Abstract EN:

SOE reform is an important aspect of China economic reform. It witnessed several experiences from the operation mechanisms reform (1978-1992) to the establishment of the modern enterprise system (Since 1993), and gradual privatization through MBO (1998-2005). China’s SOE reform is gradually carried out in the inherited enterprise governance structure and established political power infrastructure. Therefore SOE’s corporate governance is of characteristics of governmental interference and “insider control” problem. The separation of ownership and control in a modern enterprise brings about agency costs. As a kind of system innovation to solve the problem of agency costs, MBO’s governance effect in the process of China’s SOE reform is worthy of study. After examining more than three decades’ reform process of China’s SOE, from the angle of corporate governance, we concluded that China’s SOEs, relatively speaking, succeeded in the reform of incentive mechanism whereas they failed to improve the selection mechanism of SOE’s management; privatization through MBO reduced their agency costs in a certain extent, but they have not yet solved the problems of governmental interference and “insider control” problem. The current situation of China’s SOE is not the end of its reform but a new starting point of its further reform. We suggest that future reform should focus on the transfer of governmental function and normalization of enterprise behaviour. The government must withdraw from more profit-making sectors and become public-service oriented; in the aspect of corporate governance, SOEs should strengthen the supervision of independent director, increase and support private shareholders, and enhance the transparency of enterprise information disclosure so as to create effective internal governance and fair external environment for competition