China Employee Ownership Picture Clarifying

We continue to get bits and pieces of information about how employee ownership is proceeding in China. According to Feng Shengbao, a research fellow at the China Society for Research on Economic Reform, most small- and medium-sized enterprises (which means almost all enterprises not owned by individuals or private investors) and some large enterprises, are being sold or will be sold to employees.

In the typical arrangement, employees buy the shares from two principal sources. First, when the company is privatized, employees no longer accrue benefits from the government that would be used at retirement. The value of these future benefits can be used to buy shares. Second, employees can use existing savings to buy additional shares. Share purchase is voluntary, but nearly universal. For now, shares can only be sold back to other employees, and new employees can buy shares when they join the company. Management is limited to buying shares equal to not more than 10 times the value of the average worker's share. Feng says this may change, however, as a market develops. The government is committed, however, to finding ways to institutionalize employee ownership, rather than make it a transitional strategy, as it has been in other former communist countries.