Discuss the Problems and Benefits of Privatization of Public Sector Organizations in China

Topics: People's Republic of China, Public sector, Economics Pages: 5 (1521 words) Published: June 15, 2013
Discuss the problems and benefits of privatization of public sector organizations in China

Privatization as an important role of economy , has great contribution for all over the world. So what is privatization? Privatization means transfer of assets of economic activity from public sector to private sector, it has been seen by many governments as a means of revitalizing inefficient industries and as an opportunity to raise revenues to ease budgetary problems; however, privatization in China is very complicated.

When reform started in 1978, almost of the productive assets were state-owned in China. But reforms since then have not included privatization. Today, there is more than 70 per cent of Chinese productive wealth which belongs to Chinese government. During the first 20 years of reform, the government concentrated the country’s assets with a great purpose of development which helped to achieve the creation of infrastructure and expansion of industrial capacity. We can image, if the state assets had been privatized, it would become a big trouble for China to mobilize resources during the tremendous industrialization between 1980s and 1990s.That’s why the initial marketization-without-privatization approach has been successful. Also because of that, China has emerged a robust infrastructure and become an industrialized economy.

However, this industry-first, government-investment-driven and export-oriented growth model which has been highly resource intensive has run its course. China has expanded export almost of the world, not only the developed countries, also Latin America, the Middle East and Africa. But this growth model is limiting the speed of export. China has to turn towards growth driven by domestic demand, not exports, and one led by service not industry to shift its economy. So what can help to stimulate the transformation? The answer is privatization.

Privatization remains a thorny issue in a country where private property became a constitutional right only in 2004 and where the right to own productive assets remains unclear. Many vibrant, purely private companies have sprung up despite this uncertainty, but take care to stay out of the limelight. For example, the most famous Chinese private company is Legend Holdings Ltd, is Chinese investment holding company in IT, investment, and real estate formed by the Chinese Academy of Sciences- the best-known of which is the Lenovo Group in which Legend is the controlling shareholder. In 2006, the volume of its business was 4,033,096 million RMB. Another famous private company is Huawei which makes and sales telecommunication equipment. It is biggest supplier who provides the solution of telecommunication network. Until 2011, the whole company had 146,000 employees, and the annual sales volume was 203.9 billion RMB. Obviously the kinds of private companies become a main power to improve Chinese economy and increase national income.

Proverbially, privatization can help to reduce the government financial and administrative burden. The best example is Legend Holdings Ltd. Legend Holdings Ltd was based on the Chinese Academy of Sciences. Chinese government only invested 200 thousands to organize the company. However, until now, the company has developed to an international holding company with the influence from all over the world. The Chinese government doesn’t manage the company directly but it controls a part of stock of the company. According to an analysis suggests that privatization of China’s state-owned enterprises is achieved with limited compromise on the social welfare responsibilities, and much of the improvement in the firm performance comes from the reduction in the agency cost at the management level. The state-owned enterprises generally have bloated management structure with excessive amount of managerial expenses. It is because the State Assets Agency has multiple objectives, and so long as the management meets those objectives it is...
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