Jiang Ping: State-owned enterprises are still private legal persons!
(This is the speech delivered by Professor Jiang Ping on August 28, 2010, at the high-level forum "Repositioning State-Owned Enterprises," hosted by the Unirule Institute of Economics. Compiled from audio recordings, not reviewed by the author, and the title was 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 perspective of ownership nature, it belongs to the public, but from the perspective of legal person nature and enterprise nature, it belongs to the private. Just as a colleague from the research institute of the Ministry of Commerce asked me earlier, what exactly is the surname of foreign-invested enterprises in China? Is it surnamed foreign or surnamed Chinese? I said that legally speaking, it is surnamed Chinese; you cannot say that just because it is a foreign-invested enterprise, it is surnamed foreign, but people all think that foreign-invested enterprises are foreign. We do not define it by the form of its capital contribution, but by its social status. China has always distinguished by the nature of ownership, and the classification of Chinese enterprises has always been by public and private, but this is not the legal division between public legal persons and private legal persons. From a legal perspective, the division between public legal persons and private legal persons is a very important criterion. In distinguishing public legal persons and private legal persons, there are also various perspectives around the world; some look at the act of establishment, some use efficiency and function as the standard, and others use the means relied upon as the standard. But in one sentence, a public legal person is a legal person based on state power, while a private legal person is one that does not have a foundation of public power. If viewed in this way, it should be said that in our country there is no premise that state-owned enterprises are public legal persons, and state-owned enterprises have never been regarded legally as public legal persons. Therefore, from the perspective of market entities, they, like private enterprises, Sino-foreign joint ventures, and foreign-funded enterprises, all belong to the category of private legal persons. However, in our country many people are accustomed to regarding the nature of state-owned enterprises as a kind of public legal person, and this should be a very big misunderstanding. Let me give an example. Two years ago, when I exchanged views with scholars from Taiwan, a scholar from Taiwan said, what exactly is the status of National Taiwan University? Of course, it is a university, a public institution, and educational in nature. He said that since the era of Japanese occupation, National Taiwan University has been a public legal person, so the amount of land it occupies is quite large. Much of its land is enjoyed as a public legal person, that is, as a state unit. In Taiwan, among all national universities, it is very prominent in that it enjoys the status of a public legal person. A few years ago, Taiwan wanted to change this situation, so it changed the status of National Taiwan University from a public legal person to a private legal person. It cannot be regarded as a public legal person just because it is national; it should have the same status as all other national universities. In this way, National Taiwan University’s land use rights were changed from the privileges enjoyed by a public legal person to the same as those of private universities. Whether national universities or private universities, they all have the same status. Therefore, from this situation it can be seen that the status of public legal persons and private legal persons should be very significantly different.
The scholar just now mentioned that our country's state-owned enterprises used to be subject to multi-channel management, and now they are managed by a single institution. This is a tremendous progress. Multi-channel management became no management and no one taking responsibility, and now it has become management by SASAC. This is absolutely a tremendous progress. However, everything has both a good side and a flawed side. Having a dedicated institution for management, especially when there were more than 150 enterprises under the central SASAC and now there are fewer than 100, and the number keeps decreasing. These enterprises now have a clear concept in their minds: they have a subordinate relationship, they belong to SASAC's management, and local state-owned enterprises in various regions also have the concept of being managed by SASAC. In this way, SASACs at all levels still regard the state-owned enterprises under their jurisdiction as the scope for exercising their public power, and as direct objects over which their public power can be exercised. Under such circumstances, I believe that including the conversion of coal mines in Shanxi from private to public ownership, I think some reasons absolutely exist. There is indeed the issue of scale operation, the issue of intensive mining operations. Safety is not absolute; safety can absolutely be improved and perfected through institutional means. However, Shanxi forcibly consolidated privately owned mines from Zhejiang and other places by way of shareholding, effectively turning the original independent legal person status of private mines into shareholder status. From this point of view, there is both the problem of neglecting the independent legal person status of private enterprises—it is an independent legal person, and you cannot change that by command—and at the same time it also causes disrespect for the independent legal person status and rights of state-owned enterprises, because merging with other enterprises and changing equity involves a whole set of legal provisions, and this problem cannot be resolved by administrative orders. Therefore, it should be said that state-owned enterprises bear the surname "public," because their ownership system bears the surname "public," so in terms of attribution, they have developed a very close relationship with public power. In this way, the exercise of public power, with respect to state-owned enterprises, has very convenient conditions for exercise.
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.
The second issue is whether public utilities are subject to the Anti-Monopoly Law. Our Anti-Monopoly Law does not provide a clear stipulation on this matter either. Article 7 of our Anti-Monopoly Law states that for industries in which state-owned enterprises hold a controlling position, that are vital to the lifeline of the national economy and national security, and industries that are subject to exclusive operation and sales in accordance with the law, the state shall protect the lawful business activities of their operators. This involves the question of what constitutes industries vital to the lifeline of the national economy and national security, and no provision explicitly specifies which industries are considered the economic lifeline. Comrade Shao Ning just mentioned that eight enterprises have monopolistic characteristics, such as electric power, telecommunications, and mobile companies. In fact, the scope of what involves the lifeline of the national economy and national security is certainly broader, encompassing military issues and other industries. Therefore, there is a problem here: with such an ambiguous and unclear formulation, how can it be made more explicit? Which ones are actually related to the lifeline of the national economy and national security? Consequently, on this issue, it has effectively turned into a situation where our Restructuring Commission has enormous authority. For example, civil aviation should be a very important sector, and private enterprises can be allowed to enter civil aviation. Now Henan Airlines has been changed back to Kunpeng, which is private, and that is permissible. However, a single civil aviation division under the Restructuring Commission can manage important national policies for civil aviation development. So a division chief of civil aviation was arrested precisely because his authority was simply too great. This limited power is something even the Director of the Civil Aviation Administration does not have, yet a civil aviation division chief can wield it. Thus, on this issue, whether it is determining monopoly status or legal status, it is often decided 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)
