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China Aims Blow at Iron Rice Bowl, Heralding Social and Financial Change

China Aims Blow at Iron Rice Bowl, Heralding Social and Financial Change
The decades-old system of providing cradle-to-grave welfare support, known as the country's "iron rice bowl", system started by the Chinese government has been ordered to be smashed specifically with respect to the state firms.
But the decades-old system of providing cradle-to-grave welfare support, known as the country's "iron rice bowl", would be hard to implement and is part of a plan to reduce financial pressure on bloated and heavily indebted state-owned enterprises (SOEs).
The Pingmei Shenma Group, a state coal conglomerate that dominates the economy, society and air of the heavily polluted city in Henan province, sits at the heart of soot-covered Pingdingshan in central China.
It has chemicals and construction businesses apart from coal.
Apart from providing subsidized housing for workers, water, heating and power, it operates 41 hospitals and 18 schools and provides pensions. It even runs a plush retirement home, complete with golf course, for its senior managers.
But it is unclear what the facet of these facilities would be. Much of the infrastructure will need to be renovated if they are not closed down. And the estimates by the State Council researchers are that it would cost more than 1 trillion yuan ($115 billion) nationwide.
After capacity cuts in coal production, some of Pingdingshan's hospitals already had fewer miners to treat.
"We can only try to provide better services," a doctor, who only wanted to be identified by his surname Li, said at a small outpatient clinic near Pingmei Shenma's defunct Number Seven coal mine.
"Though this is a big place, we are far away from the city center, there is no good transportation and it isn't convenient for ordinary people to come," Li said.
To ditch their "social functions", Beijing has given SOEs until 2020. But Pingdingshan has been put in the spotlight not only of Beijing but also other provinces facing similar challenges and for it the deadline is more imminent because Henan wants to complete the process by the end of 2017 under a pilot project.
Poorer provinces and especially one-company towns like Pingdingshan struggled to make the switch given the central role their SOE played, while state firms in wealthier regions of the country moved away from paying for social welfare services some years ago.
"Removing social functions and resolving the problems left behind by history is an important condition for SOEs to become market entities," Xiao Yaping, head of the State-Owned Assets Supervision and Administration Commission, said on the institution's website.
In a credit splurge encouraged by Beijing following the global financial crisis, China's SOEs accumulated total debts of 85.3 trillion yuan by the end of September. Executives have repeatedly called on Beijing to help reduce their costs.
The efforts to ditch them could also increase a firm's redundancy and labor redeployment costs, especially as authorities try to limit unrest in regions already hit by an economic downturn as China's central government-administered SOEs run around 8,000 units providing community services.
Costs of running , pensions and other "social functions" amounts to 850 billion yuan a year. A delegate to China's parliament said in March, local government-run firms pay even more.
Just to supply residents with heating, water and electricity, in Henan, state firms spend 800 million yuan a year.

Christopher J. Mitchell

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