Colorful cats that really catch miceOne of the main conditions for the successful functioning of the enterprise is the availability of sufficient financial resources for the modernization of production assets, the development of new products, and the expansion of production capacities.
The lack of investment affects the competitiveness and quality of products.
In this regard, the problem of attracting investments is relevant for all enterprises, and especially enterprises of the industrial sector. Industrial enterprises are characterized by relatively low profitability, and they need long-term loans to increase efficiency.
Of great importance as a method of raising funds is the process of corporatization – that is, the transformation of an enterprise into a joint-stock company by issuing shares. Corporatization is an effective method of restructuring an enterprise, in which it becomes possible to concentrate significant financial resources in a short time for the implementation of large projects and modernization of the production base.
In the case of defense industry enterprises, the question arises of maintaining state control over the enterprise. It is solved by securing state blocks of shares.
The world practice of joint-stock companies has shown that corporatization is the most acceptable form of reorganization of state ownership and attraction of additional capital. At the same time, the joint-stock form of production organization is most effective for large industrial enterprises, and therefore is the most promising for them.
ON THE WAY TO THE MARKETThe need to develop joint-stock forms of enterprises in the People's Republic of China arose during the economic reforms in the late 1990s.
The country's leadership actively conducted research on the creation of a socialist economy system with Chinese specifics, having studied the experience of other states and taking into account the general political situation in the country.
One of the most significant areas of transition from a planned economy to a market economy was the reform of state-owned enterprises. The Government of the country faced the need to conduct experiments on the gradual promotion of state-owned enterprises to the market, transforming them into real subjects of market relations.
The transfer to the market principles of the functioning of state - owned enterprises provided for:
– enabling the enterprise to do without direct government funding;
– creating conditions under which the company is not interested in improving production efficiency on the basis of directive instructions, but in itself is interested in increasing production efficiency in order to maximize profit;
– encouraging enterprises to use part of the profits to expand and/or diversify production in order to ensure sustainability in market conditions;
– ensuring the interest of enterprises in achieving advantages in the market due to the high quality of their products;
– preservation of the possibility for the state to participate in determining the directions of development of enterprises.
At the initial stage (1984-1991), the process of corporatization was characterized by the lack of a single relevant regulatory framework, sufficient experience and knowledge about this process and was generally experimental in nature. The boundaries of property law were not defined. The mechanism of enterprise management was imperfect. In practice, during this period only about 120 State-owned enterprises were transformed into joint-stock companies.
Subsequently (since 1992), the number of enterprises that issued their own shares has increased dramatically. First of all, this is due to the creation of a legislative and legal framework for the reorganization of enterprises. In the early 1990s, the rules for regulating the securities market were published. In November 1993, the "Law of the People's Republic of China on Companies" was developed and approved. The main provisions of this law are devoted to the process of transformation of state-owned enterprises into various organizational and legal forms, such as joint-stock companies of closed and open types, limited liability companies and others.
DEFENSE SPECIFICSSince the early 1990s, along with the civil sector, defense industry enterprises have been involved in the process of corporatization.
Ideologically, this process was based on the well–known slogan of Chinese leader Deng Xiaoping: "It doesn't matter what color a cat is, as long as it catches mice." But the enterprises of the military-industrial complex (MIC), of course, had their own specifics.
Previously existing or newly formed enterprises that produced mainly or only civilian products were corporatized and privatized in one form or another. Enterprises specializing in the production of military products remained state unitary enterprises. Their activities were commercialized and they were transformed into state-owned companies.
The creation of joint-stock companies and the commercialization of enterprises' activities were considered as an important factor in promoting technical reconstruction and financial recovery of economic entities and the military economy as a whole. However, new forms of ownership and organization of production in the military industry required changes in the management mechanism of defense enterprises.
To ensure the effective management of enterprises of various forms of ownership, state-owned industrial corporations of the holding type were formed. They included all enterprises of the relevant industry profile.
In the process of reforming the management system at the sectoral and production levels, great importance was attached to the decentralization of management, the expansion of the powers of companies, and the reduction of centralized control over decisions made by the management of enterprises. Such an approach contributed to the growth of the responsibility of the lower-level management for the profits and losses of the enterprise.
First of all, military-industrial enterprises with conversion production products began to enter the country's stock markets. So, in 1993, the shipbuilding Corporation company for the first time placed its shares on the Shanghai Stock Exchange. Then, in the period 1995-1997, enterprises of the Chinese industrial corporation for the production of weapons, as well as the first and second aviation corporations entered the market.
In 1999, shares of the defense industry company, which produced dual-use products, were placed for the first time in the domestic market of China. And already in 2004, the shares of the military enterprise appeared on the stock exchange in Hong Kong, that is, they became available to foreign investors. In the same year, the State Administration of Defense Science, Technology and Industry (GUONTP) and the National Committee for Reform and Development jointly published the "Program for the Development of Defense Science, Technology and Industry", in which they clearly indicated the main directions of reorganization of military industry enterprises that have established the production of dual-use products.
TYPES OF COMPANIES AND TYPES OF SHARESCurrently, the basis of China's defense industry consists of joint-stock companies of various types: companies with 100% state capital, joint-stock companies with a controlling stake owned by the state (more than 50%), companies with a blocking stake held by the state (less than 50%, but more than the other shareholders) and companies with state participation.
Companies with 100% state capital include industry corporations (military-industrial groups) and their subsidiaries engaged exclusively in the production of weapons and military equipment (IWT) or having unique highly specialized equipment. Such enterprises remain fully state-owned, and as a result of commercialization, their entrepreneurial activity is stimulated.
Enterprises that have established conversion production or are producing dual-use products are transformed into other types.
Currently, all 10 branch corporations of the military industry have joint-stock subsidiaries whose shares are listed on the stock exchanges of Shanghai, Shenzhen or Hong Kong.
Chinese joint-stock companies can place shares of type "A" and type "H". Shares of type "A" were originally intended only for the domestic market of China without the right to sell to foreign investors.
However, since 2002, amendments have been made to the regulatory framework regulating securities activities in China, which made it possible for foreign investors to purchase type A shares in the domestic market of China through the system of "qualified foreign institutional investors". At the same time, restrictions remain in the field of converting type "A" shares into US dollars, which creates certain difficulties for foreign investors.
"H" type shares are listed on the Hong Kong Stock Exchange and can be freely purchased by foreign investors. The presence of "H" type shares in a military-industrial company indicates its full openness to foreign investment.
GROWTH UNDER CLOSE SUPERVISIONThe State supports the process of corporatization of military industry enterprises.
In recent years, the Government of the country has adopted a number of regulatory legal acts systematizing the process of transformation of defense industry enterprises into joint-stock companies.
In 2007, GUONTP published "Temporary Regulations on the reform of the system of corporatization of military Industry enterprises" and "Regulations on the participation of intermediary structures in the process of reforming military industry enterprises and their entry into the stock market."
Later, in 2011, the Central Military Council of the People's Republic of China approved the "Resolution on the creation and improvement of the scientific and production system of the military industry based on the integration of military and civilian". In the same year, in the "Plan for the development of central enterprises for the 12th five-year plan", GUONTP identified the main directions of optimization and reorganization of central enterprises.
Thus, during the economic reform in China, a large-scale reorganization of state-owned enterprises was carried out. The main form of structural transformations of state-owned enterprises, including enterprises of the military industry, was corporatization, which was carried out under the control and with the support of the state.
The corporatization of military industry enterprises made it possible to increase their efficiency in market conditions, became a source of additional funding for research and production activities, and also significantly expanded the capabilities of the Chinese defense industry to attract advanced foreign technologies.
Vasily IvanovVasily Ivanovich Ivanov is a journalist.
