the redundant staff of enterprises. It has been a great difficult problem of the SOE reform from begin on that enterprises are overstaffed. It is an important measure of revitalizing the SOEs to dismiss and distribute workers. In June 1998, the state council required all regions to set up re-employment service center system. National Ministry of Labor and Social Security emphasized that the laid-off worker in SOEs must 100% enter the re-employment service center. The re-employment service center determined to provide serve functions such as grant basic living cost, withhold social insurance, organize job training and launch employment etc. for laid-off worker. The fund, which used for ensuring laid-off worker's basic life and paying the social insurance premium, come from financial budget, enterprise as well as societies (namely form contribution or from laid-off worker themselves), each part bears 1/3 of the whole fund. The re-employment service center provides service for laid-off workers for at longest 3 years. When they can’t reemploy after this period, can still enjoy unemployment compensation or the society relieve according to relevant regulation.
In this reform stage, re-employment service center played a positive role on maintain social stability. From 1998 to the end of 2001, 25,500,000 laid-off workers emerged (Fig 3) in national state-owned enterprises, among them more than 17 million people were reemployed, more than 3 million people retired. However, re-employment service center was only a transitional institute, because the SOE had to still take responsibility to settle down those laid off workers. According to a new policy, all laid-off workers after 2001 are treat as unemployed and have to enter free labor force market.
5) In order to extricate SOE from predicament, especially to resolve the problem of high liability-asset ratio, by December 2000, 580 SOEs began to implement debt-to-share swap, that mean the enterprises’ debt were recalculated as share (enterprises’ equity), so that the interest burden of SOEs were lightened. In the process, most of unperformed loans would be calculated as shares, which would be gathered and supervised by a new state commission-- State-owned Assets Supervision and Administration Commission (SASAC). Till 2001, the total amount of money of debt-to-equity swap account 40,5 billion dollars, and the result was that the average asset-liability ratio of debt-to-share swapped enterprises dropped from more than 70% to under 50%.

2. The main problems left in the reform
After three steps reform, the SOE acquired more autonomy, as we have seen, the whole economic circumstance were also better. But because the reform did not touch the socialism idea from begin on, thus the transition of ownership of SOE was left basically unchanged, the defects of SOE could not changed completely. In the context of China’s economic reforms, there are still a few problems in SOE sector existed and have also a deep influence.
First of all, the interventions from the government still maintained influence in SOE. The administrative relation between enterprise and government is still remaining. Even the Local State Assets management office was established, it belong to the same bureaucratic system like former authorities. It can appoint or remove senior executives of SOEs. If enterprise applies to the broad structure, the directors in broad are appointed by it. The office has also a say in the transfer of holdings, corporate mergers, closures or other major changes to the enterprises, it is also charged with the tasks of clarifying property rights and settling disputes (3) . It seemed that the state assets supervisory takes the place of former authority above the SOEs. Moreover, the local government maintains still strong power in local enterprise, they rely on each other as we discussed above. So long as the enterprises are state-owned, whether they are big groups, stock companies or little entities, it is difficult to shaking off the directly or indirectly control from the government.
Secondly, because of the long tradition, enterprises are still taking responsibilities for their employees in pension, medical areas, therefore the so-called “soft budget constraint” cannot be given up completely. Although we have discussed that the Chinese government has managed to start re-employment plan, SOEs also take a part of the fund to support the plan. Correspondenly, government had to shoulder some failures resulted from the mismanagement of SOEs’ and avoid from their bankruptcy, in order to prevent the enterprise from bankrupcy and thus endanger the social stability.
Thirdly, the management of SOEs has low quality compare with other economic sectors. Though SOEs have produced an average 10% growth rate in the value of industrial output during the period 1978-98, this rate is considerably below the average of other sectors. The problem has two reasons. One of them is lacking of the inner incentive of the managers. The SOE managers are not entrepreneurs in the true sense, but bureaucrats at any rate. Their appointment by the government not basically according to their managerial capability, but based on their rankings in the bureaucratic hierarchy through the politic system. Another factor concerns the supervision within the SOE, it is also lacking in most cases. In practice, the position of supervisor in a enterprise is normally taken by staff within the enterprise and in most cases, the position of president of the supervision committee is taken by somebody within the enterprise, who is under the leadership of the directors and managers in his ranks both at work and in the Party. This system makes it very hard for the supervision committee to fully perform its authority (4) .
Fourth, the high liability-asset ra

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