal services operate at a loss and are subsidized. Many countries' state-owned enterprises aim to provide public services rather than profit, so their income should not be based on profits. In our country, income distribution disparities among state-owned enterprises are still large, not due to their own operational performance but because of the monopoly nature of their industries. Due to this monopoly, even a cleaner in the power sector might earn significantly more than a division or department head in a general government agency or state-owned enterprise, creating an unreasonable situation. Therefore, the portion of profits influenced by monopoly status should be regulated through taxation, but implementing this would be very challenging.

I believe that the nature of enterprises in our country should not be defined solely by ownership as having a public character; rather, their private status should also be determined based on their business operations. From this private status, we can establish that legally, clearer and more detailed provisions should be made for them. That is my statement. Thank you.

(China Review Network)