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Chen (2004)Management > Asian Management > Lectures > Independent Research > Chen - China > Issues with CSEs
Issues with CSEsThe continual shifts of power between centralisation and decentralisation resulted in CSEs being subjected to two systems of leadership:
Such administrative ambiguities caused many problems, such as demoralised management, who did not know who was in charge and what the goals were. It also led to stifling amounts of bureaucracy, low efficiency and a risk averse. Managers took a attitude, where "decision making virtually became administrative reactions to instructions from the government institutions". A lack of marketisation meant that it was not known what of where the markets were, resulting in a gross misallocation of resources, where some places received far too much and other places received barely any at all. The government reacted by rationing products to consumers. In addition, the state-set pricing meant the relationship between production costs and product prices were greatly distorted. The profitability of CSEs depended on the arbitrary state-set prices, rather than the efficiency of the firm. "Successful" industries included cigarettes and wine, while "unsuccessful" industries included raw materials and public services. At this time banks were also part of the government. The state funded CSEs via "gratuitous" credits at very low interest rates. Managers had no control over the income of its workers, so workers were not encouraged to work hard or well. "Egalitarianism was the norm while there was no leverage of wages or bonuses" All these elements contributed to the slowing of the Chinese economy and was the reason for the 1979 reform.
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