Material for the Press Conference of 2008 BIMC

General Information on 
Reform and Development of SOEs
over the Past Five Years since the Establishment of SASAC

State-owned Assets Supervision & Administration Commission
of the State Council, PRC (SASAC)

August 10, 2008

In accordance with the spirit of deepening the management system of state-owned assets which was made at the 16th Party Congress of the CPC and the Chinese cabinet institutional restructuring scheme passed by the First Session of the Tenth National People’s Congress of the People’s Republic of China, the State Council established the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) in 2003. It is the first time to separate government functions of social and public administration from the functions of investor of state-owned assets in terms of institutional structure, and the representative of investor of state-owned assets is clarified. The new state-owned assets management system was established. It defines that the State is the owner and authorities at different levels are authorized to be the representatives of the owner, combines rights with obligations and duties and administers assets, personnel and other affairs. With the efforts in the past five years, the framework of the state-owned assets management system has been established and will be improved gradually. The supervision and management of state-owned assets have been enhanced. The responsibilities for preserving and increasing the value of state-owned assets have been shouldered at all levels. The reform of SOEs has been deepened and the layout and structure of the state sector have been optimized. The state sector’s vitality, controlling power and influence have been further strengthened.

First, the reform of the state-owned assets management system has made great progress.

The organizational structure and regulations for supervising and managing state-owned assets have been established. SASAC organizations at all levels have been set up: Central Government, provinces, autonomous regions, municipalities directly under the Central Government and Xinjiang Production and Construction Group. Most cities (prefectures) have established local SASAC organizations. Those cities that do not set up local SASAC organizations have clarified regulatory authorities for supervising state-owned assets with various ways. Some provinces and cities also actively explore new effective ways to supervise state-owned assets at counties. The rules and regulations for supervising state-owned assets have been continuously perfected. SASAC have made and issued 19 regulations and 104 regulatory documents supporting the Interim Regulations on Supervision and Management of State-owned Assets of Enterprises. Local SASAC organizations also made more than 1600 regional regulations and regulatory documents.

The responsibilities for preserving and increasing the value of state-owned assets have been shouldered at all levels. The performance of the executives of SOEs is assessed, which is a common practice. The responsibilities are shouldered, the pressure is delivered and incentives are also linked through all levels. The responsibility system of preserving and increasing the value of state-owned assets has come into effect primarily. The performance of the executives of the central SOEs is assessed both annually and in every term. Rewards or punishment will be given according to the assessment results. We have also preliminarily standardized the remuneration of the central SOEs and deepened the incentive and constraint mechanism. Remarkable achievements have been made during the first performance assessment term (2004-2006). Now the work is going on in the second term (2007-2009). Local SASAC organizations also carried out performance assessment for their invested enterprises successively.

The supervision on state-owned assets is further enhanced. SASAC enhanced the financial supervision which highlighted the management on central SOEs’ account books, formulated regulations and measures on supervising the financial situation of its central SOEs, carried out various work, such as managing enterprises’ financial budgets and final accounts, monitoring enterprises’ dynamic financial situation, accounting supervision, auditing economic responsibility of enterprise leaders, managing enterprises’ internal audit, supervising the intermediaries which audit the central SOEs financial statements, etc,. We stably implemented state-owned assets operational budget of central SOEs and promulgated Guidelines on Comprehensive Risks Management of Central SOEs, by which the risk control was further enhanced. We also actively explored and constantly improved the supervisory panel system, realizing its transformation from subsequent supervision to real-time supervision.           

The transformation of SOEs and the transfers of state-owned property rights have been further standardized. SASAC and other related organizations formulated a series of policies and administrative documents, which provided rules for the transformation of SOEs and transfers of state-owned property rights. We also carried out the inspection on SOEs transformation and state-owned property rights transfers. We actively promoted the establishment of property rights exchange market and its standardized operation. The state-owned property rights exchange platform in China has come into effect. The state-owned property rights transfers have been carried out in the exchanges openly. Therefore, the transformation of SOEs and transfers of state-owned property rights have been gradually standardized which effectively prevented the loss of state-owned assets and safeguarded the legal interests of employees.

Second，SOEs reform and the adjustment of the layout and structure of the state sector have made new progress.

The joint-stock system reform of SOEs has been further deepened. Up to now, more than half of key SOEs have undertaken the joint-stock system reform. Many of them have gone public both home and abroad after the reform. More than 90% of small and medium SOEs have been transformed and the majority of the subsidiaries of the central SOEs have carried out the joint-stock system reform. Some central and local SOEs also explored ways to improve their corporate governance. According to the Company Law, 19 central SOEs such as Baosteel Group and Shenhua Group carried out the pilot program of establishing standardized boards of directors. 17 out them have the boards where the number of external directors exceeded half of the total. And 3 out them recruited external directors as board chairmen.

The layout and structure of the state sector have been continuously optimized. The coalition and restructuring of SOEs have been pushed forward actively, and the overall restructuring of the central SOEs have been sped up. There have been 99 central SOEs carrying out restructuring for 49 times. The total number of the central SOEs has shrunk from 196 to 149. The central SOEs have accelerated the restructuring of their core businesses and the separation and restructuring of the non-core businesses. That has integrated resources and reduced duplicate construction. The SOEs have also been restructured in various ways at local level. Thus a group of sound enterprises that can influence and stimulate the local economy has come into effect. The policy-related closure and bankruptcy of SOEs, separation of social obligations from SOEs, as well as separation of non-core businesses from core business and the transformation of non-core businesses have been orderly implemented. Up to now 5000 projects have been closed and gone to bankruptcy, and 10 million staff members and workers have been resettled. By the end of 2007, 1299 large and medium SOEs have carried out the separation of non-core businesses from core business and the transformation of non-business. 2,338,000 laid-offs have been relocated. Efforts have been intensified in the internal reorganization and various kinds of investment have been liquidated. The management chains have been shortened. At present most SOEs have shortened the management layers to less than or equal to three.

The abilities of independent innovation of SOEs have been further improved. SOEs actively push forward independent innovation while focusing on the development of industries and market demands. They have further increased investment in research and development of science and technology and developed new technologies and products which have internationally and domestically leading positions, which have provided strong technical support to structural adjustment and industrial upgrading. Some enterprises have actively carried out the pilot work on strategic alliance of industrial and technical innovation and explored ways to build new technological innovation system which combines industries, universities and research institutes together. From 2004 to 2007, the investment on science and technology of the central SOEs has amounted from 61.16 billion yuan to 177.35 billion yuan and the annual growth rate was 42.6%. SOEs accounted for a large percentage in the national scientific and technological progress and technological innovation awards and pilot innovative enterprises. The Three Gorges Project, Qinghai-Tibet Railway, the Olympic venues construction and other important projects have all applied the technological innovation achievements of SOEs. The outstanding examples of independent innovation and integrated innovation include “Shenzhou” series of manned spaceflights, Chang’E Lunar Orbiter and “Jian-10 Fighter Plane” Project.

The SOEs operational mechanisms have been further transformed. The reforms on labor, personnel and remuneration systems have been deepened continuously in enterprises. Most of them adopt the system of all-personnel labor contract. All employees are required to take up jobs through competition and the wage system which is featured by post wage has been adopted. A new mechanism that cadres can be promoted or demoted, staff can be employed or fired and salaries can be raised or decreased has been primarily established. The central SOEs were organized in seven successive groups to offer 103 senior management positions to recruit people globally. At present, the number of people, who specialize in operation and management at various levels and have been recruited through the market, accounts for 30% of the total. Some central SOEs have set up comparatively sound and effective mechanisms, such as public recruitment and requiring all the employees to follow the principle of taking up jobs through competition, quantified performance assessment; those with poorest performance will be eliminated and the remuneration is linked with contribution and performance.

Third, the SOEs have made active contribution to the economic and social development.

The operating quality and economic returns have been largely increased. During the year from 2002 to 2007, the total number of SOEs in China has shrunk from 158,700 to 115,100, while their sales revenue, profits, and taxes-paid have increased 18.7%, 36%, and 20.4% respectively on average each year. The central SOEs’ total assets averaged an increase of 1.5 trillion yuan each year; the sales revenue grew by 1.3 trillion yuan on average each year; the profits achieved increased by 150 billion yuan on average each year and the taxes-paid grew by 100 billion yuan on average each year. In 2007 the taxes-paid by all SOEs in China registered 1.77 trillion yuan which accounts for 34.5% of the total fiscal revenue. In the world’s top 500 published in 2008, there are 26 mainland enterprises, which are all state-owned or state-controlled, 15 more than that of 2002.

We have made greater contribution to the economic and social development. The SOEs have earnestly put into effect the policies of national macroeconomic regulation and actively implemented corporate social responsibilities. The SOEs in the sectors of oil and petrochemicals have been making efforts to guarantee stable domestic supply of oil product by improving management and reducing costs, despite the severe inverted domestic and international oil product prices. The SOEs in power industry have been trying to guarantee power supply by further upgrading electricity grid, speeding up developing the agricultural power cause and comprehensively promoting the project of “Power For All”. The telecom SOEs have been carrying out “Village to Village” project, which plays an important role in the application of information technology in the economy and society. The SOEs play a special role during some special periods. They had made outstanding contribution at all costs to disaster relief during periods of SARS in 2003, snow disaster and earthquake in 2008, which helped to guarantee economic and social stability.

We set an example of environment protection and resources conservation. The SOEs attach great importance to environment protection; adhere to economical and clean development. In 2004, China Petrochemical Corporation, Baosteel Group and other four SOEs co-initiated the “Proposal of Building Resources-Saving Enterprises among the Central SOEs”. The SOEs earnestly carry out and put into effect the spirit of the “Decision of State Council on the Enhancement of Energy Conservation”, and actively build resources-saving enterprises. In 2007, for those central SOEs in eight sectors including petrochemicals, steel and power, their emission of COD (chemical oxygen demand) decreased by 7.1% year-on-year, and that of SO2 (sulfur dioxide) decreased by 18.7% year-on-year. The indexes of energy consumption，water consumption and discharge of pollutants of some central SOEs have approached or reached leading international levels.

We have actively made contribution to support Beijing Olympic Games. The construction SOEs have completed the construction projects of Olympic Games venues with high quality and high efficiency. The telecom SOEs have comprehensively improved the safety of network to guarantee the communication of Olympic Games. The SOEs in power industry have been sparing no efforts to guarantee the power supply for Olympic Games and summer peak period. The SOEs in sectors of oil and petrochemicals have carefully arranged inventory to guarantee the oil product supply for Olympic Games. 13 SOEs in service industry have launched the activities of “Welcome the Olympic Games with Gold Medal Services” to further improve their service quality and levels. The related SOEs put into effect the responsibilities at all levels for the security of Olympic Games to do a good job in security to support the Olympic Games.

We have found a path of SOEs reform with Chinese characteristics through years’ exploration and practice. As long as we move forward unswervingly along this path, SOEs will be run better and will make greater contribution to the economic and social development.