Problems and Benefits of Privatization of Public Sector Organizations in China Essay

Privatization as an important role of saving , has great contribution for all over the world. So what is privatization? Privatization means transfer of assets of economic activity from humanity sector to private sector, it has been seen by many authoritiess as a means of revitalizing inefficient industries and as an opportunity to raise revenues to ease budgetary problems however, privatization in mainland China is very complicated.When reform started in 1978, most of the productive assets were state-owned in China. But reforms since then confuse non included privatization. Today, on that point is more than than 70 per cent of Chinese productive wealth which belongs to Chinese regime. During the first 20 years of reform, the government strong the countrys assets with a great purpose of development which benefactored to achieve the creation of infrastructure and working out of industrial capacity. We can image, if the state assets had been privatized, it would become a big trouble for China to mobilize resources during the dire industrialization between 1980s and 1990s.Thats why the initial marketization-without-privatization approach has been successful. Also because of that, China has emerged a robust infrastructure and become an industrialized economy.However, this industry-first, government-investment- drive and export-oriented growth model which has been highly resource intensive has flail its course. China has expanded export almost of the world, not only the developed countries, also Latin America, the snapper East and Africa. But this growth model is limiting the speed of export. China has to turn towards growth driven by domestic demand, not exports, and one led by service not industry to swag its economy. So what can help to stimulate the transformation? The answer is privatization.Privatization remains a thorny leave in a country where private property became a constitutional right only in 2004 and where the right to own productive as sets remains unclear. Many vibrant, purely private companies have sprung up scorn this uncertainty, but take care to stay out of the limelight. For example, the most famous Chinese private telephoner is Legend Holdings Ltd, is Chinese investment dimension company in IT, investment, and real estate formed by the Chinese Academy of Sciences- the best-known of which is the Lenovo Group in which Legend is the controlling shareholder. In 2006, the volume of its cable was 4,033,096 million RMB. Another famous private company is Huawei which makes and deals telecommunication equipment. It is biggest supplier who shows the solution of telecommunication network. Until 2011, the whole company had 146,000 employees, and the annual sales volume was 203.9 billion RMB. Obviously the kinds of private companies become a main power to better Chinese economy and increase national income.Proverbially, privatization can help to chasten the government financial and administrative burden. The best example is Legend Holdings Ltd. Legend Holdings Ltd was based on the Chinese Academy of Sciences. Chinese government only invested 200 thousands to organize the company. However, until now, the company has developed to an international holding company with the influence from all over the world. The Chinese government doesnt manage the company now but it controls a part of stock of the company. According to an analysis suggests that privatization of Chinas state-owned enterprises is achieved with limited via media on the social welfare responsibilities, and much of the improvement in the firm performance comes from the reduction in the agency cost at the management level. The state-owned enterprises generally have bloated management structure with excessive total of managerial expenses. It is because the State Assets Agency has multiple objectives, and so long as the management meets those objectives it is neither cause nor disciplined for get maximization. On the contrary, pri vate companies have their own management systems, they dont have so much social welfare duties as state-owned enterprises.Rapid development of privatization also can help government to increase their financial income. According to the data suggests, in 2004, mainly to the private economy of bitty and medium-sized enterprises created 58.8 per cents of GDP, 68.3 per cents of exports and 48.2 per cents of revenue in China. Also we can see the data from Legend Holdings Ltd. Until 2003, this private company reach over to the national tax 5.45 billion RMB. As the state-owned enterprises, the government has to invest by themselves to get profit however, as private company, government can get revenue without investing or management.Increasing talent and productivity in certain public sector is the third advantage of privatization in China. Some state-owned enterprises sale to specific purchasers through MBO(Management Buy-Outs). The managers cooperate with foreign companies which can hel p to import high technology equipment and improve the manufacturing technology. Obviously, this can increase the efficiency and productivity of company. The most famous example in China is Haier. Haier as a global electrical appliances brand, cooperate with 28 companies from difficult countries like America, Japan and Germany. As of 2008, Haier has surpassed touch Whirlpool as the worlds top refrigerator producer in terms of sales, accord to Euromonitor, an independent business intelligence provider. Haier said it sold 12 million refrigerators worldwide last year, up 20% over the previous year. Its market share reached 6.3% globally.On the other hand, with the development of privatization in China, thither are many problems which disturb the road of privatization. As I talked before, MBO is a kind of form of state-owned enterprises privatization. The government selling the state-owned enterprises to private organization or individual is another form. The biggest problem for this f orm is the individual exit change the enterprise to family business. The Chinese Social Science Center had a research about Chinese private economy. The data showed 61.82 per cent companies admit that they are family business. Only 27.4 per cent of enterprises stock was controlled by family low 90 per cent. In China, family business enterprises average life is only 2.8 years. Why? Many bosses of private companies provide management job to their family. However, with the development of enterprise, importing the skills of manufacture and the experience of management become more and more important. Family members are not enough for the development of business.The crisis of stock is another problem for privatization in China. A spell back Huawei company was in trouble of old employees demanded the stock of enterprise. According to this event, we can notice there is more stock crisis in privatization of China. The owners of enterprises want to control the whole company however, when t he state-owned enterprises change to private enterprises, the diffusion of stock is very confused. The deficiency of clear strategy of cooperation and the lack of coordination system make the partner vex for stock, which can make the management layer into disarray.The developing of enterprise is seriously for entrepreneur. However, the growth of enterprise is not only expanding the company or increasing the number of employees, it appears in many aspects. Chinese entrepreneur everlastingly want to control their companies, this means they do not want to decrease their stock of the company. This phenomenon result to the lack of investment. For example, we can connect to family business. The lack of investment and management skills make the enterprises average life only 2.8 years. How to accept foreign investment and increase the capital is big challenge for Chinese entrepreneur because when the enterprises become private, the government cannot control or manage or invest to the c ompanies directly.Chinas privatization has developed more than 20 years, the private company increase the government financial income and develop Chinese economics. However the privatization in China is still not mature. A state-owned enterprise which changes to private enterprise has to face many problems. In general, the effort of Chinese privatization is optimistic. This also can help to develop the world economics.