Establishing a Stockholding System for Enterprises

Wu Jiaxiang and Jin Lizuo

Chinese Economy, 1989, vol. 23, issue 1, 24-32

Abstract: >p>To date, the measures of economic reform that have already been put into practice still fail to provide a fundamental solution to the following problems:>/p>>p>1. Using and allocating capital funds. People have proposed a number of views regarding the problem that the state-run enterprises have, without making compensation, made use of the states capital funds, resulting in waste of this most precious and scarce resource; some measures have in fact also been adopted and implemented. One of these measures is the system of paying a user fee for fixed assets, which is based on the theoretical foundation of the so-called shadow interest. A technical difficulty that this measure has already run into is the fact that the enterprises that require a high rate of capitalization may not necessarily be those that bring about a higher rate of profitability, and therefore, if implemented, there is no guarantee that this measure will produce good results. A further measure is that of shifting from allocation [of capital funds] to making loans. This undoubtedly has the effect of promoting the usage efficiency rate of the newly increased fwed assets of each individual enterprise and reducing the capital coefficient, but it fails to resolve a series of problems-e.g., the problem of the possession and use of already existing fixed assets, the problem of how the states investment may flow into the most efficient sector of production, the problem of how, if capital funds had been invested in the wrong place, they can be extracted and shifted to a more appropriate realm of production, and the problem of how, when the states capital funds are low and inadequate, it is possible to satisfy the capitalization needs of some trades and industries that are in urgent need of development and growth.>/p>

Date: 1989
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