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Suppose you and your friends have an ice cream. Suppose you do not want to eat it but use it to make money instead. But you do not have time to do it or do not know how to do it. So you hire a nanny - it has to be a nanny, according to "rules" which you will soon understand. As it is business, the nanny has to have commercial savvy.
Now, suppose the nanny does make money by handling the business and she wants a share in the business.
One of your friends meets her demand and gives her a share.
The problem arises from there.
Commentator A wonders whether the price of selling the share is a good one and whether the nanny will eventually grab the whole business originating from the ice cream.
A also claims the group of friends should have held on to the business.
Commentator B argues the ice cream would have melted down to nothing if the nanny was not given the share as an incentive.
This, basically, is the crux of a debate that has been raging among Chinese economic and business scholars during the past two weeks that has dragged in some big name companies and eminent economists.
Their topic is whether the managers of reforming State enterprises should be allowed to buy assets of the companies - known as management buying out (MBO) in commercial circles.
The debate was started by Larry Lang, a professor of the Chinese University of Hong Kong, who published reports early last month saying financial statements of the home appliances makers Kelon, Hai'er and TCL indicated executives of these companies encroaching on State assets and the MBO was bad for China's State sector reform.
"The executives should be nannies only. No more than that. It is their job to look after the State enterprises. They should not use the opportunity to take advantage," Lang said in a seminar where he and supporting economists presented their arguments.
The leading opponent to their viewpoint was Peking University professor Zhang Weiying, who said MBO was a reasonable approach as China still does not have acceptable salaries for professional managers.
Lang's criticism is not actually a new one. The draining of State assets has long been a hot topic for discussion by government officials, economists and the public.
Even the analogies of "ice cream" and "nanny" are old ones.
The debate is still going on. But no new conclusion can be expected other than the old callings for increased transparency of the pricing of State assets and improved legal environment for State sector reform, which is agreed by all the economists participating in the debate.
What the arguments do is to remind people how difficult it can be to seek a balanced approach in reforming the State sector.
What is different in Lang's case is his courage in naming heavyweight companies. Chairman of Hai'er, Zhang Ruimin and chairman of TCL, Li Dongshen, are both star entrepreneurs. The operations of the two companies were lauded by many as successful cases of State enterprise reform.
Lang is also bold enough to challenge the very idea that State companies are less competitive than private ones. He cited cases in Eastern Europe, saying that privatization schemes there have proved to be failures that China should draw lessons from.
But what really helped Lang attract attention this time was Kelon's radical reaction.
Kelon officials filed a suit against Lang.
Prompted by Kelon's harsh words about Lang, the media immediately compared Lang to Liu Shuwei, a researcher of the Central University of Finance and Economics who wrote a short report in 2002 revealing the wrongdoings of a listed company. Liu was blackmailed and had to call the police for protection.
The media then splashed Lang's report and sought comment from other economists.
Peking University's Zhang hinted that the approach of Lang's work was not sound and had been influenced by the public's emotions.
He repeated the ice cream metaphor and said it had been proved in many cases that leaving the State companies the way they had been was really like allowing them to melt like ice cream.
"It is impossible to have no loopholes at all. We have to move on," he said.
He said it is very difficult to assess the value of the assets of State companies because other problems such as liabilities and the reallocation of the displaced employees all needed to be taken into account.
Zhang Wenkui, a researcher with the State Council Development Research Center, echoed Zhang in saying that the current salary system of State enterprises can not provide necessary incentives for managers and MBO is a good option.
He also said that comparing China's selling of State assets to Eastern Europe's privatization was not appropriate.
Instead of selling euphoria, China's regulators have cautiously put in place a system to ensure the selling of the assets is part of a package that addresses as many problems of the enterprises as possible.
(China Daily September 6, 2004)
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