The collective economy in Shanghai
was formed in the climax of the Socialist Transformation of the
1950s, enlarged with the women's-liberation movement of the 1960s,
and developed with students returning to the city from the countryside
in the 1970s. It lived a history of frustration, but it now has
become an important pillar of the local socialist economy and
a key feature in the local side of the national state-owned economy.
According to the Municipal Statistics Bureau, by the end of 1996
there were close to 99,000 collective enterprises in Shanghai.
They are half of all enterprises in Shanghai Municipality. They
have a total of nearly 3 million employees, or one-third of all
workers in Shanghai. Their capitalization is about RMB 90 billion
(about $11 billion U.S. dollars), 14 percent of all enterprises.
In 1997, output value of the local collective economy has increased
to RMB 68 billion, or 20 percent of the local GDP. Among the collective
enterprises in Shanghai, 25,000 of them are in the urban districts,
with 727,000 employees. In 1996, they produced RMB 30 billion
of industrial output, or six percent of the total industrial output
in Shanghai. They produced RMB 35 billion in consumer goods, or
30 percent of the total consumer goods in Shanghai. They produced
RMB 11 billion in construction value, or 25 percent. Collective
enterprises have demonstrated their important role in the local
economy.
II
In the recent 10 years, the collective economy has played an irreplaceable
role in developing industrial production, increasing exports,
pooling funds for development, boosting employment and making
life much more convenient for many millions. It has also stimulated
the national economy.
1. The collective economy has developed industrial production.
From 1978 to 1997, when the state-owned enterprises have shrunk
from 91 percent to 56 percent, the local collective economy has
increased its share of industrial production from nine percent
to 19 percent. In the 1990s, the local collective economy has
been growing at an annual rate of 20 percent.
2. It has made life much more convenient. There are over 37,000
sales points in Shanghai's collective commercial economy, 60 percent
of the total number (excluding small private ones). They provide
a large amount of grocery, food, and general merchandise, with
many stores conveniently located at intersections.
3. It has increased exports. Based on the statistics of 1997,
the local collective economy in the urban area alone achieved
industrial export values of RMB 4.4 billion (about $500 million
US dollars), and 16 percent of sale values. For some districts
they are the major exporters; for example, in Yangpu District
they export 80 percent of all goods.
4. It has pooled funds for development: In 1997, the local collective
economy paid RMB 9 billion (about US $1 billion) in taxes to the
Shanghai government, 1200 percent more than in 1978 and about
a quarter of all enterprise revenue. This is a major source of
funding for urban construction and development.
5. It has boosted employment. At the end of the 1970s, 400,000
students returned to the city from the countryside and found employment,
largely in the collective economy enterprises. Since the early
1990s, more and more people have been laid off. Among them,190,000
were re-hired by cooperative enterprises. In 1996, average annual
wages in the local collective economy were roughly RMB 7,000 (about
$900 US dollars). It also shoulders the responsibility for more
than 600,000 retired employees. These figures demonstrate the
critical role that it plays in community stability and security.
6. It has stimulated the national economy. Although the collective
economy suffers from many problems, including ambiguous laws of
ownership, outdated equipment and technology, and shortages of
capital and human resources, it does not require investment by
the government; it relies on the market for production supplies
and sales, it is small-scaled and operates efficiently, and it
has labor-intensive production. For each RMB 24 yuan invested,
the annual output will be RMB 100 yuan, higher than other areas
of the economy. And compared to other types of economy, it provides
more social benefits.
II
While building on the positive aspects, we have to address the
serious problems faced by the collective economy and examine their
root causes.
Collective economy enterprises are confronted by three serious
problems:
1. Their number of employees has been shrinking: In the middle
1980s, Shanghai's urban collective economy employed 107.5 million
employees, but in 1997 this fell to 727,000, a 39.7 percent decrease.
Of all local workers, from 22 percent to 16.3 percent. There are
newer forms of collective enterprise -- shareholder cooperatives
and others, which are not included in these figures. But even
if the newly developed forms are added, the total number of employees
has still fallen dramatically. This may stem from reshaping the
economic structure, but it also reflects the shrinking ability
of old collective enterprises to accommodate employment needs.
2. Their influence in the national economy has decreased: The
output value of the local collective economy as a portion of the
national economy has decreased from 7.9 percent in 1990 to 6.2
percent in 1996. Collectives' share of retail value has fallen
from 33 percent in the early 1990s to 29 percent in 1997.
3. They are losing profitability. It is estimated that over ten
percent of collective enterprises are very profitable, about 30
percent are slightly profitable, and over 50 percent are loss-making.
Of those loss-makers, 60 percent are in the urban districts and
48 percent are in the suburban areas. In six of Shanghai's 18
urban districts and suburban counties, collectives across the
board are in the red. Nearly all collective industries in the
"Second Light Industry" sector are loss-making. Forty
percent of the collective businesses are loss-makers, and another
40 percent are profitable on the surface but are losing money
underneath. Many enterprises have halted production, slowed it
down, or have laid off employees. Some have no funds to pay the
wages of their workers. More and more cannot afford to pay for
medical treatment for employees, and some are almost bankrupt.
The main causes of these problems are:
(1) The problem of control structure and ownership: The local
collective economy has been controlled by administrative agencies
under the traditional planned-economy system. For a long time,
the ideology of "The Bigger the Better, and Communism is
the Goal", dominated governmental agencies in their every
action, such as: business operations, human resource management,
investment, taxation, etc. Meanwhile, the shares that employees
owned in their enterprises were returned to them, no dividends
were drawn, and property was tightly controlled and integrated
into a system of quasi-state ownership. All of these actions were
done without the participation of property and management from
the employees, thereby depriving them of their rights of ownership
as the masters of the enterprise. As a result, collective enterprises
became much like state-owned enterprises, their distinction vague.
Still, everyone had guaranteed employment and a fixed, equal income.
But employees lacked motivation and enterprises lacked energy.
Although newer forms of collective enterprise have reformed some
of these problems, the core issue of ownership has basically changed
little. Therefore, collective enterprises have been stagnant,
without realizing any new dimension.
(2) The problem of economic structure and the market: Collective
enterprises have poor technological foundations, too many employees,
including too many retirees, the handicapped with heavy needs
for pension, and so therefore most of their income goes straight
toward paying various fees. Not having enough capital of their
own and carrying a heavy burden of debts have prevented them from
updating production. (In 1996 the capital of local collectives
stood at 66.2 percent of their debts, obviously higher than the
59.3 percent for state-owned enterprises, 54.6 percent for foreign-invested
enterprises, and 45.2 percent for shareholding enterprises.) For
a long time, the collective enterprises were deficient in capital
and technology and low in pay and welfare of the employees. [The
average annual income for a collective employee was RMB 7,051
(about US$900 dollars) in 1996, but RMB 11,015 (about US$1,300)
for state-enterprise workers, and RMB 14,756 (about US$1,800 dollars)
for foreign-invested enterprise workers.] Of course this makes
it very difficult to attract and retain skilled people.
Consequently, most of these factors force collectives to stay
with their traditional products and old industrial structures,
thereby making it nearly impossible for them to change and adapt
to market conditions. Because it used to be a sellers' market,
it was possible for them to live and even to develop. But now
it is a buyers' market. There is steep competition from those
in suburban counties and foreign-invested enterprises. The problems
of urban collectives have markedly surfaced. Even in business,
as urban supermarkets develop quickly and attracted more customers,
many of those convenient, corner collective shops are also in
serious trouble.
(3) The problem of an unfavorable policy environment: Collective
enterprises have to deal with a policy environment that makes
it very difficult for them to survive and develop. First, taxation
policy. The eight-grade system of taxing enterprise income has
been in operation for 31 years (For example, a 1986 research revealed
that the actual rate of taxation was 50.17 percent for collectives.)
This has seriously harmed their potential for development. Since
1994, a unified tax rate has been in effect, but special policies,
such as deductions per worker for loss-making enterprises have
also been canceled. This has lead to a heavier tax burden for
enterprises already in hardship. In recent years, to encourage
small enterprises to change into shareholder cooperatives, there
are 10 special policies, but the bulk of collective enterprises
are excluded from these. Second, finance policy. Banks are limited
by loan scales. Also, it has always been banking policy to serve
state-owned enterprises first and collectives later. Even though
the banks are being commercialized in recent years, they do not
provide measures to help poor enterprises. Collective enterprises
that are in financial trouble but still contribute to the community
are finding it hard to get loans. Since 1994, local credit unions
have been merged by commercial banks, and they cater to big enterprises
and big projects. No institutions pay attention to small enterprises
any more. Third, the problem of re-employment policy. Those laid
off from state-owned enterprises are encouraged to go to "Re-Employment
Centers" and enjoy preferential policies, while those laid
off from collective enterprises have no access to these. Finally,
the problem of merger and insolvency policies. State-owned enterprises
have the right to merge under insolvency or to file for insolvency
voluntarily, but collective enterprises are not allowed to do
these.
(4) The lack of a guiding policy agency for collectives. That
all these problems cannot be solved has something to do with the
fact that there is no high-ranking researching and policy-directing
agency in the Shanghai government. As the expression goes, "There
are many children, but no parents". Because of this, there
is no channel for communication between collectives and the government.
Now, some state-owned shareholding groups have begun to merge
with profitable collective enterprises once their "capital
has been re-arranged".
It should also be pointed out that there are ideological roots
to these problems. Many officials think that cooperatives serve
the collective, and the collective serves the nation. No matter
the form of property ownership -- collective or state-owned --
everything belongs to the nation. This has been the fixed ideology
of the government officials. Because of this way of thinking,
the collective economy has always been made subordinate to the
state-owned economy, during the planned economy period and today.
Now, the collective economy is again ignored as it is made subordinate
to private and foreign-invested enterprises.
III
We must not only deal with the serious problems faced by the collective
economy and their causes, but also understand the goals of developing
the collective economy as laid out at the 15th Congress of the
CCP in November1997. Understanding the basic features of China's
national economy is the key to understanding the critical reasons
for developing the collective economy. Still more, we must seize
the opportunity to develop during this period of "two basic
changes".
First, developing the collective economy was emphasized in the
15th Party Congress meeting. It was made clear that China is in
the primary stage of socialism, and then went on to describe the
nature of this stage and the future of development. "This
is the basic form of economic system of the primary stage socialism
-- state-ownership as the principal, with co-development by many
forms of ownership". The collective economy here plays a
mediating role in "adjusting and improving the structure
of ownership". The basic national conditions in China are
a large population, poor infrastructure, unbalanced development
and production levels in the primary stage. These conditions make
it necessary and inevitable for the development of the collective
economy. In the national economic system, state-owned shall be
the critical and strategic parts while private and foreign-invested
forms can only be a part. Between the two shall be the large collective
economy, which serves the strategic need for socialist construction
with Chinese characteristics.
Second, Shanghai must come to play a key role in the mouth of
the Yangtze River Zone: as an international, national and regional
economic center. As an enormous city with international ties,
Shanghai needs a large-scale industrial base, a flourishing consumer
goods market, and state-of-the-art commercial facilities. But
it also needs ordinary, community-level commercial shops and stores.
Shanghai needs high-tech and capital-intensive industry, but it
also needs labor-intensive industry with close ties to traditional
neighborhood economies. This does not mean that the collective
economy is necessarily low-tech or labor-intensive, but it certainly
has a role to play in the transition to a major metropolitan center.
Third, we need to be clear on the best opportunities for developing
the collective economy. Nowadays, Shanghai's collective economy
is undergoing a dramatic change. While old, traditional types
of collectives are shrinking, new forms of collectives which can
meet the current needs of society are flourishing and growing
vigorously. For example, there are 3,551 technical-dominant enterprises
with 67,000 employees and annual sales of RMB 7.1 billion (about
US 900 million dollars). The production rate per person has exceeded
100,000. They contribute a great deal to new product research
and serve a key role in implementing government policies that
emphasize the integration of science and education with industry.
And then, the production-service cooperatives that accommodate
jobless people try to be very flexible. Since there are no guarantees
of employment or assistance from the government., they operate
based on the needs of the society. And they create new businesses
based on the kinds of people employed there. They have sprung
up spontaneously in many areas and are highly specialized and
developed within their areas. The annual sales of these cooperatives
are RMB 24.3 billion (about US $3 billion dollars), with profits
of RMB 1.34 billion (about US $150 million dollars) in 1997. Again,
there are over 300 worker cooperatives operating according to
the practice of "self-cooperation, self-operation and self-responsibility
for profits and losses." Most of them are relatively successful.
The cooperative Hua Sheng Chemical Plant, for example, began with
only "3 vats, 6 bars and 9 persons", and now is ranked
among China's 500 top companies. In 1997, profits and taxes per
person were RMB 790 thousand (about US $95,000 dollars), an international
front runner in this line of business. Finally, there are shareholder
cooperatives. These currently number 13,000 in Shanghai, and they
have become the primary form of reshaping small state-owned and
old collective economy enterprises. It is clearly evident that
most shareholder cooperatives have great vitality and high profits.
This whole group of collectives are worth watching. Nowadays,
the economic structure is being adjusted in Shanghai. More and
more people have to find new jobs and lots of old enterprises
need to be reformed. If we can seize this opportunity, under the
leadership of the Party and Municipal Government and directed
with the spirit of the 15th Congress of the Party, we can surely
push the new development of the collective economy to new heights.
IV
For the development of the collective economy, we would like to
make the following suggestions:
First, adjust the structure of ownership so that the collective
economy can fill the void the state-owned economy has left. The
state-owned economy is currently undergoing a strategic reformation.
It is merging and consolidating to construct large-scale, highly-efficient
areas of business.
In Shanghai there are 1,600 small state-owned factories and almost
10 thousand small stores, representing only six percent of the
capital of state-owned enterprises. Although small, they employ
a large amount of people and are focal points in the economic
lives of many millions of common people. How they are to be transformed
must depend upon their individual situations, but the direction
of their development should be clear. Practice has proven that
contracting or leasing by private individuals tends to lead to
short-term profit-seeking and plundering of assets. Sales or auctions
lead to drastic increases in unemployment. Mergers are a good
method, but they place a heavy burden on their more profitable
partners. The fundamental way to change state-owned enterprises
is to let them reform by themselves. The shareholder cooperatives,
representing a union of labor and capital, are the most successful
means of doing so. Of course, reforming state enterprises is only
the first step and not a solution to every problem.
Second, allow the collective economy to energize in many forms
of ownership. The troubles faced by the collective enterprises,
such as guaranteed employment and fixed, equal salaries, stem
from the fact that employees have no relationship with their enterprise.
They are collective in name only, and owned, in reality, by the
government agencies in their locality or sector. The 15th Party
Congress issued a clear criterion for reforming enterprises: "We
shall try to look for actual forms of public ownership which will
most promote production". The principle of public ownership
shall be adhered to, and at the same time the actual forms of
public ownership must be boldly sought and created. We must focus
on the ownership system in collective enterprises as a way to
re-establish the relationship between employees and their enterprise
and give them structure as they forge their collective future.
Only then can the fervor of workers and the vitality of business
exist. There could be various forms, but the general direction
has to be salient. When state-owned enterprises are transformed
into shareholder cooperatives, a certain portion of the existing
capital should be mixed with that raised by employees to form
an independent basis of ownership and operation. In this way,
many of the old problems of ownership, management and control
over property can be solved. Only then will these enterprises
be able to enter the market, produce for the market and compete
in the market. Surely shareholder cooperatives are not the only
way to successfully transform small state enterprises, but they
are a superior way, in that the government and the media should
take an active role in directing such reforms so that people are
not left wondering about their futures.
Third, develop urban business in line with economic restructuring
and re-employment projects. Shanghai's economy is rapidly becoming
a service sector economy. Industrial relocation and development
is being done in such a way as to reform the city and gradually
make it a more community-oriented and comfortable place to live.
At the same time, the technical structure of the economy is moving
toward high-tech, high-quality service. Most traditional collective
enterprises, however, are still forced to emphasize quantity over
quality, and they must learn to restructure to face the demands
of the market. Form now on, the jobless people need to make themselves
more versatile, organize themselves into collectives, and connect
themselves to helpful government resources. There are several
areas, regardless in old or new collectives, that need to be emphasized:
A. Urban services: For example, community organizations might
be able to use cooperative forms and modern computer net technology
to connect the daily needs of households with surplus labor resources
in their areas. And then, city garbage could be classified from
the source, then collected, recycled and disposed of by collective
cleaning and recycling companies that will replace inefficient
individual scrap collectors. And then, developing senior citizen
housing communities are a good way to re-employ laid-off women
laborers with training and also make use of an empty house. Finally,
gardening cooperatives are another possibility.
B. Services in daily lives: For example, currently almost all
the breakfast eateries in the city of Shanghai are run by people
coming from outside of Shanghai. This line of business can be
easily taken back by small Shanghai collectives,
C. Household handicrafts, including souvenirs, embroidery, synthetic
jewelry, etc.
D. Technical businesses in the city that consume little energy
and create little pollution, such as clothing, food, printing.
E. Self-motivated entrepreneurs in technology. The Bill Gates
of China should be encouraged by all levels of government agencies
to promote economy of knowledge.
All of these can create more jobs.
Fourth, specify policies that will create an environment more
favorable for existing and future collective enterprises. Just
as Party General Secretary Jiang Zemin said, "The collective
economy can show the principle of making everybody affluent, can
attract scattered funds from society, relax the pressure of employment
and increase the public accumulation of funds for government development
plans." Following these principles, we should consider these
proposals in the following policy areas:
1) Taxation Policy. Shareholder cooperatives that are formed from
small state-owned enterprises enjoy ten preferential tax breaks,
and collective enterprises should be treated with the same.
2) Finance Policy. Set up a "Service Center for Small and
Medium Businesses of Shanghai" to provide guaranteed loans
for small and medium businesses. Allow individuals and small businesses
to rebuild their own credit unions. These cooperative banks should
have a special section devoted to helping private enterprises
engaged in technology development. And we must revamp the financial
system. Since the main commercial banks tend to ignore small businesses,
we want to encourage employees to become involved in the direct
financing to make their own money more productive.
3) Re-employment Policy. The funds for the "re-employment
centers" comes from government, social security and the enterprises
of the collective economy as well as state-owned, so the employees
laid off from the collective shall be equally treated with those
from state enterprises and given services provided by these centers.
4) Merging and Bankruptcy Policy. Laws and regulations on merging
and bankruptcy for the collective economy enterprises should be
the same as those for state enterprises.
5) Policy of Interest-Free Government Lending. Those collective
enterprises engaging in technical reform with good prospect should
be supported and encouraged by local government with interest-free
loans.
6) Policy of Capital Valuation for Enterprises Undergoing Restructuring.
The valuation process for assessing the capital of enterprises
undergoing restructuring must be reasonable and rationalized to
promote reforms.
Finally, establish an organ of policy research to guide the transformation
of the collective economy. Such a government organ must be set
up to provide policy advice and not to run enterprises. It should
address ownership issues and not manage the sources of capital,
and be a macro-advisor and not a trade leader. It should have
high quality in supervision and coordination but limited in personnel.
In addition, there should be a "General Association of Cooperatives
of Shanghai" formed by cooperatives themselves. This association
can serve as a channel to connect "Small Government"
and "Big Society" in order to make these two entities
strive together for the development of the collective economy.
NOTE: Translated and Transcribed from English/Chinese Text by
Caroline Houng.