Restructuring state - Owned enterprises in the transition to market economy in Vietnam

d development economics. - Research methods: Methods of classifying and systematizing theory, methods of statistical analysis, synthesis methods, methods of analysis and prediction - Analytical framework of the thesis. 7 Chapter 2 THEORETICAL BASIS OF THE RESTRUCTURING OF STATE-OWNED ENTERPRISES IN THE TRANSITION TO MARKET ECONOMY 2.1. State-owned enterprises in the process of moving to market economy 2.1.1. State-owned enterprise basic concepts and characteristics State-owned enterprise concepts and characteristics ' ‘SOE is an enterprise with over 50% of charter capital owned by the state to dominate the operation of the enterprise according to the State's objectives, on the basis of compliance with market principles’. Sourced: combined by the author The characteristics of SOEs are shown in the following basic aspects: + Regarding ownership and management: SOEs are economic organizations with over 50% - 100% of charter capital owned by the State. + Regarding the form of business organization: SOE is not a type of enterprise, so it does not have its own organizational model. State- owned enterprises are organized under the corporate regime, either as a joint stock company or as a limited liability company. + Regarding main production and business field: through SOEs, the State performs the function of providing goods and services that the private sector does not want to do because of low profit, or is unable to do because of large capital requirement, slow capital recovery, or security and defense related fields, ensuring community benefits + Operational objectives: The operational objectives of SOEs are the goals of the business owner. + Regarding corporate responsibility: A State enterprise is a legal entity with limited liability for all production and business activities within the amount of capital allocated by the State. - The role of state-owned enterprises The role of SOEs is shown in the following aspects: State-owned enterprises play a key role in the economy. + A State enterprise is an economic organization of the State, performing the role of the State, producing goods, providing services 8 for social needs, ensuring market stability. + State enterprises lead economic sectors outside the state sector (private enterprises, collectives, individual business households) to develop + State enterprises create jobs and income for people, ensure social stability. 2.1.2. Impacts of the transition to a market economy on SOEs - Market economy and its impacts: + Market economy is a popular form of production organization in both developed and developing countries. In essence, a market economy is an economy in which market relations determine the distribution of resources through the price system. + Basic characteristics of a market economy are shown in the following aspects: Firstly, the operating mechanism of the market economy is freedom of competition Secondly, a market economy is an economy based on a synchronous market system and highly developed technical infrastructure. Thirdly, the market economy is a multi-ownership economy, with many sectors and many actors participating. - The effects of the transition to a market economy on SOEs Process is a noun indicating the way to, or the process of carrying out a job, according to a route or plan. In Latin, process is "processus", reflecting movement, spontaneous events or a sequence of purposeful manipulations. The process of transitioning to the market economy of a country is the milestones for each goal, to complete the tasks and assignments the State need to do to perfect the market economy. In Vietnam, the transition to market economy has been determined from 1986 to the present. In a dynamic, creative and rapidly changing market economy, most SOEs formed in the subsidy regime become quickly out of date, stagnant, unable to keep up with management, sales and distribution. SOEs invests spreadily, receives support from the state, causes inequality, hinders the competitive motivation of the market economy. To meet the requirements of market economy, the transition countries 9 have been taking steps to renovate their enterprises. The process of SOE renewal and restructuring in Vietnam can be divided from 1986 up to now into three phases: The period from 1986 to 2000: During this period, SOEs were clearly defined in terms of legal status, as well as the scope of the business sector through the Law on State Enterprises (1995). The 2001 - 2011 period: SOEs dominated key industries, sectors and essential products of the economy, contributing mainly to the state economy, managed to play its key role, stabilized and developed the economy - society. Also during this period, debts from the SOE sector that were unable to pay increased, labor shortage and a large surplus. Therefore, there is a need to rearrange both public and business enterprises. The 2011 - 2021 period: This is a strategic breakthrough period, socio-economic development orientation, growth model renewal, economic restructuring is strong development of production forces, construction. appropriate production relations, forming a synchronous socialist-oriented market economy institution. Transforming the growth model from mainly wide development to reasonable development between width and depth, expanding the scale and focusing on improving quality, efficiency and sustainability. To restructure the economy, focusing on restructuring the production and service industries suitable to the regions; accelerating corporate restructuring and adjusting market strategies; rapidly increasing domestic value, added value and competitiveness of products, enterprises and the whole economy; developing knowledge economy. Based on the 3rd Central Resolution, the XI Central Executive Committee (2011) on the arrangement and renewal of SOEs, the Prime Minister signed the Decision No. 929 / QD-TTg dated July 17, 2012 approving the project "Restructuring state enterprises, focusing on economic groups, state corporations in the period of 2011 - 2015". The project's objective is to restructure SOEs to focus on key areas and to improve their competitiveness. Through the implementation process, in 2017, the Central Government issued Resolution No. 12-NQ / TW dated June 3, 2017 on continuing to restructure, innovate and improve the efficiency 10 of SOEs. 2.2. Restructuring state-owned enterprises in the transition to a market economy 2.2.1. The concept and content of SOE restructuring in the transition to a market economy - The concept of SOE restructuring: Restructuring SOEs or SOE restructuring is the organization of business activities in a new way, in order to improve the operational efficiency of enterprises. Restructuring SOEs in transitioning countries to market economy is solving weak problems, aiming to improve the operation of SOEs, aiming to make these enterprises operate more efficiently. Thus, the SOE restructuring in the transition to the market economy is understood as all the innovations in the institution, law and implementation of the allocation, management and use of state resources invested in production and business at the enterprise according to the market principle, in order to improve the economic efficiency of these resources. - SOE restructuring contents: SOE restructuring focuses on (i) repositioning the role of the state economy, mainly SOEs; (ii) restructuring the list of state assets in the enterprise; (iii) restructuring SOE governance and (iv) restructuring SOE technology, products and services Restructu ring SOE sector Restructuring SOE governance Repositioning the role of SOEs Restructuring the list of State assets in SOEs Restructuring SOE technology, products and services 11 Figure 2.1: Framework for restructuring the SOE sector 2.2.2. Methods of restructuring state-owned enterprises in the transition to a market economy Methods of SOE restructuring include the following: - Classification, arrangement, merger, amalgamation, dissolution, bankruptcy of state-owned enterprises with ineffective or unprofitable businesses, and transfer to other management agencies - State-owned enterprise equitization The equitization of SOEs is the most basic and important measure in all forms of SOE restructuring. - Selling loss-making and ineffective State-owned enterprises in sectors and fields that the State does not need to keep This measure has been implemented since the late 1990s and has had a positive effect due to the complete transfer of ownership. In fact, the delivery and sale is only taking place in local enterprises, small and medium SOEs that are making losses. Therefore, this object is being narrowed and appears less important in recent years. - Transforming business model into limited liability company Transforming SOEs into one-member limited liability companies with the State-owned company management organization in order to change the organizational structure and management according to the market economy mechanism is appropriate innovation. - Establishing an economic group and transformed into the parent company - subsidiary model The formation of parent companies - subsidiaries and economic groups stems from the need to use the advantages of size and economic advantage and financial capacity of key enterprises. 2.3. Factors affecting the restructuring of state-owned enterprises 2.3.1. Political factors When determining the organizational form and implementation of SOE restructuring, it must be in line with the State's socio-economic construction and development orientations and objectives. The state must determine the state owner's goals and steady roadmap for reform. 2.3.3. Economy The level of perfection of the market economy and the stability and development of the economy dominates the progress and efficiency of 12 SOE restructuring. 2.3.4. Competence of officials, civil servants and business managers Awareness capacity, attitudes, and responsibilities of the heads of ministries, localities and business leaders are the strong dominant factors in SOE restructuring. 2.3.5. International economic integration International law and practice, the economic, political and commercial situation of the region and the world dominate SOE restructuring to different degrees, depending on the degree of integration and participation in each country. 2.4. Experiences on restructuring state-owned enterprises of some countries and lessons learnt for Vietnam 2.4.1. Experience of SOE restructuring of some countries in the world 2.4.1.1. Experience in restructuring state-owned enterprises in China China's view of SOE reform is consistent with the socialist market economy. In recent years, China has made a theoretical breakthrough in SOE reform. Firstly, the theory of building a socialist market economy with Chinese colors; secondly, the theory of ownership regime; thirdly, the theory of the modern business regime. The basic content of the SOE reform theory in China, in which the modern enterprise regime is the focus, and enhancing the vitality and competitiveness of the SOEs is the highest purpose. 2.4.1.2. Experience in reforming state-owned enterprises in Korea The corporate sector restructuring is implemented through the following measures: Measure 1: Principle 5 + 3 for business restructuring process Measure 2: Assign large corporations to consider restructuring capital Measure 3: Limit holding shares in other companies and guarantee cross-debt Measure 4: Eliminate weak companies and swap business between large corporations 13 Measure 5: Restructuring corporate governance 2.4.2. Some lessons for Vietnam from foreign experiences on SOE restructuring Firstly, positioning the roles of SOEs in line with the practice of market economic development. Secondly, the law and law enforcement must be synchronous and truly ensure equal competition between SOEs and other types of enterprises. Thirdly, the governance, management and administration of SOEs must really follow the market mechanism, basing on business principles Fourthly, not allowing the formation of relationships of interest, profit from state capital and assets invested in production and business. Chapter 3 ACTUAL SITUATION OF STATE-OWNED ENTERPRISE RESTRUCTURING IN THE TRANSITION TO ECONOMY MARKET IN VIETNAM FROM 2011-2020 3.1. The actual state of state-owned enterprises in the 2011 - 2020 period According to the General Statistics Office, as of 2019, the total number of enterprises in operation is over 714 thousand enterprises, the number of operating enterprises with production and business results is over 626 thousand enterprises. In which, SOEs account for 0.38% of the number of enterprises, 7.6% of employees, 28.6% of total capital sources and 100% state-owned enterprises only had already account for 0.18% of the number of enterprises, 4.3% of employees, 12.9% of total capital. In general, in the 2011-2020 period, SOEs have tried to perform their assigned tasks, achieving many remarkable positive results, ensuring the provision of many important products for economic development such as energy, telecommunications, credit financing. The total value of state equity is preserved and developed; the proportion of SOEs losing money has decreased remarkedly; The rate of profitability and employment efficiency of SOEs is higher than the average for the 14 entire enterprise sector. However, the average growth quality and investment efficiency of the SOE sector are still low: Over the past years, SOEs have had lower growth rates in revenue and profit than those of operating capital. Compared with non-state and FDI enterprises, SOEs have lower growth rates of revenue and profits. In other words, SOEs are having to use more capital to create 1 unit of output value, which is a factor that reduces SOE investment efficiency. 3.2. Actual situation of state-owned enterprise restructuring in the 2011-2020 period 3.2.1. Reposition the role of state-owned enterprises in the restructuring process In the 2011-2015 plan, SOEs are assigned a key role for the state economy to play a key role, being an important material force for the State to orient, regulate the economy and stabilize the macroeconomics. In 2016, the XII Congress of the Party determined: "SOEs focus on key and essential areas; important areas and national defense and security; areas where enterprises of other economic sectors do not invest”. The role of SOEs has changed. The basic and long-term function of SOEs is no longer a tool of the State to lead the economy and enterprises, but only focuses on the to ensure essential products and services necessary for socio-economic development that other economic sectors do not want or have not yet wanted to invest in according to the market mechanism. In that spirit, SOEs are gradually reducing their roles in for-profit economic activities, only occupying a leading role in a number of key economic sectors. However, in the 2011-2020 period, SOEs still play a role and account for a proportion in key economic sectors. Specifically: SOEs play a large role in ensuring national energy security; For the petroleum industry, Vietnam Petroleum Group Petrolimex accounts for about 50% of the domestic retail market share; the proportion of SOEs in the banking and finance sectors still maintains their dominant positions; SOEs are playing a dominant role in telecommunications, information, 15 communication... This shows that SOEs are still small in number in the economy but still hold a very important role and account for a high proportion of the country's resources, so the goal of minimizing the number of roles of SOEs has not been achieved as the restructuring plan. 3.2.2. Restructuring the list of state assets in an enterprise - Determine the list of enterprises that continue to maintain state ownership: The SOE classification criteria have changed many times to suit the role of SOEs in each period. In 15 years, from 2001 to 2016, the Prime Minister issued six criteria to classify SOEs. The trend of adjusting the SOE classification criteria is to reduce the number of sectors and fields that maintain 100% state-owned enterprises, from over 60 sectors and fields in 2002 to 11 sectors in 2016. On December 28, 2016 The Prime Minister issued Decision No. 58/2016 / QD-TTg on criteria for classification of SOEs, state-owned enterprises and the list of SOEs to implement the 2020 arrangement, in which the State only holds 100% of charter capital in 103 enterprises operating in 11 sectors. Numer of enterprises 103 31 106 0 20 40 60 80 100 120 100% State Capital The state holding over 50% ownership The state holding under 50% ownership Charter Capital (billion VND) 561002 280353 174606 0 100000 200000 300000 400000 500000 600000 100% State Capital The state holding over 50% ownership The state holding under 50% ownership Figure 3.1: Classification of SOEs in the 2016-2020 period Implementing equitization and divestment of state capital over the past time: a) The results of equitization and divestment in the 2011-2015 period The competent authority has approved the equitization plan of 508 16 enterprises, reaching over 98% of the plan (in 2011 it was 14 enterprises, in 2012 it was 26 enterprises, in 2013 it was 73 enterprises, in 2014 it was 175. enterprises and in 2015, it was 220 enterprises). In which, the State holds over 90% of charter capital in 5 enterprises, over 65% of charter capital in 108 enterprises, and over 50% of charter capital in 154 enterprises. Regarding divestment, the whole country has withdrawn VND 26,222 billion (book value), collected VND 36,537 billion (equal to 1.40 times of book value). In which: Divestment of investment outside the industry (securities, banking, insurance, real estate, investment funds) was VND 9,835 billion, earning VND 11,086 billion (equal to 1.1 times of book value), reaching 42% of the plan; transferring state capital in enterprises that the State does not need to keep amounted to VND 16,387 billion, earning 25,451 billion dong (equal to 1.6 times of book value) b) The results of equitization and divestment in the 2016-2020 period The Prime Minister issued Document No. 991 / TTg-DMDN dated July 10, 2017 on the list of 128 SOEs to be equitized to 2020 and Decision No. 1232 / QD-TTg dated August 17, 2017 on the list of Divestment by 2020 with the capital to be divested about 60 trillion VND in 406 enterprises. The number of enterprises approved for the equitization plan from 2016 to 2019 is 168 enterprises with the total enterprise value of VND 443,056 billion, of which the value of state capital is VND 206,694 billion. The total divested capital is VND 24,157 billion, earning VND 169,787 billion. - Regarding the ownership policy for each state-owned enterprise In fact, the restructuring period from 2011 to 2015 and from 2016 until now shows that, there has been no innovation in this content. The determination of the annual tasks is mainly in the form of approving the registration plans of the enterprises, which have not yet reflected the responsibilities as well as the responsibility and expectations of the owner agencies towards the affiliated SOEs. With that mechanism, the ownership policy in SOEs is unclear, incomplete and inconsistent to create a basis for a unified governance 17 framework. The content of the ownership policy (objectives, requirements, monitoring and evaluation criteria ...) is separated, divided and lacked coherence due to being placed in many forms of documents. The mid and long-term goals of the owners for each SOE are almost unknown, lacking quantitative indicators. - Regarding the organizational apparatus to perform the state owner function: Regarding the policies and laws, in the period of restructuring 2011-2015 and from 2016 to now, there have been many innovations in this content. Conclusion No. 40-TB / TW dated September 14, 2017 of the Politburo on the project "Establish a specialized agency to act as the owner representative for state-owned enterprises and state capital in enterprises". Therefore, the Government has established a Committee to manage state capital at enterprises according to the Government's Resolution No. 09 / NQ-CP dated February 3, 2018 - Regarding the transfer of the right to represent the owner of state capital in an enterprise to the State Capital Investment Corporation Accumulated to date, SCIC has received the right to represent the owners of state capital in more than 1,000 enterprises with a total value of state capital received more than VND 9,900 billion (at the market price of 15,000 billion dong), equivalent to nearly 1% of the total state capital in enterprises, of which more than 80% are small inefficient enterprises; the number of enterprises under special control, with losses accounting for nearly 7%. - State-owned enterprise supervision: SOE supervision and monitor of the management and use of state capital in enterprises still have many shortcomings in terms of capital use, financial transparency, SOE information, a major monitoring tool is SOE periodic reports, not meeting the requirements of practice. - Information disclosure and transparency of SOE operations: for each SOE, the situation that enterprises do not disclose information or delay information disclosure is still common. - Regarding the management, administration and internal restructuring mechanism in state-owned enterprises: the recent regulations have clearly defined the functions, duties and powers of 18 SOE managers. The legal document system on the management of staff, labor and wages in SOEs is relatively complete and comprehensive. However, in general, the management and internal regulation of many SOEs is a weak and slow stage. Labor governance within enterprises is still weak, management qualifications, leadership and corporate governance capacities of state-owned enterprise managers are still limited. - Regarding the tightening of financial discipline and budget discipline for state-owned enterprises: the compliance has not followed the principle of budget constraint and financial discipline for SOEs. 3.3. Evaluating the actual situation of SOE restructuring in the 2011-2020 period 3.3.1. Achievements - Regarding the determination of the roles of SOEs: In the period 2011-2020, the 5 th Central Resolution XII no longer maintains that SOEs must occupy the dominant market share with key products. - Regarding divestment and equitization of SOEs: the transformation of a 100% state-owned enterprise into a joint stock company changes the structure and way of corporate governance; Corporate governance model is organized more closely with many systems of rules, principles and regulations to ensure effective operation of the business; After equitization, investors and shareholders are guaranteed to participate in corporate governance in accordance with the law, and the interests of the state owner are increasingly guaranteed ... - Regarding SOE governance compared to international practice: Regulations are relatively complete and synchronous on economic and financial relations between the State and SOEs. 3.3.2. Limitations - The role of SOEs has not yet met the requirements of the restructuring process - Equitization and divestment in state-owned enterprises are still slow - The SOE governance mechanism is slow to be reformed, is inconsistent with international practices and standards, and the 19 transparency is limited. 3.3.3. Reasons - Objective reasons: Due to the domestic market and the world economy continuously having many fluctuations - Subjective causes: The group of causes is from the institutions, the SOE management and governance mechanisms; Some reasons stem from internal SOEs 3.4. The problems posed to the restructuring of state-owned enterprises in the coming time Firstly, the socialist-oriented market economy that we are building is a special economy. Secondly, to develop Vietnam's economy, it is not possible to rely solely on one economic sector, but to arouse all potentials and all resourc