SOEs Shorting Government Coffers

State-owned enterprises (SOEs) raked in profits of nearly 2 trillion yuan ($304.2 billion) last year, but official data shows that the government received only a small fraction of this sum - considerably less than the firms are required to pay.

The SOEs, more than 120 in total, managed to shore up 1.98 trillion yuan, the Ministry of Finance announced last week, but no more than 44 billion yuan of that total was handed in to the central government, the People's Daily reported, citing data provided by the State-owned Assets Supervision and Administration Commission.

That is less than 3 percent of the total profits.

Last year, the SOEs were obligated to give 5 to 10 percent of their profits to the government. This year, the annual dividend has been adjusted to between 5 and 15 percent.

Prior to 2007, SOEs received a budget from the State but were not required to share their after-tax profits.

Jia Kang, director of the Research Institute for Fiscal Science at the Ministry of Finance, said, "The contribution accounted for only a tiny part of the profits SOEs made, which does not conform to their earning performances and their access to huge public resources."

Currently, State-owned financial companies are exempt of the obligation.

"If State-owned financial firms continue to enjoy the exemption, it will not only result in little contribution made from SOEs, but also in unfair competition between different market players," Jia said.

The SOEs' annual dividends paid to the central government are mainly used for industrial restructuring, technological innovation and as subsidies for reorganizations, the People's Daily report said.

However, only 1 billion yuan from those dividends in 2007 and 2008 was used to improve public welfare programs, including social security.

Deng Xiaofang, a primary school teacher from Hunan Province, said State-owned enterprises should share more responsibility.

"Enterprises such as telecoms and petroleum companies have prospered quickly in recent years, but they could not have earned as much without the government's support and domestic consumption," Deng said, adding that they should contribute more to improve public welfare.

SOEs have long been under fire by the public and in the media for their monopolies and high incomes, while exuding privilege and esteem.

According to figures released Monday by the Ministry of Finance, in 2008 the highest welfare expenditure by SOEs for each employee reached 44,600 yuan, accounting for 26 percent of the total payroll.

Scandals involving SOEs' lavish spending practices are not uncommon.

The Hubei Enshi Electric Power Company reportedly bought 600 million yuan worth of equity shares from its employees, making 400 employees overnight millionaires - an act that fueled speculation that the 600 million yuan was the annual bonus paid to employees, the China Youth Daily said in a report earlier last week.

Hubei Enshi denied that the equity shares were related to State-owned assets, saying they were shares from four private firms owned by the company and some of its employees.

Zhou Tianyong, a senior economist at the Party School of the Central Committee of the Communist Party of China, called it unreasonable for a small portion of the population to enjoy huge benefits resulting from State assets.

"The State-owned economy actually encourages unfair income distribution and accelerates polarization," Zhou told the Global Times.

In December, the Ministry of Finance decided to increase the dividends handed in by SOEs. Starting this year, SOEs are classified into four categories for the purpose of sharing profits in the form of dividends paid to the state.

The rate for 15 SOEs, including China National Tobacco, is 15 percent; for 78 companies, such as Aluminum Corporation of China, in the resource sector, it stands at 10 percent; while for a further 33 SOEs, the rate is set at 5 percent.

But Wen Zongyu, director of the State-owned Research Institute for Fiscal Science at the Ministry of Finance, however, argued that raising the minimum level of payments to the government by SOEs may prevent the companies from performing better, while forcing them to consider major operational changes, such as investing overseas.