Tianjin 2010 - The Future of State-owned Enterprises
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September 14 2010 The Future of State Owned Enterprise
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00:00:01 00:00:03 Thank you all very much for joining us today.
00:00:03 00:00:07 This is a very important topic because I think we are in an era when we are
00:00:07 00:00:13 seeing more government-controlled industries around the world
00:00:13 00:00:16 than we have for quite some time.
00:00:16 00:00:19 Western countries… for the financial crisis have gotten involved
00:00:20 00:00:23 in banks and car industries where they weren’t before.
00:00:23 00:00:29 China’s state-owned enterprises are in an unprecedented period of prosperity.
00:00:30 00:00:36 …here, who has just stepped down from his role in China’s state-owned enterprises.
00:00:37 00:00:41 The topic of state-owned enterprises is one that’s worth exploring.
00:00:43 00:00:47 …state-owned enterprises and private enterprises co-exist…
00:00:49 00:00:54 that they need to to keep the economy going…
00:00:58 00:01:03 out private enterprises that could possibly do it better.
00:01:03 00:01:16 How can governments win… vision of citizen or state-owned enterprises
00:01:16 00:01:21 in terms of protecting jobs or the ways their own enterprises actually…
00:01:25 00:01:30 realistic expectation of this social role of the state-owned enterprises?
00:01:30 00:01:34 We have a great panel here today to discuss these and other questions.
00:01:35 00:01:36 It was discussed a bit amongst…
00:01:38 00:01:42 to the audience to hear your views and to ask your questions.
00:01:42 00:01:46 But first, I would like to turn to Chairman Li, Li Rongrong,
00:01:46 00:01:48 who has just stepped down as chairman of the State-owned
00:01:49 00:01:52 Assets Supervision and Administration Commission of the State Council.
00:01:53 00:01:56 During his tenure, the state-owned enterprises have become
00:01:56 00:02:08 from lumbering giants of China into much more successful… percent
00:02:08 00:02:14 and state-owned enterprises contribute about a fifth of the tax revenue of China.
00:02:15 00:02:19 So it... legacy that Chairman Li has.
00:02:20 00:02:25 But looking towards the future, I think it’s important to ask…
00:02:32 00:02:36 major role that they’ve always had and how do they co-exist…
00:03:33 00:03:36 Mr. Chairman Li, let me turn to you first.
00:03:36 00:03:40 Looking both backward at your tenure as chairman
00:03:40 00:03:45 and then looking forward into the coming years for state-owned enterprises in China,
00:03:45 00:03:51 are they going to continue to have the role that they had or will the position
00:03:51 00:03:54 of state-owned enterprises vis-à-vis the privately owned enterprises,
00:03:55 00:03:56 will that change significantly?
00:04:28 00:04:32 While I do not prefer to discuss how to make enterprise better,
00:04:32 00:04:39 from my perspective, the reasons to do a good job in enterprise are the same,
00:04:42 00:04:48 the shareholders, and they are mostly good governance
00:04:49 00:04:55 and other shareholders or other contributors, and from my personal views,
00:04:56 00:05:01 they have the same factors doing a good job in enterprise development,
00:05:01 00:05:07 one of my personal experiences, that’s my most important experience,
00:05:07 00:05:11 my feelings, the key to a good enterprise development.
00:05:18 00:05:22 They should do things according to the enterprise law, the laws of enterprises.
00:05:23 00:05:33 Enron and including the fall of the Lehman Brothers,
00:05:34 00:05:41 for those countries where corporate laws are de-established, the enterprises fall
00:05:41 00:05:44 and therefore, what can we learn from them?
00:05:47 00:05:52 The key point of the discussion is how to develop enterprise better.
00:05:54 00:05:57 And what is the role of state-owned enterprises?
00:05:57 00:06:00 I believe in the future years,
00:06:01 00:06:05 the state enterprise should play a more important role.
00:06:06 00:06:10 We have three decades of opening outside world and before,
00:06:10 00:06:12 we have come through two crises.
00:06:12 00:06:15 One is Asian financial crisis
00:06:15 00:06:23 and the other is financial crisis originated from U.S. subprime mortgage.
00:06:24 00:06:28 And our state-owned enterprises performed …these two financial crises.
00:06:29 00:06:32 In Asian financial crisis, China’s state-owned enterprises
00:06:32 00:06:37 had a fatal shock where it – that’s our most difficult time.
00:06:39 00:06:43 So some people in Hong Kong said that at that time,
00:06:43 00:06:47 the enterprises in Hong Kong almost all fell victim
00:06:48 00:06:52 and they all need to be rescued by the government.
00:06:52 00:06:56 But the crisis originating from U.S.,
00:06:58 00:07:02 your enterprises in Hong Kong performed very satisfactorily.
00:07:03 00:07:04 They are the pillars.
00:07:04 00:07:07 They are important factors of stabilization economy.
00:07:10 00:07:13 So what roles should they play?
00:07:13 00:07:18 Our role should be to promote steady stable growth of economy,
00:07:19 00:07:22 which we are not only the beneficiary through China’s economy.
00:07:30 00:07:33 What is the future of the state-owned enterprises in the future?
00:07:34 00:07:36 In the future, we will play a more proactive role,
00:07:37 00:07:43 and that is to enable a more stable growth of economy. Thank you.
00:07:46 00:07:48 Thank you. I’ll try to follow on one thing.
00:07:48 00:07:51 You said, Chairman Li, that state-owned enterprises
00:07:52 00:07:53 and private enterprises are the same.
00:07:53 00:07:57 One difference is that private enterprises can fail and do fail.
00:07:57 00:08:01 Are state-owned enterprises, particularly in a place like China,
00:08:01 00:08:04 too big and too important, to your last detail,
00:08:05 00:08:06 to fail if they have problems?
00:08:14 00:08:20 Well, what I said is whatever form of enterprises, they are successful or losers.
00:08:20 00:08:25 And there are quite a few state-owned enterprises which were started
00:08:25 00:08:28 from the reform of the outside world.
00:08:29 00:08:32 There are a lot of enterprises bankrupt.
00:08:33 00:08:37 Starting from 2002 to end of last year, each year,
00:08:37 00:08:42 the number of enterprises fell by 5,000.
00:08:43 00:08:45 Now, they are scattered around the country.
00:08:45 00:08:47 You cannot see them.
00:08:47 00:08:50 And also, the central state-owned enterprises also fail.
00:08:50 00:08:57 Whether or not they are going to fail or fall does not depend on the size.
00:08:57 00:08:59 If they are not run well, even if they are big, they fail.
00:09:00 00:09:02 It’s not so that they are too huge to fall.
00:09:03 00:09:11 They all have to follow the market rules because the jungle rules prevail
00:09:11 00:09:15 and those who are good, they can go ahead and proceed,
00:09:15 00:09:17 and those not so good, they fail.
00:09:17 00:09:25 If they are not… for those… companies and there will be bad consequences.
00:09:25 00:09:27 We have such lessons in China.
00:09:27 00:09:32 And the most difficult time in our reform, that is 1998 to 2000.
00:09:33 00:09:37 But prior to 1998, we do not have that concept.
00:09:37 00:09:40 There is a -- state enterprises can be bankrupt.
00:09:41 00:09:47 A lot of enterprises cannot – they are deeply indebted
00:09:47 00:09:49 and they are not allowed to be bankrupt.
00:09:50 00:09:55 And the lessons or the cost of repair are huge and tremendous
00:09:55 00:09:56 and that should not be repeated.
00:09:58 00:10:02 Those who can follow the market rules can go ahead and develop.
00:10:03 00:10:06 If they cannot, they should withdraw.
00:10:06 00:10:09 And even if they withdraw, they should withdraw earlier stage,
00:10:09 00:10:14 not until they fail because that will be too high a price to pay,
00:10:15 00:10:19 and this applies to whatever country. I said Lehman Brothers.
00:10:20 00:10:24 If we can find early, if they can adopt measures earlier,
00:10:25 00:10:30 probably we will face different story today and therefore,
00:10:30 00:10:36 the fall or rise of enterprises, I believe, the key to that,
00:10:36 00:10:46 the common key is to understand the rules of the development enterprises.
00:10:47 00:10:51 Whatever enterprises which run against these rules, they will fail.
00:10:52 00:10:55 That’s my view. -Thank you very much.
00:10:55 00:10:58 Let’s turn now to David Michael, who is a senior partner
00:10:58 00:11:00 and managing director of the Global Advantage Practice
00:11:00 00:11:02 at the Boston Consulting Group.
00:11:02 00:11:05 David, you’ve worked a lot with state enterprises here
00:11:05 00:11:07 and you advise companies.
00:11:07 00:11:10 Can you talk a little bit about the issue of innovation,
00:11:11 00:11:13 how state-owned enterprises can actually innovate
00:11:14 00:11:17 and how their innovations compare to innovation in the private sector?
00:11:17 00:11:21 Thanks, David. Firstly, I would just make one correction
00:11:21 00:11:24 to a comment that you made earlier, which is that at the beginning
00:11:24 00:11:29 of the reform era in China, that the companies here were lumbering giants.
00:11:29 00:11:33 In fact, I think at the beginning of the reform era,
00:11:33 00:11:37 many of what we see as the state-owned enterprises in China today weren’t
00:11:37 00:11:41 even enterprises but were parts of government departments
00:11:41 00:11:45 were highly fragmented and were not efficient.
00:11:45 00:11:50 So the transformation, which Chairman Li and SASAC have,
00:11:50 00:11:53 together with all governments, have orchestrated,
00:11:53 00:12:00 has now led to the creation of companies that tare large that,
00:12:00 00:12:03 by and large, operate in an environment of transparency with respect
00:12:04 00:12:08 to their ownership and governance and that are in markets that are now,
00:12:09 00:12:12 in general, competitive not only domestic but abroad,
00:12:13 00:12:16 and as you’ve highlighted, operated high levels of efficiency.
00:12:16 00:12:21 But we also now face this new era of challenge where innovation
00:12:21 00:12:25 is increasingly required to deliver growth.
00:12:26 00:12:31 I think that there are excellent examples of large state-owned enterprises
00:12:31 00:12:35 in a variety of different countries around the world that are innovative
00:12:35 00:12:39 as long as the right kind of prerequisites are put into place,
00:12:40 00:12:42 where market forces are allowed to prevail,
00:12:42 00:12:49 where there is a flexibility in terms of hiring and developing talent,
00:12:49 00:12:55 because of course, enterprises are only innovative if you have innovative people
00:12:55 00:12:59 who have been attracted to join those enterprises
00:12:59 00:13:04 and who have the flexibility or the permission to experiment
00:13:04 00:13:09 with new business models and new technologies
00:13:09 00:13:11 and even new industry boundaries.
00:13:12 00:13:17 So one of the challenges with respect to promoting innovation is to ensure
00:13:17 00:13:22 that those conditions exist and that level of flexibility exists.
00:13:22 00:13:27 But there is also a separate challenge, which is the challenge
00:13:27 00:13:33 for policymakers overall about where they want the innovation to take place
00:13:33 00:13:38 and the balance between the state-owned sector
00:13:38 00:13:41 and the private sector with respect to innovation.
00:13:42 00:13:47 So for example, we have seen that there are some consortia
00:13:47 00:13:52 of state-owned companies in various countries that are working
00:13:52 00:13:56 together to develop a certain kind of technology.
00:13:57 00:14:01 We’ve seen that happen recently in clean vehicles, for example.
00:14:02 00:14:04 Now, if you’re a private sector investor
00:14:05 00:14:10 and you’re thinking about taking a risk and investing in clean vehicle technology,
00:14:10 00:14:15 you also have to ask yourself, well, if I make that investment now,
00:14:15 00:14:20 will a state-owned consortium enter that same area
00:14:20 00:14:23 and compete on different rules later?
00:14:23 00:14:27 This is a question in general for policymakers around the world.
00:14:27 00:14:31 And what it means really is that, well, if you are taking a decision
00:14:32 00:14:38 to have state companies work together to really try to innovate,
00:14:38 00:14:41 then they have to deliver.
00:14:41 00:14:44 The pressure needs to be on those companies because otherwise,
00:14:45 00:14:50 there is a risk of them taking the space away from the private sector.
00:14:51 00:14:52 So I think going forward,
00:14:52 00:14:56 this is going to be a challenge for policymakers around the world.
00:14:56 00:15:03 I think the good news in China is that the reform so far has created companies
00:15:03 00:15:08 that exist in a very transparent market-oriented environment governed
00:15:08 00:15:11 by the kinds of rules that Chairman Li described for us.
00:15:11 00:15:16 And now, we are in this new era where there is even more pressure for innovation.
00:15:17 00:15:20 Thanks very much. You talked about policymakers
00:15:20 00:15:25 so let’s turn now to Heizo Takenaka, who is currently director
00:15:25 00:15:29 of the Global Security Research Institute at Keio University but has long experience
00:15:30 00:15:33 as a Japanese government official, including time as Minister
00:15:34 00:15:37 for Internal Affairs and Communications and the privatization of the Postal Service.
00:15:38 00:15:42 Could you speak to that experience as a policymaker involved in privatization
00:15:43 00:15:51 and the lessons you learned from that? -Thank you for this opportunity.
00:15:51 00:15:58 First of all, I really appreciate the very good election performance of Chairman Li.
00:15:58 00:16:01 I really appreciate state-owned company.
00:16:01 00:16:05 In China, I’ve been working very well, very efficiently, I agree.
00:16:05 00:16:08 The role of state-owned enterprise,
00:16:08 00:16:12 this is completely dependent on the stage of economic development.
00:16:12 00:16:15 And also, this is dependent on the economic situation.
00:16:16 00:16:20 For example, in the case of a crisis, the role of the governments is very important.
00:16:20 00:16:26 It is needless to say. In this regard, Chairman Li’s role was very important.
00:16:26 00:16:31 At the same time, we have very much complicated history
00:16:32 00:16:34 in the state-owned enterprises.
00:16:34 00:16:41 Five years ago, I was nominated as a minister for postal privatization in Japan.
00:16:41 00:16:45 Japan Postal was the largest state-owned enterprise in Japan,
00:16:46 00:16:49 and the Prime Minister Koizumi at that time decided to privatize that.
00:16:49 00:16:50 He quite often said,
00:16:51 00:16:56 “What can be done in private sector should be done in the private sector.”
00:16:56 00:17:01 What can be done in the private sector should be done in the private sector.
00:17:01 00:17:07 Well, this is indicating the -- well, as far as the… efficiency
00:17:07 00:17:10 or the power of innovation is not the concern.
00:17:10 00:17:13 The role of private companies, that is very important.
00:17:14 00:17:19 It is true also in the process of postal privatization.
00:17:19 00:17:21 There is a very strong obstacle.
00:17:21 00:17:24 There is a very serious political side there.
00:17:24 00:17:28 Why is there such a strong obstacle, objections?
00:17:28 00:17:30 The reason is quite simple.
00:17:30 00:17:33 State-owned companies have a very strong… power,
00:17:34 00:17:38 including labor union, and in the case of Japan Post,
00:17:38 00:17:46 the union of headmasters of the Post Office, they have very strong political power.
00:17:47 00:17:51 In that sense, well, obviously, it depended on the stage
00:17:51 00:17:55 of economic development and the role of enterprise,
00:17:55 00:17:56 state-owned enterprises is very important
00:17:57 00:18:00 even in the case of Japan and Korea, et cetera, et cetera.
00:18:00 00:18:05 But in the long run, it is very important to find out the timing of privatization,
00:18:06 00:18:09 especially in some areas, for example in finance,
00:18:09 00:18:13 this privatization idea is very important.
00:18:13 00:18:17 …bank aid in the state-owned company.
00:18:17 00:18:22 That body is 100 percent guaranteed… basically.
00:18:22 00:18:29 So this, compared to the private company, cannot compare these companies.
00:18:29 00:18:36 So concerning this fairness in the market, well, it is very important for
00:18:36 00:18:40 the government to seek for the chance to minimize the size
00:18:40 00:18:43 of the state-owned enterprises.
00:18:43 00:18:50 But still, I’d like to say the role of a state-owned enterprise is very important.
00:18:50 00:18:53 So China is now in the very important stage.
00:18:53 00:18:57 Now, you have been modernizing the management and from now on,
00:18:58 00:19:01 I very hope that China will seek for another challenge
00:19:01 00:19:07 for further efficient management and the market economy.
00:19:08 00:19:10 Thank you very much for that.
00:19:10 00:19:14 All three of the people who have spoken first have mentioned the role of management,
00:19:14 00:19:17 and so let’s turn now to someone who is in management of a state-owned enterprise.
00:19:18 00:19:22 Federico Restrepo Posada is CEO of the Empresas Publicas de Medellin,
00:19:23 00:19:27 which supplies water, power, sewage to the area of Medellin,
00:19:27 00:19:30 a state-owned enterprise. What are your feelings as a CEO?
00:19:30 00:19:34 Is it the same as being a CEO of a private company or are there significant
00:19:35 00:19:38 differences being the CEO of a state-owned enterprise?
00:19:39 00:19:44 Thank you. I think the…
00:19:57 00:20:02 That is the nature of the owner.
00:20:02 00:20:08 What is the nature of the owner, being a state owner or a private?
00:20:09 00:20:15 The difference is made on the model,
00:20:15 00:20:20 management model he chooses to be sustainable and one of the points.
00:20:20 00:20:28 In our case, for example, the owner is a city, the city of Medellin.
00:20:29 00:20:32 It’s not the national government or the national state.
00:20:33 00:20:40 So there is, I think, a condition, of course, of you have to have the same rules,
00:20:40 00:20:48 both as a private and as a state, in order to be competitive,
00:20:48 00:20:49 in order to be sustainable.
00:20:50 00:20:56 But there is a condition, at least in our case, is that the owner,
00:20:56 00:21:03 the owner itself has also to be sustainable, and it is very hard to be
00:21:03 00:21:09 sustainable as a company while the owner has not been sustainable.
00:21:09 00:21:14 And the world situation is… the financial…
00:21:14 00:21:23 where are the financial resources coming to absorb the growth?
00:21:24 00:21:29 In our case, for example, we don’t have money directly
00:21:29 00:21:35 as a shareholder into the stock market and having money from there.
00:21:36 00:21:40 But rather, our owner, the municipality of Medellin,
00:21:41 00:21:49 gives up in having a large amount of money from the net profits.
00:21:49 00:21:55 I mean only 30 percent of net profits every year is going to the owner;
00:21:56 00:21:59 70 percent is used to absorb the growth.
00:22:00 00:22:06 And that is the way we are doing for the last 20 years
00:22:07 00:22:13 and that is why this company is not only having the market share
00:22:13 00:22:16 in the region but also in the country.
00:22:17 00:22:22 And now, we are adjusting the top and we are not allowed to have
00:22:22 00:22:28 more than 25 percent of the market share in electricity or in telecommunications.
00:22:28 00:22:35 So that is why we are going to need to be kind of global or I mean to look
00:22:35 00:22:39 for some more markets in the neighboring countries.
00:22:40 00:22:44 That is our experience. -Thank you very much.
00:22:44 00:22:48 There has been a theme across, what may be…,
00:22:48 00:22:50 was this issue of this social responsibility
00:22:50 00:22:53 and the social role of state-owned enterprises.
00:22:53 00:22:57 So perhaps, Chairman Li, could you talk about how you saw that
00:22:57 00:23:00 and how you managed issues with workers
00:23:01 00:23:03 and the responsibility of the enterprises towards society?
00:23:12 00:23:20 In China, the SOEs show there is a special social responsibility.
00:23:20 00:23:28 We can say that in every huge disaster, the central enterprises take the lead.
00:23:29 00:23:35 However, we don’t want to report those extensively because
00:23:35 00:23:42 to implement the social responsibility, sincerity is very important,
00:23:42 00:23:45 whereas, generosity comes as the second.
00:23:45 00:23:52 I firmly believe in this and that is how I do my business.
00:23:52 00:23:56 During the Sichuan-Wenchuan earthquake, still,
00:23:56 00:23:59 we haven’t collected some of the relief money.
00:24:00 00:24:06 We have transported a lot of relief goods to the disaster-hit area.
00:24:06 00:24:18 We try our best to serve society. This is an obligation for the SOEs.
00:24:18 00:24:26 For the central enterprises, I constantly ask them to keep those in mind.
00:24:27 00:24:37 They feel companies pay more attention to their employees than the central enterprises.
00:24:38 00:24:44 When I worked in the factories, yearly,
00:24:45 00:24:47 I am the first to come to the workshop.
00:24:48 00:24:52 I will check whether my staff members are healthy.
00:24:52 00:24:57 If he doesn’t look good, I’ll ask him, “Did you have enough rest?”
00:24:57 00:25:06 because I believe every employee is a family member.
00:25:07 00:25:12 If the family member goes to work and he doesn’t come back from work,
00:25:13 00:25:16 this is a disaster for the family.
00:25:21 00:25:26 So we are not only concerned with the eight hours on duty;
00:25:26 00:25:31 we care about our employees 24 hours.
00:25:31 00:25:35 Even if there are some family conflicts between the couples,
00:25:35 00:25:40 we also lend a hand, we also help to resolve their family problems because
00:25:41 00:25:46 it is important for the employees to be in a good mental condition,
00:25:46 00:25:51 to be in a pleasant status.
00:25:51 00:25:57 So the SOE hasn’t changed its perspectives.
00:25:57 00:26:02 We respect our employees and we put that into action.
00:26:04 00:26:09 And that is reflected in big and small matters.
00:26:11 00:26:15 And words matter, but actions are even louder.
00:26:17 00:26:22 So in all the China’s, the difficult time for China,
00:26:22 00:26:27 the SOEs has made great contributions.
00:26:27 00:26:31 They serve as the pillar in those difficult times.
00:26:31 00:26:38 Of course, as we improve our capabilities, there will be more and more that we can do.
00:26:38 00:26:47 And in Guangxi Province, there is a Hope Village.
00:26:47 00:26:50 I think this is a very successful example.
00:26:51 00:26:59 The SOEs help the locals to live to liberate them from poverty
00:26:59 00:27:04 and to help them how to survive, how to be a good person,
00:27:05 00:27:07 and where my future is.
00:27:07 00:27:16 So this is our responsibility and we are very sincere to our people.
00:27:19 00:27:22 As to the social responsibility of the SOEs,
00:27:22 00:27:30 I will sum up with one sentence: we serve our society with our full sincerity.
00:27:32 00:27:36 Mr. Takenaka, you mentioned the difficulty of dealing with the unions.
00:27:37 00:27:39 Now looking back, how would you evaluate the question
00:27:39 00:27:43 of social responsibility during a period of privatization
00:27:43 00:27:45 or for a state-owned enterprise in general?
00:27:46 00:27:51 Well, either time, social responsibility, this is the important keyword
00:27:52 00:27:56 to discuss the role of state-owned enterprises.
00:27:56 00:28:03 In… consider the case of the electric power company.
00:28:03 00:28:06 Is it a public company or a private company?
00:28:06 00:28:10 Is it a state-owned company, should be state-owned company or not?
00:28:10 00:28:14 Postal service, it should be state-owned company or not?
00:28:14 00:28:17 My point is it depends, actually.
00:28:17 00:28:24 For example, electric power company has very great social responsibility.
00:28:24 00:28:28 But in the case of the United States and Japan, most countries,
00:28:28 00:28:32 these are private companies, but this is a special type of private company.
00:28:33 00:28:35 So my point is this is not dichotomy. Not dichotomy.
00:28:35 00:28:39 All the… type of discussion should be avoided.
00:28:39 00:28:43 Please consider the case of, for example, NTT of Japan.
00:28:43 00:28:48 This used to be the state-owned company National Telephone Telegram Corporation.
00:28:49 00:28:54 This is a completely government organization. It’s not privatized 25 years ago.
00:28:54 00:29:00 But still 30 percent of share is held by the government.
00:29:00 00:29:08 This is a private company but some part is kept by the government.
00:29:08 00:29:13 This is because this entity can play some social role.
00:29:14 00:29:16 So it depends anyway.
00:29:16 00:29:21 Nations really, we now see very interesting cases,
00:29:21 00:29:24 most of them in Korea and some – Australia and so on.
00:29:25 00:29:28 We consider the case of a highway, speedway, highway.
00:29:28 00:29:30 This is a very important infrastructure
00:29:30 00:29:33 and this is the mostly owned by the government in your case.
00:29:33 00:29:39 Yet, in the case of Australia and Korea, this is owned by the government.
00:29:39 00:29:42 However, management is completely done by the private company.
00:29:42 00:29:47 And the right to charge the toll,
00:29:47 00:29:53 including this right is completely sold to the private company.
00:29:53 00:29:57 So this kind of a new management, new era management should be
00:29:57 00:29:59 considered in case we discuss the state-owned companies.
00:29:59 00:30:02 This is not a dichotomy organizing problem.
00:30:02 00:30:06 But anyway, in this regard also, you mentioned also our state-owned company
00:30:06 00:30:10 gradually had a very strong political power.
00:30:10 00:30:15 And now, Chairman Li’s power was very strong maybe I guess so you can manage.
00:30:15 00:30:19 But gradually, there a lot of difficulties coming out.
00:30:20 00:30:24 We saw in the case of so-called British disease in the 1970’s.
00:30:24 00:30:27 This is the reason why markets are such privatized,
00:30:27 00:30:28 many state-owned companies.
00:30:29 00:30:33 So this is what we observed in the process of privatization.
00:30:33 00:30:37 Thank you. David, would you, as a consultant, how do you see this,
00:30:37 00:30:41 this new paradigm emerging that Mr. Takenaka mentioned?
00:30:42 00:30:49 So I think the new paradigm really is about the new model of competition.
00:30:49 00:30:55 I think for example, in China, we see that enterprises now have become very big.
00:30:55 00:31:00 China’s state-owned enterprises are among the largest companies in the world.
00:31:00 00:31:05 This is a totally different situation than, say, a decade ago.
00:31:05 00:31:09 These are companies that are now needing to compete in global markets.
00:31:09 00:31:12 They’re needing to get talent from around the world
00:31:12 00:31:16 and attract that talent in order to compete.
00:31:16 00:31:22 Also, the regulators need to think about the fact that many companies
00:31:22 00:31:27 that historically operated in very clearly defined industries
00:31:27 00:31:32 are now operating in industries where the boundaries are not nearly so clear.
00:31:33 00:31:38 So this, the new paradigm of competition is going to involve state-owned
00:31:38 00:31:44 and state-sponsored companies but which are competing in global markets,
00:31:44 00:31:48 where the market is for consumers who have a choice but also a market
00:31:48 00:31:53 for talents that has a choice about what type of employer to work for.
00:31:54 00:31:57 And so indeed, regardless of ownership,
00:31:57 00:32:02 companies are going to need to find their way in this reality.
00:32:02 00:32:07 That may lead the states also in different countries to make decisions
00:32:07 00:32:11 about whether they retain majority control of state-owned enterprises
00:32:11 00:32:16 or whether over time they follow a model, such as Mr. Takenaka described,
00:32:16 00:32:19 where the state sells down its ownership.
00:32:19 00:32:23 And I think that will be a very interesting question to see in the decade ahead,
00:32:23 00:32:28 which governments choose what level of ownership of the state sector.
00:32:29 00:32:30 Great. Thank you.
00:32:30 00:32:33 I’d like to now turn to the audience for your views and questions.
00:32:34 00:32:37 Please identify yourself. Yes, please, there in the middle.
00:32:45 00:32:48 Hello, my name is Mark Zavadsky… from Russian business magazine Expert.
00:32:49 00:32:52 I’d like to ask Mr. Li Rongrong.
00:32:52 00:32:56 He made a comment that for state-owned enterprises,
00:32:56 00:33:05 the kind of social assistance to the country is not a free will; it’s an obligation.
00:33:05 00:33:11 So in this case, do you think it’s, in theory, possible to speak about
00:33:11 00:33:18 the equal playing field for state-run and private enterprises?
00:33:18 00:33:23 Because by making it as an obligation of the enterprises,
00:33:24 00:33:27 you make their cost higher, right?
00:33:27 00:33:30 You make the business less effective in private business.
00:33:30 00:33:33 So if they compete with private businesses in the same field,
00:33:34 00:33:36 that will make them less effective in a way.
00:33:36 00:33:40 So can we see this preferential treatment to state-run enterprises
00:33:40 00:33:45 as a compensation for the cost they incur
00:33:45 00:33:49 while fulfilling their obligations to the society? Thank you.
00:33:58 00:34:04 I think the functions of the government should be to create a fair,
00:34:04 00:34:06 what they call the fair ground, playing field.
00:34:07 00:34:10 Government of China is trying hard to do this.
00:34:10 00:34:16 If the enterprises, state-owned enterprises didn’t do well yesterday,
00:34:17 00:34:20 I don’t think the responsibility does not lie in the state
00:34:20 00:34:21 enterprise but the government.
00:34:22 00:34:24 Because I’ve been working for 18 years
00:34:24 00:34:28 in the state-owned enterprises, I was a victim of that.
00:34:29 00:34:35 The reason is that the regulators do not have any responsibility or obligations.
00:34:37 00:34:45 If the enterprise is without obligations, no matter public or private, it will fail.
00:34:46 00:34:51 So since I’ve become the chairman of the administration,
00:34:51 00:34:55 and I would make it clear that the responsibility should be defined
00:34:55 00:34:59 and to each person.
00:34:59 00:35:02 If, say, we have made progress of this year,
00:35:03 00:35:11 the goal of the enterprises is to catch up most of the advanced enterprises globally.
00:35:11 00:35:15 That’s their goal and that’s what I judge their performance by.
00:35:16 00:35:21 If the leaders of enterprises have such a sense of responsibility,
00:35:21 00:35:25 then I believe they will be successful in everything,
00:35:26 00:35:30 and our practice or performance in the past certified this.
00:35:30 00:35:33 The key to a good enterprise is not ownership.
00:35:35 00:35:41 Otherwise, they will blame the ownership for their bad performance.
00:35:41 00:35:47 If Enron or Lehman Brothers fail, then who we should blame?
00:35:47 00:35:54 So my strong aspiration is to do our own job earnestly.
00:35:55 00:35:59 The government do its own job, enterprises do their own jobs,
00:35:59 00:36:03 I believe the enterprise will be successful.
00:36:04 00:36:08 As for what you mentioned, the fairness or playing ground,
00:36:11 00:36:16 I will say up to now, there is no absolute fairness in the world.
00:36:16 00:36:18 Different ownership coexists.
00:36:22 00:36:26 Even today, you will say you have an unfair competition with me
00:36:26 00:36:29 because we have different perspectives.
00:36:29 00:36:34 A lot of enterprises say the state-owned enterprises can easily obtain loans.
00:36:36 00:36:39 But then you forget the fact that state-owned enterprises
00:36:39 00:36:42 have a good credit riskiness.
00:36:42 00:36:53 We still have a -- we can still borrow from the banks but we do not borrow
00:36:53 00:36:56 that much because we want to improve our efficiency.
00:36:56 00:36:59 Some private enterprises, “Oh, we cannot obtain loans from the bank.”
00:37:00 00:37:02 Then I said, “What records do you have in the bank?”
00:37:02 00:37:07 If you are the governor of a bank, then who should you provide your loans to?
00:37:07 00:37:12 You would provide loans to those with credibility of credit riskiness.
00:37:12 00:37:16 You do not see the burdens of state-owned enterprises.
00:37:17 00:37:20 The employment that we have,
00:37:20 00:37:26 we use more labor at least twice that much of the private.
00:37:27 00:37:29 Then could you say we are fair?
00:37:30 00:37:33 Can we just lay them, dismiss them, fire them?
00:37:33 00:37:35 I cannot do that.
00:37:35 00:37:41 So, the only way out for me is to be strong and big
00:37:41 00:37:49 and provide more job opportunities for them so that they have higher wages
00:37:49 00:37:52 or rather than simply firing the.
00:37:53 00:38:00 And therefore, to do a good job in enterprises, you should look at yourself.
00:38:00 00:38:07 You should compare the good ones in every aspect.
00:38:07 00:38:12 If you do, if you are earnest and hardworking, you will do a good job.
00:38:13 00:38:15 If you complain about the bad environment,
00:38:16 00:38:22 then you are not an excellent entrepreneur because you blame others
00:38:23 00:38:28 for whatever you fail, and I am not going to use such a person,
00:38:29 00:38:32 and I don’t think any boss will use a person like this because
00:38:32 00:38:38 they always blame others for their failures and they are not excellent talents.
00:38:38 00:38:43 I do not deny that there is unfairness in the competition.
00:38:43 00:38:50 I once said enterprises cannot, are not able to change their extremities.
00:38:51 00:38:54 They should understand and utilize the environment.
00:38:55 00:38:58 Some people say investment environment in China is not good, but then,
00:38:58 00:39:01 there are so many coming to China to make investments.
00:39:01 00:39:05 And we have a lot of Chinese enterprises going abroad.
00:39:05 00:39:07 Some people say you should not go out.
00:39:07 00:39:11 And then we still go out and get successful.
00:39:12 00:39:15 And of course, there are also lessons.
00:39:16 00:39:20 And I think the important thing is you should understand the environment
00:39:20 00:39:22 you should adapt to.
00:39:22 00:39:27 I have one saying: if you understand well the risk,
00:39:27 00:39:29 then it becomes opportunity.
00:39:31 00:39:35 If otherwise that risk or that opportunity becomes a risk.
00:39:36 00:39:41 So investors have a common point, and that is they are all hardworking, diligent.
00:39:42 00:39:46 They seek fairly their own responsibility, obligations.
00:39:51 00:39:54 We might be doing fine up to now,
00:39:54 00:39:57 but we should compare ourselves with the better ones,
00:39:57 00:40:01 the better enterprises, and then we can see who’d do better.
00:40:03 00:40:06 Some questions on the floor. Let’s do a batch three.
00:40:06 00:40:09 First, the gentleman on the front, then the gentleman there,
00:40:09 00:40:10 and then finally, the gentleman in the back.
00:40:10 00:40:12 First three. We’ll get three issues in the floor…
00:40:25 00:40:31 I have no questions, only a couple of observations regarding the SOEs.
00:40:32 00:40:36 We are from WTO Society of China.
00:40:43 00:40:49 The state-owned enterprises issue, when we have the negotiations for access to WTO,
00:40:50 00:40:54 according to the clause and terms of the GATT…,
00:40:54 00:40:56 I have something about this question.
00:40:57 00:41:01 China’s state-owned enterprises is a special product on a special time.
00:41:01 00:41:04 It’s not universal.
00:41:08 00:41:12 It is not the same or cannot be comparable as the Western state-owned enterprises.
00:41:14 00:41:19 These enterprises occurred during the traditional period,
00:41:20 00:41:24 during a reform period, transformation period, and therefore,
00:41:24 00:41:29 it is a special historical product and therefore,
00:41:31 00:41:34 it cannot be taken as a long, long time.
00:41:34 00:41:38 And the second is that China’s enterprises or state-owned enterprises,
00:41:38 00:41:52 based on my analysis I made just now, have its own corporate governance.
00:41:54 00:41:58 Although we are pursuing the corporate governance,
00:41:58 00:42:01 still, we still have some issues.
00:42:08 00:42:12 But observation means, I wills say,
00:42:12 00:42:18 how do you the… to see the future of China’s SOEs?
00:42:19 00:42:21 This is a question or observation.
00:42:23 00:42:26 Let’s have some other questions on the floor first
00:42:26 00:42:29 and then perhaps the issues will come through.
00:42:29 00:42:31 This gentleman here had a question. -Yes.
00:42:31 00:42:36 The discussion about the ownership of an enterprise,
00:42:36 00:42:42 whether it’s state or private, as was indicated in the presentations,
00:42:42 00:42:47 is linked to this concern about fairness in competition both
00:42:47 00:42:50 in the domestic context and across national boundaries.
00:42:51 00:42:55 But I do have a question for all the panelists, especially you, Mr. Schlesinger.
00:42:55 00:43:02 What do we do about these phenomenon of this extremely high level concentration,
00:43:02 00:43:06 if not monopoly regardless of private ownership?
00:43:07 00:43:12 I am most specifically referring to the global monopoly
00:43:12 00:43:18 of the resource extraction industry, iron or what else, those Big 3.
00:43:18 00:43:24 So are we really -- what kind of rabbit are we shooting at?
00:43:24 00:43:33 Is it state ownership versus private ownership or is it the how open
00:43:33 00:43:37 is the door to serious competition, especially across national boundaries?
00:43:38 00:43:42 Okay. Let’s deal with that, the issue of competition across boundaries
00:43:42 00:43:47 and whether this concentration, particularly in the resource sector, is an issue.
00:43:47 00:43:49 David, do you want to start on that?
00:43:50 00:43:55 Well, I would highlight that the concentration in resources
00:43:55 00:43:59 is somewhat a function of how the planet developed, right?
00:43:59 00:44:01 There is iron ore in a certain number of locations.
00:44:01 00:44:04 There is oil on a certain number of locations.
00:44:04 00:44:07 And so there is a question, in terms of economic development,
00:44:07 00:44:10 of whether countries choose development models
00:44:10 00:44:15 that are dependent upon those concentrated sources of resource.
00:44:15 00:44:19 And we see that now as well when we face the challenge of climate change.
00:44:19 00:44:23 So I would simply say that I would draw a distinction between kind
00:44:23 00:44:29 of monopolies that arise because of the way the planet’s geology developed
00:44:29 00:44:36 versus monopolies that are promoted or orchestrated by governments and regulation.
00:44:37 00:44:39 I think in general, given technology and innovation,
00:44:40 00:44:44 we see the decline of monopolies generally.
00:44:44 00:44:49 And in China, we see that the state sector is characterized
00:44:49 00:44:54 by competition among its companies, not by monopoly.
00:44:55 00:45:00 But I think the planet certainly faces a much larger challenge about
00:45:00 00:45:02 its development model and its dependence either
00:45:02 00:45:05 on concentrated resources or polluting resources.
00:45:05 00:45:09 Federico, you mentioned that your market share was limited by law
00:45:09 00:45:13 and you are involved in resources of water as well.
00:45:13 00:45:16 What’s the rationale of limiting your market share?
00:45:16 00:45:18 Is it to deal with this question?
00:45:18 00:45:24 Well, the limits by law on the market share is because precisely
00:45:25 00:45:29 the question that the gentleman was naming, is to avoid the monopoly,
00:45:29 00:45:33 at least in our country I mean.
00:45:33 00:45:40 But once you get into another country in providing services
00:45:40 00:45:44 and utilities like electricity,
00:45:45 00:45:49 it depends on the rules that happen in those countries.
00:45:49 00:45:57 So sometimes, it may be, it may produce some kind of monopoly
00:45:57 00:45:59 or control of the resources there.
00:46:00 00:46:02 Sometimes, it’s not allowed in the country.
00:46:02 00:46:06 So it depends in what is the country where you are going to pay the services
00:46:06 00:46:12 and it’s a matter of, again, of the management model,
00:46:12 00:46:17 on what are your perspective… projections ongoing?
00:46:18 00:46:20 You wanted to comment on this? -Oh yes.
00:46:20 00:46:22 So the basics of economics starts a very important issue.
00:46:23 00:46:29 For example, in some fields which can be so-called national monopoly,
00:46:29 00:46:32 economy of scale, economy of network is great.
00:46:32 00:46:34 In this case, only one company should dominate that.
00:46:35 00:46:36 This is most efficient.
00:46:36 00:46:39 Especially with the origin of state-owned company, this is true for national railway
00:46:39 00:46:41 and the postal services, et cetera, et cetera.
00:46:42 00:46:43 But however, as I’ve mentioned already,
00:46:44 00:46:47 now, a new type of competition is emerging.
00:46:47 00:46:48 In the case of mail service,
00:46:48 00:46:50 they are now competing with the Internet.
00:46:51 00:46:55 So in that sense, this kind of old-fashioned idea is now just being destroyed.
00:46:55 00:46:59 And also, even in the case this kind of national monopoly exists,
00:46:59 00:47:03 while I will mention this should be owned by one company,
00:47:03 00:47:05 but management should be done by the private company.
00:47:05 00:47:09 This kind of idea is -- this is not only the ownership problem.
00:47:09 00:47:13 This is a very complicated, much more dynamic problem.
00:47:13 00:47:17 This is what we are observing now. -Thank you. In the back.
00:47:20 00:47:24 Excuse me, I have to ask my question in Chinese.
00:47:24 00:47:31 SOEs are your very rich companies in most countries, and in some countries,
00:47:31 00:47:39 the SOEs use their resources and monopolize in various industries.
00:47:39 00:47:45 Is this unfair? And also, under such circumstances,
00:47:45 00:47:56 do we need to adopt some executive measures to limit the operation of such big SOEs?
00:47:58 00:48:00 The last questions. Let’s go to another issue on the floor.
00:48:00 00:48:02 The one in the front person please.
00:48:07 00:48:10 Okay, so we dealt with that kind of with the issue of monopoly.
00:48:11 00:48:18 Let’s get to another issue. Please. -My question is more detailed.
00:48:18 00:48:26 Now, many SOEs entered into the emerging sectors, for example, the emerging energies.
00:48:26 00:48:33 Some SOEs with a lot of funds will undoubtedly raise
00:48:33 00:48:36 the threshold of entering such industries.
00:48:36 00:48:38 So my question is to Chairman Li,
00:48:39 00:48:43 so how do you look into this unfairness at the very beginning?
00:48:45 00:48:48 We have a lot of questions about fairness and fairness so I think maybe Chairman Li,
00:48:48 00:48:50 you can deal with that because people are very concerned
00:48:50 00:49:05 about the whole issue of the domination. -I agree with the other speakers.
00:49:06 00:49:16 Countries in different development stages have different levels of privatization.
00:49:19 00:49:22 China is still in initial phase.
00:49:23 00:49:28 I like to give you two examples which you may have known.
00:49:28 00:49:30 One example is about oil.
00:49:32 00:49:37 The three biggest oil companies account for the 90 percent
00:49:37 00:49:39 of the market share in China.
00:49:39 00:49:43 Of course, export is another issue – import is another issue.
00:49:45 00:49:49 Without these three companies, the Chinese economy
00:49:49 00:49:56 will be not as steady as it is now because in 2008, the oil price skyrocketed.
00:49:57 00:50:04 Back then, we controlled the oil price because the price was fixed by the country,
00:50:04 00:50:11 by the government instead of the companies, the China Oil and China –
00:50:11 00:50:20 the two biggest oil companies lose 186 billion yuan.
00:50:22 00:50:30 If the price of oil in China rose with the international price of the crude oil,
00:50:30 00:50:36 that can hardly afford it by the Chinese public, for example, the taxi drivers.
00:50:36 00:50:42 In Hong Kong, the fishery industry is dying because of the high oil price.
00:50:44 00:50:55 However, we can’t do the same because we haven’t fully reformed the oil price.
00:50:56 00:50:58 Another example is the coal industry.
00:51:03 00:51:08 There are many coal miners but the efficiency is low.
00:51:11 00:51:15 The mining industry in the market is chaotic,
00:51:16 00:51:20 so the price can hardly reflect the real demand of the market.
00:51:21 00:51:28 So I agree with you on that in different phases
00:51:28 00:51:32 and in different countries, we need to adopt different measures.
00:51:33 00:51:36 However, we have the same objective,
00:51:36 00:51:42 which is to provide a level playground for the enterprises,
00:51:43 00:51:47 and only in that case the society can develop well.
00:51:49 00:51:51 Good morning, Chairman Li.
00:51:51 00:51:59 I’m from Hong Kong and I’m engaged in financial lending
00:52:00 00:52:05 and I have 12 years of experience dealing with the Chinese SOEs.
00:52:06 00:52:17 And in the 12 years, we feel that among the 100 central enterprises,
00:52:17 00:52:24 about 30 of them are included in the 500 Fortune global list,
00:52:26 00:52:30 and also, we have carried out research on these enterprises.
00:52:31 00:52:36 You’ve mentioned in different occasions what is important
00:52:36 00:52:42 for the central enterprises becoming bigger is not as important
00:52:42 00:52:47 as becoming stronger, and we’ve done a research on this.
00:52:48 00:52:56 So as a question, I believe you also know a lot
00:52:57 00:53:00 about the indicators of the companies.
00:53:03 00:53:08 One important indicator is the operation efficiency
00:53:10 00:53:15 of the SOE’s capital and also the ROI.
00:53:16 00:53:22 Such standards of the Chinese SOEs in this aspect,
00:53:22 00:53:27 the Chinese SOEs don’t perform as well as other countries included
00:53:28 00:53:30 in the Fortune 500 list.
00:53:34 00:53:40 So do we have any financial tools to help the SOEs to improve in these aspects?
00:53:43 00:53:46 This is a very sharp question.
00:53:47 00:53:54 When I was in my office, that is what I focused my work on,
00:53:54 00:53:57 and we are working on it right now.
00:54:00 00:54:06 Profit, the indicator of profit is not enough.
00:54:07 00:54:11 We have started to evaluate by other factors.
00:54:16 00:54:18 I can give you an example.
00:54:18 00:54:21 The National Grid, Electricity Grid
00:54:22 00:54:31 and the profits of National Grid is several dozen -- is several billion.
00:54:31 00:54:45 We need to take into consideration the cost of capital
00:54:45 00:54:49 because many companies don’t have such a concept.
00:54:51 00:54:56 After they have such a concept in mind, I think the situation will improve.
00:54:58 00:55:00 And I can give you two examples.
00:55:01 00:55:09 A subsidiary company is not willing to take the cash.
00:55:12 00:55:19 So in the past, it wants to own a lot of capital or cash, but now,
00:55:19 00:55:22 it will turn the cash to the mother company
00:55:23 00:55:26 because they have to be responsible for the cost of capital.
00:55:26 00:55:32 And also, in Beihai, the manager,
00:55:33 00:55:39 project manager requires a capital to arrive on the right day.
00:55:39 00:55:45 In the past, the capital, you really arrived a week in advance.
00:55:46 00:55:50 So now, it arrives on the right day when it is going to be used.
00:55:51 00:55:52 This is a very good beginning.
00:55:53 00:55:55 We have made some achievement.
00:55:55 00:55:58 However, compared to the excellent companies,
00:55:58 00:56:02 global companies, there is still a long way to go for us.
00:56:02 00:56:05 So we can tell you that we are working on this,
00:56:06 00:56:10 and I hold a strong conviction that we will catch up
00:56:10 00:56:13 with those excellent global companies.
00:56:17 00:56:23 I’m from the Economic Daily newspaper and I have a question to Chairman Li.
00:56:24 00:56:34 Just now, you mentioned the ownership is different but it is equally important
00:56:34 00:56:38 to vitalize the SOEs and the private companies.
00:56:38 00:56:42 The SOEs are still a special group of companies.
00:56:42 00:56:52 Maybe one day SASAC or the state-owned enterprises can get used to the fact
00:56:52 00:56:55 that they will no longer be the big shareholder.
00:56:56 00:56:59 And also, in the monopolized industries,
00:56:59 00:57:06 can we step backward and let the others share?
00:57:09 00:57:14 And also, the management model of SASAC, will it change?
00:57:18 00:57:19 …very briefly, I’m afraid.
00:57:19 00:57:28 I think practice matters and the objective is to vitalize the enterprises.
00:57:29 00:57:38 During the U.S. financial crisis, we wonder is it good to have
00:57:38 00:57:47 a big dominating shareholder or is it better just to share the stocks like equally?
00:57:48 00:57:54 If we have a very dominant shareholder, it may not be very beneficial
00:57:54 00:57:58 because the purpose is just to ensure the profits
00:57:58 00:58:00 or the benefits of the big shareholders.
00:58:04 00:58:09 We now invite more investors, and the objective
00:58:10 00:58:21 is to make the CEOs realize his responsibilities. Thank you.
00:58:24 00:58:27 This is truly a very emotional topic and one that people are very interested
00:58:27 00:58:33 in because it’s where politics, policy, profits, management, people,
00:58:33 00:58:36 and responsibility all come together. We can’t solve it in an hour.
00:58:36 00:58:39 We certainly can’t solve it in the last 30 seconds.
00:58:39 00:58:43 So I would thank everyone on this panel and thank all of you for your participation.
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