Officials say China has lost $58 billion in bargain-basement sales of state assets

August 26, 1994|By Robert Benjamin | Robert Benjamin,Beijing Bureau of The Sun

CHONGQING, China -- As China continues to lurch toward its version of a market economy, officials are waking up to the fact they've been holding some of history's biggest bargain-basement sales.

The sales involve the still valuable assets of China's often-failing state industries, which increasingly are being acquired on the cheap by private and foreign investors.

In other cases, state assets simply have been siphoned off by local officials to finance local development. Some simply have been stolen.

Officials now estimate that undervaluation and theft of the assets of state enterprises -- often their land, buildings and machinery -- have cost China's government about $58 billion over the last decade.

That represents almost 20 percent of the total value of all of China's state industries, a loss that the deficit-ridden central government can hardly afford.

"Faced with the fast loss of state assets, people are heavy hearted and full of anguish. This is the lifeblood of the nation, the sweat and blood of the people!" an official newspaper, the Guangming Daily, complained.

To stem the losses, Beijing recently halted the sales of all state assets without approval, a step that represents a slowdown in China's efforts to restructure its state industrial sector and cleanse it of deadwood.

The central government also called for each region to appraise the value of its state-owned enterprises, appraisals that usually have not been done prior to previous sales, mergers or joint-venture deals.

Here, in Sichuan Province, Beijing's new orders have held up the planned offering this year of 33 state companies for sale to foreign investors.

But these directives follow the sale of the Chongqing General Knitting Factory, whose new owners now crow over their acumen in picking up the decrepit factory cheaply. Such entrepreneurs are the winners in the on-going collapse of many of China's state industries.

State workers -- who are forced to give up their "iron rice bowls," or guaranteed jobs -- often are the losers.

The bankrupt knitting factory, its run-down equipment and its 30 acres of prime land next to a planned expressway were purchased in 1992 by Chongqing's Overseas Group, an independent enterprise, for about $4.7 million.

Just the factory's land now is worth almost double its purchase price, according to Overseas Group officers.

Though they're paying some workers three times more than their previous salaries under the bankrupt enterprise, the new owners expect to turn a profit this year from producing T-shirts bearing the images of Donald Duck, Magic Johnson and Mao Tse-tung.

The key is that the Overseas Group fired all but 800 of the knitting company's 2,200 workers, and it refused to fund pensions for the state firm's 800 retirees.

"It was a fair deal," says Ren Yafei, the Overseas Group's president. "We took something useless and made it useful. That's better for the country. But we weren't willing to deal with the social welfare burdens."

Zhao Gongqing, the Chongqing official who oversaw the sale, also defends it, noting that 800 jobs were saved.

"We have to take social stability into consideration," he says.

In a similar deal in Wuhan, a central China industrial city to the east of Chongqing, the city's leading private entrepreneur simply paid the workers of a failed state match company to go elsewhere.

Dadi Holdings Group recently gave each of the match company's 1,200 workers about $1,900, or about three times urban China's annual industrial wage. It also gave the city's labor bureau a similar amount for each of the factory's 600 retirees to fund their pensions.

For a total cost of less than $5 million, Dadi got almost five acres of hard-to-acquire land on the edge of Wuhan's main business district and the aged factory's workshops, which it is now tearing down to build modern office and apartment high-rises.

"It wasn't a good deal because we had to take over the welfare burden of the state enterprise," claims Wang Xianchun, a Dadi board member. But Pan Jiahua, a leading Wuhan economist, says otherwise.

"This is a very good example of state asset loss," he says.

"The authorities responsible are just happy to get rid of the burden of the factory, because it had no way to survive. It's an effective but very short-sighted way of solving this problem."

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