SOE reform needs to cultivate entrepreneurship

Journalists have recently found that Sinograin storage managers in Liaoning and Jilin provinces have been embezzling public funds by conspiring with illegal grain merchants to put cheaper, previously harvested grain in storage but paying the price of freshly harvested grain to merchants. [Photo/IC]

A recent report shows the management of State-owned enterprises have much greater opportunities to abuse their power to obtain illegal profits than their counterparts in private enterprises.

Authorities urgently need to plug institutional loopholes in SOE management and supervision to prevent the further loss of public wealth and for more officials to commit the same errors.

The entrepreneur crime institute of the Xi'an-based Northwest University of Politics and Law issued its research report on Chinese entrepreneurs' crimes in 2014, which showed that since two years ago, when the central authority started the anti-graft campaign, the number of crimes committed by SOE management is rising much faster than those by the management of private enterprises.

The report also found that the crimes committed by the SOE officials and private enterprise businesspeople are quite different.

Bribe-taking, corruption and misappropriating public funds are the commonest crimes of SOE officials. On the other hand, involving the mafia, fraud in financing, contract fraud, and illegal fund raising are the crimes that private enterprise owners often commit.

SOE officials tend to pocket the enterprises' wealth as their own personal funds. Meanwhile, private enterprise businesspeople tend to raise capital for their enterprises illegally.

The difference shows that SOE management lacks entrepreneurship, a spirit that stokes innovation, a sense of responsibility and business acumen, all important factors for business success.

The SOE officials cannot be classified as entrepreneurs in many cases, because they work and think more like civil servants.

The crimes they often commit imply that they regard the enterprises as places where they can gain personally, and not organizations that serve the people.

Because they are often state-protected monopolies, SOEs need not adapt to the changes on the market, and SOEs operate, to some extent, in a different way from private companies.

The lack of supervision and accountability, and the concentration of power make it very easy for SOE officials to seek personal profits, giving in to the dark side of human nature, instead of working for the public good.

The research report is a good reminder to the central authority that SOE reform needs to include ending monopolies where necessary, strengthening supervision of management, and linking officials’ interests with the enterprises' performance under their leadership.

Large and unwieldy SOEs will hamper market reform, and lead to huge losses in public wealth. SOE reform has been underway for decades. There are vested interests holding back the reform, and reformers should prepare to face resistance from people treating SOEs as their personal cash cows.