Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission (SASAC), told the press that State-owned enterprises may begin to pay dividends to their owner, the government, from the first quarter of 2007. His announcement triggered many media comments, including the following selections.

Xiaoxiang Morning News:

It is common sense in economic theory that businesses must reward investors with profits. There is ample reason for State-owned enterprises to pay the State. These enterprises are owned by the State, they have just gone through a restructure at the cost of the government and many of them have a monopoly in their industries because the government set thresholds preventing competition.

The State stopped collecting dividends from these enterprises in 1994, when many of them were technically bankrupt. Now is a good time for the State to resume this practice. The net profit of State-owned enterprises totalled over 600 billion yuan (US$75 billion) in 2005. This huge wealth should be handled by the State rather than any other group.

With the news that the State will again be able to get returns from the enterprises it owns, it is only reasonable for the public to expect more benefits to be paid with the dividends reaped from these firms.

However, Li Rongrong's explanation of how the dividends would be used failed to meet this expectation. The report said that the dividends would be used to help the enterprises further their reform and restructure. The money would also be put into the less-developed aspects of these enterprises, like research and development.

Thus, the dividends handed in by the enterprises would return to the firms in the form of State investment. In other words, the SASAC has no intention of spending the dividends in fields beyond its governance.

This is disappointing. Profits made by the State-owned enterprises will not go to improving public welfare unless they are transferred to the State coffers in a real sense. Worse, the SASAC did more than it is supposed to when it decided how the dividends would be used.

The SASAC is an agency representing the State as the owner of these enterprises. It is natural that the SASAC collects the dividends from the firms, but the next step should be to transfer the money to the Ministry of Finance so that it can be pumped into the public finance system.

After all, the money is obtained from State assets and the State should have the final right to decide how it should be used. As it is part of public finance, the money should be put under the supervision of the National People's Congress. Without its authorization, the money should not be earmarked for any purpose.

Yanzhao Metropolis News:

News of State-owned enterprises paying dividends to the SASAC will leave many people both happy and worried. They are happy because the State will finally recover its due right to the profits earned by the enterprises it owns. But they are also worried because the money is not likely to benefit the public directly, but will be put back into the enterprises.

As a rule, State-owned enterprises should bring benefits to the State and the public. It is not unusual for State-owned enterprises to pay the public directly through dividends.

State-owned enterprises have been earning more money in recent years. According to an official from the SASAC, the after-tax profits of State-owned enterprises will total more than 700 billion yuan (US$87.5 billion) in 2006. Few Chinese citizens would want the government to give them this money in cash, but it is not an unreasonable hope for the departments in charge to spend the dividends in a way that would substantially boost public welfare.

The country has several fields that are thirsty for money, such as education, medical care, the pension plan and rural development. Putting the dividends back into the State-owned enterprises, rather than into these fields, is not the best choice.

After all, State-owned enterprises belong to all the citizens of the country and the government should supply public services and public goods. It is only right for the government to spend the dividends from these enterprises on better services for its people.

The government should take the dividends from the State-owned enterprises and put them into the public budget, earmarking them for rural compulsory education, public medical care, social security and other fields, so that people can taste the fruits of reform.

(China Daily 12/08/2006 page4)