Restructuring: Property Rights and Personality

Author: Chen Xiangguang
Publisher:
Publish Date: 2002-02-01
Features: Excluding state shares from the trading market clearly violates the principle of uniformity of shares in joint-stock companies and the principle of equal rights for equal shares, and does not conform to the general norms of joint-stock company development. During the process of corporatization of state-owned enterprises, state shares should be released for market trading. According to international practices, state shares and legal person shares should be traded together in the market, which is an important aspect of the standardized development of joint-stock companies. To realize the listing and trading of state shares, it is necessary to break the notion that the listing and trading of state shares will undermine the dominant position of public ownership. In reality, the listing and trading of state shares does not change the scale of state-owned assets; it only changes the form in which state-owned assets exist. Selling state shares means that the state recovers its investment in a certain field, while buying shares means that the state transforms this asset into another form of capital. State capital will not increase or decrease due to the buying and selling of shares. The listing and trading of state shares is not only of great significance for the standardized development of joint-stock companies but also has a direct promoting effect on China's economic development. First, the listing and trading of state shares can quickly realize the transfer of state-owned assets from low-yield areas to high-yield areas, avoiding losses caused by the solidification of state-owned assets and ensuring the safety and appreciation of state-owned assets. Second, the listing and trading of state shares enable state-owned assets to be quickly transferred to fields and industries where the advantages of state capital can be effectively exerted, improving the overall quality of state-owned assets and strengthening their dominant position and role in the total social capital. Third, the listing and trading of state shares create conditions for the state to effectively implement industrial policies and macro-control. After the listing of state shares, the state can, according to the intentions of industrial policies and macro-control, effectively guide the investment direction of individual investment institutions through stock trading in the securities market, promoting the rational flow and optimal allocation of resources among different sectors, fields, and regions, thereby improving the efficiency of resource allocation. Fourth, the listing and trading of state shares activate the "voting with their feet" mechanism of state-owned asset investment subjects, strengthen the constraints of ownership, and help overcome the opportunistic behavior of agents, avoiding deviations in corporate objectives, thereby improving the operational efficiency of state-owned assets.
□ Mergers and Acquisitions: The Secret to Strengthening and Vitalizing
Today, people want to get stronger and healthier, and they can't avoid taking some tonic drugs like turtle essence and deep-sea fish oil. For businesses, however, the secret to strengthening and vitalizing lies in mergers and acquisitions. Mergers and acquisitions, also known as mergers and acquisitions, refer to the combination of one company with another through methods such as equity swaps, cash purchases of stocks, and asset exchanges for stocks, forming a new company (this new company can have the same name as one of the original companies, which is called a merger; it can also have a different name from the original company, which is called a merger). Mergers and acquisitions are transactional behaviors in the market economy that focus on the transaction of enterprise property rights, with the ultimate goal of making resources more effectively utilized through reintegration.
The key implication of the strategic restructuring of the state-owned economy is to enable state-owned enterprises to withdraw from general competitive fields through mergers and acquisitions, and more importantly, to strengthen the power of the state-owned economy in certain industries. By 1995, among the 2,234 large and medium-sized industrial enterprises with losses exceeding 5 million yuan and having consecutive two-year losses, 1,886 were state-owned enterprises, accounting for 85.4%. The share of assets was even higher, at 88.6%. Among the 56 enterprises with losses exceeding 100 million yuan, 53 were state-owned enterprises. How to turn losses into profits is an important part of the strategic restructuring of the state-owned economy. One effective way is through the mergers and acquisitions of profitable enterprises to acquire loss-making enterprises.
In the market economy, mergers and acquisitions are commonplace. To date, the West has experienced four waves of merger mania. Since the 1990s, the annual amount of global mergers has continued to rise, reaching as high as 2.4 trillion U.S. dollars in 1998. Exxon and Mobil, Travelers Group and Citibank, and Chrysler and Daimler-Benz have all merged, making the giants even more dominant. China is currently in a transition period from production and operation to capital operation, and mergers and acquisitions have become a hot topic.
The Matthew Effect
Economies of scale play a role in making the strong stronger and the weak weaker in business development, which is very evident in the Matthew effect in the economy. In terms of production capacity, China's steel, coal, oil, chemical, building materials, and color TV industries have already reached the same level as those in developed countries (or even surpassed them). However, due to the low concentration of China's industries (with hundreds or even thousands of enterprises dividing up each industry), it is difficult to produce national enterprises that can compete with multinational companies. According to the analysis of the former State-owned Assets Administration Commission, in 1995, the total assets, sales revenue, and total profits of the top 500 large state-owned enterprises in China were still less than the sum of the top three among the top 500 U.S. companies. In the Nanjing area covering 30 square kilometers, there are four "first-tier" chemical enterprises in a fierce competition: Jincheng Petrochemical, Yangzi Petrochemical, Yizheng Chemical Fiber, and Nanjing Chemical. They rank 22nd, 35th, 34th, and 126th in China's top 500 (in 1993). The combined sales revenue of these four enterprises in 1993 was 19.6 billion yuan. In contrast, DuPont, ranked 30th in the world, had a turnover of 32.6 billion U.S. dollars in 1993, and the combined sales revenue of these four so-called "first-tier" enterprises in China was only one-thirteenth of DuPont's. The problem is not just a simple comparison in scale but more serious is that these four enterprises are closely linked in the industry. If the merger is successful, it will greatly improve production efficiency and resource utilization. On a global scale, it is a fact that the market share of an industry is divided among 2–3 large enterprises. How can Chinese enterprises, with such small scales, compete with giants?
The size of production scale is only one aspect of economies of scale. What is more important is to consider economies of scale in research and development, advertising, and brand building. Changhong produces 3 million color TVs annually, and its production scale has long met the technical requirements for optimal output. However, the question is, apart from domestic manufacturers, who are the single TV producers that Changhong competes with? (The U.S. does not have its own TV manufacturers, not because it cannot produce, but because it has no need to produce). Toshiba and Sony in Japan are home appliance manufacturers, not pure color TV producers. Since the 1980s, multinational companies have invested heavily in research and development, advertising, and brand building. Without a large scale, they would not be able to bear these costs. The merger of Boeing and McDonnell Douglas was not because McDonnell was failing (McDonnell earned 90 million U.S. dollars in profits from January to September 1996), but because the military's research and development costs would be too high if they were only invested in McDonnell (McDonnell had a small scale and few product types), making it far better to invest in Boeing. In this case, McDonnell had no choice but to bow to Boeing.
China has 291,000 state-owned enterprises, but the actual amount of state-owned assets used for production and operation is less than 3 trillion yuan, with annual research and development expenses of only a few hundred billion yuan. "Too many monks and too little porridge," when will Chinese enterprises be revitalized? Only through industrial restructuring within the same industry, by merging enterprises that are closely linked through mergers and acquisitions to form corporate groups, can economies of scale be fully utilized; only in this way can Chinese giants be created that can compete with world-class multinational companies.
The Aircraft Carrier: Marriages of Enterprises in Restructuring
It is truly unbearable that a country as large as China does not have an internationally renowned enterprise that has gained recognition in the world; seeing the logos of Microsoft, McDonald's, Mercedes-Benz, Shell, Sony, Toshiba, and Hyundai fluttering in China's economic battlefield, people are determined to create China's aircraft carrier and enter the world's top 500 industrial companies. (All of China's current positions in the top 500 are occupied by state-monopoly financial and trading enterprises).
The Third Plenary Session of the 14th Party Congress and the 15th National Congress explicitly stated in their resolutions that it is necessary to develop a group of large enterprise groups with public ownership as the main body and property rights as the main link, spanning regions, industries, ownerships, and countries, and to play an important role in promoting structural adjustments, improving economies of scale, strengthening the development of new technologies and new products, and enhancing international competitiveness.
Since 1991, when the State Council adopted and issued the "Proposal on Selecting a Group of Large Enterprise Groups for Pilot Programs," China's pilot program for enterprise groups has achieved encouraging results. The first batch of 57 pilot enterprise groups were distributed across various industries. In terms of industry distribution, there were 3 automobile groups, 3 telephone equipment groups, 2 power transmission and transformation groups, 8 mechanical and electronic groups, 4 steel groups, 8 power groups, 1 coal group, 2 foreign trade groups, and 2 pharmaceutical groups. On the basis of these 57 groups, the state proposed a list of 63 additional pilot enterprise groups.
However, we must see that the birth of our enterprise groups is not based on market transactions (property rights transactions), and the fragility of such enterprise groups is self-evident. What we see in the world, whether it is the fierce competition between large multinational companies or the cozy cooperation between strong companies, is basically based on property rights transactions that arise under market competition pressure. Our enterprise groups, on the other hand, are forcibly combined under government intervention, and the results are hard to predict. Why have China's enterprise groups not naturally evolved through the market? The root lies in the unclear entanglement of property rights. The aforementioned four chemical giants in Nanjing belong to the China Petrochemical Corporation, the Textile Ministry, and local governments. The nominal state ownership has evolved into de facto departmental ownership and local ownership, with segmented management. In this situation, departmental interests become the biggest obstacle to enterprise mergers. From this perspective, China still has very few truly meaningful enterprise groups.
Marriages forced by the government are just formal families, and in reality, they are sleeping separately. The only difference is that in the past, the enterprises were completely unrelated, but now they are all wearing a high hat—enterprise groups—on top of each enterprise, but the operations of each enterprise are exactly the same as before. Whether from a theoretical or practical point of view, after enterprises merge to form enterprise groups, due to economies of scale, the original personnel will be redundant, and layoffs are inevitable. Looking at the world, after the fierce mergers, there must be many unemployed people. But in China, has there been any enterprise group that has taken layoffs after its establishment? It is not to say that layoffs are always good, but the fundamental purpose of forming enterprise groups is to take advantage of each other and shape core capabilities, so business restructuring and personnel integration are inevitable. Chinese enterprise groups are really like small boats tied together with iron chains, and they cannot withstand strong winds and rough seas.