Question

The State-owned Enterprises (SOE) experienced many ups and downs during the history of P. R. China. If you were in the position of the party leader who wanted to reform SOEs in late 1970s, what, do you think, were the possible obstacles that you might have faced? What kind of policies that you think might be crucial for the reform? Why?

Answer 1

Answer: Possible obstacles that may arise:

1. Unionisation might lead to a problem as workers may criticize the policies and reforms.

2. There may an internal political instability in the party itself.

3. Many stakeholders of society like media, customers, public servants may see reforms as a shift in political idealogy.

4. There might be a fear and possible backlash of public servants and employees as reforms can be seen as a threat to equality, socialism, environmental factors.

Policies crucial for the reform:

1. Privatisation of loss-making firms

2. Accountability in terms of the financial performance of the firms

3. Deadlines and targets for Production and services.

4. Incentive based Wage system

5. Deregulation of the banking sector

6. Relaxation in monetary and fiscal policy for an improved business environment.

7. Provision of tax holidays and a reduction in the cost of capital.

8. Increase in competition with liberalisation that might lead to more efficient and effective firms.

9. Development of technology with enhanced Research & development budget.