Lessons from China SOEs

ARNOLD Ngowani.

IN THE quest to share experiences and expertise with other developing countries, China once again sponsored and organised a seminar on state-owned enterprises (SOEs) for developing countries from September 8-28, 2017.

For China, this was meant to share experiences so as to promote global economic growth, which in return should bring about world peace. In attendance were representatives from English-speaking African and Asian countries.
Zambia was represented by officials from Industrial Development Corporation (IDC), Ministry of Finance and the Zambia-China Old Students Association (ZACOSA).
It is safe to conclude that the Chinese economy has performed exceptionally well in a number of aspects since 1978. To buttress that, today China is the second largest economy in the world after the USA. Therefore, it is wise to be interested and learn or implement some of the policies that have led to the growth of the Chinese economy. One of such policies that requires some understanding is the role of SOEs in the growth of the Chinese economy.
From the seminar, we learnt that it is the business of the government to be in business. Institutions like the International Monetary Fund and the World Bank will by and large encourage countries with their respective governments to fold and not be involved in the running of businesses but simply create an enabling environment for the private sector to flourish.
IMF and World Bank’s view is meant to promote competition and eventually efficiency and effectiveness in the management of enterprises and the entire economy.
Nevertheless, the Chinese experience is different and points to the fact that the government should be involved in business for a number of reasons. Firstly, SOEs can contribute significantly in terms of advancing national economic goals. For example, by keeping prices in check, streamlining production, enhancing industrial safety, and developing infrastructure.
Secondly, these SOEs constitute the foundation of the country’s economy and pride. In addition to their profit-maximisation goal, they can also contribute to the national welfare, maintain a harmonious society, and ensure sustainable economic development. They can thus pursue both commercial and social goals. A country without wealth for its people is as good as a useless, unsovereign and leaderless state. This is because one of the functions of the governments is to create wealth on behalf of the citizens. This is for the goodness of the society and future generation.
To achieve the above, China has an institution called State-owned Assets Supervision and Administration Commission of the State Council (SASAC), which is a special commission of the People’s Republic of China .This is similar to Zambia’s IDC. SASAC is responsible for managing SOEs, including appointing top executives and approving any mergers or sales of stock or assets, as well as drafting laws related to state-owned enterprises.
Furthermore, this has to be done professionally so that great talents are given a chance to contribute to the growth of the national economy, which eventually benefits all citizens and the future generation. Zambia should embark on the mission of wealth creation. This is the only way the destiny of the country can change, and more importantly, Zambians should have the ‘Zambian dream’.
Put it differently, what is the Zambian dream if there is such a thing as an American dream and now a Chinese dream? Otherwise, it will be like in the wilderness (40 days and 40 nights) without creating anything to boast about as a country. Since independence, Zambia has not performed well in as far as wealth creation for its citizens is concerned.
Or is it that as Zambians we don’t know that as a country, we need to have a strategy to create wealth over time? Or are we so ‘religious’ that we are waiting for God to create wealth for us as a Christian nation? I still feel and believe that it’s only through strategic planning and hard work over a period of time that Zambia can flourish. “Empty talk harms nations but strategic planning and hard work make them great.”
SOEs are critical in that, unlike private corporations, whose only goal is to maximise profits, they have and should have a social responsibility as an additional goal. While still expected to be profitable, SOEs also serve as an important vehicle for the state to advance economic stability, development, and sustainability at the national level. They provide the country over time with real tools for intervening in the economy.
SOEs are supposed to be the government’s economic arm and, thus, are expected to advance the well-being of the entire nation. Therefore, selling strategic SOEs should be seen as sabotage and assort to the well-being of the country. It is, however, cardinal to note that SOEs are expected to set an example for businesses. Specifically, they are expected to pursue stable development, long-term competitiveness through research and development, and profitability. At the same time, they are expected to treat employees well.
Furthermore, SOEs are expected to serve as a model of good compliance with the law and fair trade with suppliers and retailers. Thus, SOEs are expected to advance the interests of all of their stakeholders. On a national level, SOEs are regarded as an important vehicle for realising the Zambian government’s goals and facilitating government intervention in the economy. Due to their strategic and large size, SOEs can impact the entire market segments and thereby enable the government to intervene in resource allocation.
Additionally, SOEs can reduce unemployment rates through their hiring decisions. To achieve competitiveness, allow two parastatals to compete. Executives who don’t perform well should be asked why they should not be fired when others in a competing business have performed well. This can boost hard work. Furthermore, Zambian SOEs should evaluate and reward managers strictly based on performance.
SOEs play a key role in promoting socio-economic development by providing a wide range of products and services to the nation. While country circumstances differ, Zambia can draw lessons from China’s SOEs reforms. China has developed a strong SOEs corporate strategy based on a number of factors such as a strong work ethic, discipline, enforcement and monitoring of policies, crackdown on corrupt activities, accountability, following up on proper procedures in executing work tasks, non-tolerance on laziness, accomplishing tasks on time, performance-related incentives and strong supervision systems.
Among the many factors, one of the most important factors that enhanced Chinese SOE performance was great discipline and hard work. The determination to achieve set targets is critical. Zambia can draw lessons from that. There is need to promote and improve efficiency and effectiveness of SOEs by enforcing compliance to good corporate governance and improving performance management systems. Appointing competent managers to manage SOEs is crucial. Moreover, never reward a manager at the slightest signs of failure. This will cultivate a culture of hard work and great discipline.
a. Formulation of adaptable state-owned asset operational budgets, assessment of the qualifications of SOEs board members, directors and supervisors, are all but critical.
b. It is vital that a mechanism be established to regulate Zambian SOEs and subject them to public scrutiny. This will ensure that they fulfil their duties and compete in the marketplace and serve as a model for other businesses, while advancing national macro-economic goals.
This article has proposed several reforms to achieve this end. Firstly, it has made a case for improving the internal governance of SOEs, calling, in particular, for making the IDC more accountable to the people, increasing board independence, and strengthening the power of employees within the firm. Secondly, it has called for improving the external monitoring of SOEs. Specifically, it has advocated steps for increasing transparency and regulating key management decisions.
The author is an economist and Zambia China Old Students Association vice-president.

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