ABSTRACT
Under the planned economic system, the functions of the government and state-owned enterprises (SOEs) have performed very poorly in mainland China. SOEs, in particular, have become affiliated organs of governmental agencies. The government, through assigning quotas on product types, and quantity and quotas of labor and wages, directly intervenes in the production, operation, and management of SOEs. Alternatively, SOEs have also to bear a lot of responsibility for social affairs that should have been handled by the government, thus resulting in financial and administrative burdens. By the end of 1997, the number of formal employees of SOEs was 107.66 million, compared to only 28 million for urban collective-owned units. 1 Total labor insurance and welfare funds of SOEs reached RMB 257.8 billion in 1997. Moreover, the enterprises have to pay RMB 255.4 billion by themselves to cover such funds. 2 This system has resulted in the phenomenon of “enterprises running small societies,” where SOEs need to utilize RMB 54 billion to subsidize public welfare and facilities. 3
