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156 25 Invigorate Large and Medium State-Owned Enterprises1 July 25, 1988 The main purpose of this mayor’s administrative meeting today is to explore (a) how to put into practice the spirit of the national conference on the contractual management responsibility system at state-owned enterprises (SOEs), and (b) how to complement, refine, more broadly implement, and develop that system in Shanghai so as to move its enterprise reforms forward. I raised this issue at an on-site working meeting at the Municipal Textile Bureau on July 1, noting that we want to introduce a mechanism for competition into Shanghai’s SOEs. At the time, I didn’t let them publish my remarks because I felt the time was not yet right. Now, in conjunction with implementation of the spirit of that conference, we are going to start working on such a device, which will be a very great test for Shanghai. If we are to better fulfill this year’s plan and meet next year’s challenges, we must start by deepening enterprise reforms and introducing a mechanism for competition. It now seems that our enterprises cannot go on without competition because they are operating in two environments: an external one and an internal one. Any such mechanism must apply to both. Following are a few points about these two environments. 1. Open Hiring of Factory Directors and Reform of the Internal Competition Mechanisms of Enterprises With the introduction of the contract system at the beginning of the year, contracts were hurriedly approved. This was entirely appropriate for if we hadn’t done so, the situation today wouldn’t be so good. However, this doesn’t mean that once the system was in place and contracts were signed, factory directors were allowed to stay put for five years. How would we cope with next year’s challenges in that case? During the earlier phase of contracting, we were basically talking to enterprises individually, and all they wanted to argue about was 1. This is part of a speech by Zhu Rongji at the 12th mayor’s administrative meeting of Shanghai ’s municipal government. Zhu_Shanghai Years_1987-1991_hc_9780815731399_i-xii_1-620.indd 156 12/26/17 12:00 PM Invigorate Large and Medium State-Owned Enterprises 157 “Which category will I belong to?” “What is the base figure for my contract?” “How much will you reduce my taxes and profits to be handed over?” They were all haggling over these things. Many factory directors are not yet aware that the purpose of contracting is to push them down a path of responsibility for their own profits and losses, that they themselves must become the personification of an enterprise’s competition mechanism, that they must truly exert themselves to the utmost before their enterprises can truly be responsible for their own profits and losses. They don’t have a sense of “I want to be the factory director, I am capable of being the factory director.” Therefore the internal mechanisms at a factory can’t just automatically reform once a contract is signed. The first step is to institute open hiring for the factory director, and subsequently for its shops and work teams; only then can they reform the enterprise’s internal mechanisms. We must follow this sequence of tasks. When we agreed to the contracts in February and March, we were already thinking that this had to be the next step—it was our original idea. But once we said so, some factory directors reacted negatively: “I already signed the contract and have done quite well. I’ve achieved all the contracted base figures, so why do you want to change factory directors?” “Are you punishing me because I lost a bit of money and didn’t do my job very well?” They became resistant. Hence we must clearly explain the reasoning on this matter. First of all, open hiring of factory directors is stipulated in the “Law on Publicly Owned Enterprises.” A factory director can be either openly hired or elected by the workers. These are the main options—they accord with the enterprise law and with the recent principles of the State Council regarding reforms of labor and personnel systems. Of course if the external environment does not allow freedom of management , then even the best factory director will find it hard to get anything done. That’s why this isn’t simply a reform of internal mechanisms—reforms of the external environment must take place concurrently. Externally, freedom...


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