Let 300,000 companies bloom
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Let 300,000 companies bloom

It is one of the boldest economic plans of the century: China wants to sell or merge its state-owned enterprises - nearly half the country's economy. Jack Lowenstein reports on the difficulties ahead.

People-ization was given president Jiang Zemin's blessing at the 15th Communist Party congress in September.

The term may not sound that radical, but the goal certainly is. Jiang wants to restructure and privatize China's 300,000 state-owned enterprises. Between them they are believed to account for 43% of China's industrial output and 57% of its urban employment. According to a report by Credit Suisse First Boston, 75% of them are loss-makers - many "essentially bankrupt" - but kept afloat by state banks forced to lend to them despite already carrying Rmb1.5 trillion ($180 billion) of their non-performing loans.

The market response to Jiang's proposed sell-off is praise for the concept tinged with caution. Henry Chan of LGT Investments in Hong Kong does not see privatization as a reason in itself to raise his weightings of Chinese stocks until there is evidence reforms are successful and will yield better earnings.

"It's path-breaking stuff," says Stephanie Wu of Foreign & Colonial Emerging Markets in London. "There will be an increased emphasis on corporate profitability, but the way there will be very difficult." This is an understatement. Most state enterprises were created to provide full employment and social welfare rather than make a profit.

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