In China, with the downward trend in the economy and local financial pressures, reports of salary reductions for public servants have been widespread since last year, and state-owned enterprises have been cleaning up their “non-staff personnel.” Recently, Shandong province initiated the transformation of state-owned enterprises into corporations, with the former employees being transferred to newly established state-owned enterprises or privately-owned enterprises, becoming contracted workers for these corporations. Experts point out that this move may lead to an increase in bankrupt enterprises and unemployed individuals in the future.
At the same time, there has been an expansion in the recruitment of public servants and in institutions related to stability maintenance, which some analysts attribute to the financial difficulties faced by the Chinese Communist Party. State-owned enterprises are being restructured or reallocated to enhance the financial resources for stability maintenance institutions.
Ten departments, including the Human Resources and Social Security Department of Shandong province and the Provincial Party Committee Organization Establishment Committee Office, recently jointly issued a document titled “Opinions on the Handling of Issues regarding the Transformation of Provincial State-owned Enterprises into Corporations.” The document states that when state-owned enterprises are transformed into corporations, these enterprises must formally dissolve their personnel relationship with the staff within the establishment, and cancel the real-name system information of related personnel within the stipulated period.
Some provincial state-owned enterprises are being transformed into state-owned enterprises or non-state-owned enterprises, such as joint-stock companies. The document specifies the conversion of personnel labor relations for transformed units and outlines the handling options for state-owned enterprises transforming into private enterprises.
The term “state-owned enterprise” refers to units established by mainland China’s state agencies or other organizations using state-owned assets, with their staff falling under “state-owned staffing.”
As early as 2015, Shandong issued a document converting state-owned enterprises engaged in production and operation activities into corporations. For example, in 2020, the Shandong Provincial Pharmaceutical Industry Design Institute was converted into a state-owned enterprise, reclaiming the establishment and canceling the legal registration of the state-owned entity. This recent move is a comprehensive call for transformation.
For a long time, administrative positions, state-owned enterprise positions, and state-owned company positions have been considered the most stable job positions in mainland China, known as “iron rice bowls.” However, state-owned enterprises faced mass layoffs in the 1990s, and administrative and state-owned enterprise positions have always been sought after by many job seekers. Now, these positions are being “reformed,” with online commentators pointing towards financial difficulties faced by the government.
Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina explained to Dajiyuan, “State-owned enterprises have always relied on public funds, but now the local governments are generally running deficits. By transforming these enterprises into corporations, it is essentially shifting the responsibility of supporting these employees onto the businesses.”
Xie Tian further pointed out that the Chinese Communist government, unlike normal governments, can use administrative orders to place these working state-owned enterprise personnel under corporations, with businesses unable to refuse. However, this approach will undoubtedly impact the profitability of businesses and could even lead to their bankruptcy. “Having to support so many idle workers is a burden for businesses, and they may not be able to sustain it, leading to bankruptcy.”
The companies where the former state-owned enterprise employees of Shandong are being transferred include both state-owned enterprises and private enterprises.
Sun Guoxiang, Associate Professor at the Department of International Affairs and Business at Nanhua University in Taiwan, stated that the Chinese Communist Party has always been dealing with the issue of how to distribute resources between the public sector and the private sector. If a significant number of state-owned enterprises are transformed into private enterprises, it will involve a complex consideration within the Chinese Communist Party system regarding the overall production enterprise.
“Private enterprises usually focus on profitability, and traditionally in market-oriented or capitalist societies, there will inevitably be layoffs during the transformation process. Having to be self-sufficient implies that there will be more unemployment in the future,” Sun added.
According to official documents, after the transformation of state-owned enterprises into corporations, the original employees will be removed from the province’s real-name list held by the establishment. It is reported that Shandong Province aims to thoroughly address the retention and identity issues of the former state-owned enterprise personnel while also alleviating the financial burden. It is expected that over 100,000 state-owned enterprise personnel will be shifted to corporate employees.
The transformation will have a series of impacts on former state-owned enterprise personnel, including identity and compensation issues. Shandong’s document outlines the economic compensation standards for establishment employees who choose not to enter the transformed units.
Du Wen, a former legal adviser for the Inner Mongolia regional government, expressed concerns in an interview with Radio Free Asia, stating that Shandong’s current state-owned enterprise to corporation reform involves 79 units, accounting for about one-tenth of the total, mostly self-financed state-owned enterprise units. Among them, the highest proportion is various types of province-owned hotels, restaurants, guesthouses, and exhibition venues, including the affiliated guesthouses in Beijing and Shanghai offices and workers’ residences of the Provincial Federation of Trade Unions.
In comparing this reform to the state-owned enterprise reform conducted in 1997, Du Wen emphasized that the previous reform involved the frenzied sale and appropriation of state-owned assets, resulting in widespread layoffs and hardships.
Du Wen questioned the current process in Shandong, highlighting that the focus so far has been on personnel reallocation plans rather than asset disposal plans, which are more critical. Many Communist Party officials at various levels have been able to profit significantly during the transformation process by acquiring high-quality state-owned assets at a low price. The real victims are those who are laid off and abandoned.
An examination of the official document revealed a vague mention of “land asset disposition,” maintaining the right of land use for state-owned enterprises post-transformation, with a promise to “optimize operational asset layout, improve asset operation efficiency, and achieve preservation and appreciation of state-owned assets.”
Indeed, since last year, with the economic downturn and local financial constraints, reports of salary reductions for public servants have been ongoing in various parts of China, with some even facing payment delays, including in public security sectors. State-owned enterprise employees have frequently experienced salary cuts, loss of benefits, and many locations have started purging non-staff personnel. Shandong’s latest move is a comprehensive transformation of state-owned enterprises into corporations.
Du Wen noted that the group being excluded from state-owned enterprises mostly comprises individuals aged between 40 to 50, a particularly vulnerable and helpless cohort. Simultaneously, this will create ample space for the government’s next round of expansion. It is said that departments such as public security and internet supervision urgently need to expand.
Commentator Li Linyi told Dajiyuan that the funds freed up by the authorities are likely to be mostly used to expand the personnel spending of stability maintenance departments, such as various levels of “social work” institutions at the local level, and the recent implementation of network surveillance through the issuance of online accounts and certifications by regulatory departments.
In 2023, the Chinese Communist Party launched the “Party and State Institutional Reforms” plan, requiring a uniform reduction of 5% in personnel across various central state agencies. However, officials stated that the reclaimed positions would primarily be used to strengthen key areas and important work. Notably, this reform added a new “authoritarian patch” – the Central Office for Social Work – which extends down to community workers at the grassroots level. Recently, there has been a significant recruitment drive for community workers by the Chinese Communist Party.
Meanwhile, amid a tightening atmosphere, interest in the Chinese civil service exam has surged, leading to an expansion in recruitment.
After the registration for the Chinese civil service examination closed on October 24th last year, officials announced the plan to recruit 39,600 civil servants in 2024, an increase of 2,500 from the previous year, accounting for a recruitment growth of about 6.7%. These civil service positions are mainly concentrated in departments such as the taxation bureau, customs, railway public security, and immigration border control. Notably, the tax department remains a major recruiter, with 10,063 positions available.
Chinese affairs expert Wang He stated on October 25th last year to Dajiyuan that the Chinese Communist Party aims to enhance its surveillance over the overall economic activities and intensify its financial scrapping efforts. Departments like customs and tax, which cooperate with the Chinese Communist Party in financial pursuits are key players. The addition of personnel to public security and immigration departments is related to the Chinese Communist Party’s need for social stability.
In the first half of this year, many regions established joint action centers for tax enforcement, resulting in controversies such as scrutinizing private enterprises for up to 30 years. Post the Third Plenum of the 20th Communist Party Central Committee, official statements about granting more tax authority to local governments to boost revenue were questioned for potentially leading to arbitrary taxation practices.