China As A Nation Faces Two Major Financial Problems GMAT Reading Comprehension

Reading Passage Question

China as a nation faces two major financial problems. First, eighty-four percent of state-owned enterprises do not generate profit. Government failed to collect money from such businesses. Rather, it has to appropriate substantial funds to these enterprises in order to prevent them from going bankrupt and thus resulting in high unemployment rate. Second, 203 million of civilians in the countryside will not be able to gain pension after they retire due to the limited budget of the government.

I would like to make an outrageous suggestion that would at one stroke generate finance earnings and provide funds for civilians’ retirement. I would propose that the government sells its holdings in state-owned enterprises on the open market. Such sales would provide substantial funds for village civilian’s pensions. At the same, they could cut down the financial burden on these state-owned enterprises.

You might object that the government would be deprived of the opportunity to share its enterprise’s profit if someday they make money. I agree. Sell holdings of enterprises that would never generate profit. But, you might reply, every enterprise that competes on the market has potential. Here we part company. Theoretically, you may be correct in claiming that every enterprise has the potential to make money. Practically, you are wrong.

I refer to the thousands of state-owned enterprises that are not likely to make money. These companies are 100 percent held by the nation as a whole. Government officials are appointed as the chairman, CEO and president. The management was not responsible for the public interest, but for the nation as a whole. If there is no significant loss in business, they will soon be promoted back to the higher level position in government. If their companies perform great, these executives receive direct money compensation. However, their salary, when combined with such compensation, will be far below that of their counterparts in private companies.

It would be unrealistic to suggest that village civilians would have sufficient funds if government’s shares were sold on the open market. But the demand for compensating the state-owned enterprises would be substantially reduced.

“China as a nation faces two major financial problems.”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 5 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

1. According to the passage, executives in a state-owned enterprise are motivated by

(A) direct money compensation
(B) increasing salary
(C) political outlook
(D) share option
(E) social responsibility

2. The primary purpose of the passage is to propose

(A) an alternative to manage government property
(B) a way to relieve government burden while providing funds to village civilians
(C) a way to distinguish state-owned enterprises that make money from those that don't make money
(D) the governmental approach to evaluate state-owned enterprise’ executives
(E) a new system for national pension system

3. The author implies that all of the following statements about enterprises with which government holds 100 percent share are true EXCEPT:

(A) A market for government’s share already exists.
(B) Such enterprises seldom generate profit.
(C) There is likely to be a continuing loss of such enterprises.
(D) Government officers are appointed as the executives with such enterprises.
(E) If the executives perform poorly, they will be demoted to a lower position.

4. The author implies that which of the following would occur if government’s shares were sold on the open market?

1. The shortage of retirement funds in villages would eventually cease completely.
2. Current executives in state-owned enterprises are not motivated to perform better
3. Civilians in the countryside would be able to seek sufficient funds from the government.

(A) I only
(B) II only
(C) I and II only
(D) II and III only
(E) I, II, and III

5. The author anticipates which of the following initial objections to the adoption of his proposal?

(A) Government will not be able to sell its holdings with state-owned enterprise.
(B) The ability of government’s to control the national economy will be weakened if state-owned enterprises are sold to private owners.
(C) It is impossible to find enterprises that will never generate profit.
(D) The poor performance of state-owned enterprises will continue.
(E) The countryside civilians are still unable to seek financial support from government.

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