State-owned Assets Supervision and Administration Commission of the State Council

December 19, 2006

Since the beginning of this year, the central SOEs (state-owned enterprises) have comprehensively carried out and put into effect a scientific outlook on development. They earnestly got off to a good start for the first year of the 11th Five-Year Plan, and actively carried out and put into effect policy measures intended to strengthen and improve macroeconomic regulation of the Central Committee of the Party and the State Council. They continue to deepen reform, improve management, accelerate independent innovation and restructuring, promote resources conservation, reduce costs and increase efficiency, and maintain an overall stable and fairly rapid growth of their production and operation. According to statistics of SASAC bulletin, from January to November this year, the central SOEs achieved a sales revenue of 7.2984 trillion yuan, up 21.8 percent over the same period of last year; achieved a profit of 688.77 billion yuan, up 18.9 percent over the same period of last year; paid 614.65 billion yuan of taxes, a year-on-year increase of 23.5 percent. It is forecasted that the total sales revenue of the central SOEs for the whole year will reach 8 trillion yuan, total profits 720 billion yuan, taxes-paid (Special Oil Gain Levy included) 700 billion yuan and total assets 12.2 trillion yuan.

This year is the last year of the first term of performance assessment for the executives of the central SOEs. During this term, the central SOEs transmitted pressure from top level to the down structures, and also put into effect responsibilities in this way. They united as one and kept forging ahead, carved out in an innovative spirit and have made remarkable progress in every aspect.

First, large continuous economic returns have been achieved and the quality of the state-owned assets has been optimized continuously. They have made greater contributions to the economic and social development. According to preliminary statistics, during the performance assessment term from 2004 to 2006, the revenue on core businesses of the central SOEs increased 78.8 percent with an average annual growth rate of 21.4 percent; the total profits increased 140 percent with an average annual growth rate of 33.8 percent; the taxes-paid increased 96.5 percent with an average annual growth rate of 25.2 percent, the rate of preserving and increasing the value of state-owned assets reached 144.4 percent, and the returns on assets reached 10 percent, an increase of 5 percentage points. Over the past three years, the average annual increase of the total assets and sales revenue of the central SOEs registered 1.1 trillion yuan. The average annual increase of profits reached more than 100 billion yuan, and taxes-paid averaged an increase of 100 billion yuan annually. Thirteen central SOEs were ranked among the world's Top 500 published by the American magazine, Fortune, in 2006. There were eight more than that of 2003. The central SOEs bring their important roles in the economic and social development into full play. Those SOEs in oil, petrochemicals, power, coal and transportation industries have elaborately organized their production, carried out contracts to the letter, made efforts to guarantee market supplies and made active contributions to the alleviation of the bottleneck caused by the shortages of coal, electricity, oil and transport capacity. The central telecom SOEs earnestly pushed forward the application of information technology in the economy and society. The central SOEs in power industry tried to guarantee power supply and speeded up developing the agricultural power cause. The central SOEs in construction industry actively contracted to build the key national engineering projects. The central commercial and trading SOEs took pains in enlivening market circulation. The central military industrial SOEs accomplished the tasks of carrying out research and development and manufacturing of military products timely with quality and quantity guaranteed and have made outstanding contributions to the development of the national economy and the building up of national defense. The central SOEs have played an important role and made significant contributions to the construction of the Three Gorgeous Project, the Qinghai-Tibetan Railway Line, the successful launching of manned space flights and other key national projects.

Second, the joint stock system reform was accelerated and the enterprise operational mechanism was further transformed. The corporate joint stock system reform among the central SOEs and their subsidiaries was greatly accelerated. Out of all the central SOEs and their subsidiaries, the percentage of the enterprises having set up corporate joint stock system was upgraded from 30.4 percent of the total in 2002 to 64.2 percent of the total at present. A group of central SOEs in the sectors of oil, petrochemicals, metallurgy, power, telecommunications, civil aviation, shipping, etc., consecutively went public in both domestic and overseas markets and increased issuance of stocks, which promoted the transformation of their enterprise operational mechanism and the improvement of their corporate governance. The shareholder structure reform in the listed companies controlled by the central SOEs was stably and orderly promoted. By November 30, 2006, there were 179 companies having completed or launched the shareholder structure reform among the total 190 listed companies controlled by the central SOEs, which played a very positive role for the stable operation of the capital market. The pilot program of establishing and improving Board of Directors in the wholly state-owned enterprises was also stably promoted. Nineteen central SOEs, such as Baosteel, Shenhua Group etc., consecutively set up and improved their Board of Directors, established the external director system, preliminarily realized the separation of decision-making from execution and the Board of Directors can select, assess, reward or punish the managers. Their corporate governance was constantly improved. Since 2003, the central SOEs have launched six public recruitment campaigns for senior managers. 81 senior management vacancies in 78 central SOEs were offered. Exploration of the integration between the principle that the Party administers cadres and the practice of market-oriented recruitment of managers is actively carried out. The central SOEs accelerated the reforms in labor system, personnel system and remuneration system, further transforming their operational mechanism. Up to now, there have been 157 central SOEs that carried out public recruitment and the program of taking up jobs through competition in their headquarters or the secondary and tertiary subsidiaries. They gradually set up a sound and effective mechanism. All the employees follow the principle of taking up jobs through competition, performance assessment is quantified, the worst will be eliminated and the remuneration is linked with contribution and performance.

Third, the structure was constantly optimized, the innovative capability was improved and the growth pattern was further transformed. The central SOEs further focused on their core businesses, spinning off the non-core businesses, condensing the managerial chain and optimizing the resource allocation. Over the past 3 years, there were 72 central SOEs carrying out reorganization in pairs. The total number of central SOEs has shrunk from 196 to 161. Currently, the central SOEs in the important sectors and key areas with vital bearing on the lifeline of the national economy and national security, such as national defense, military industry, oil & petrochemicals, power, telecommunications, civil aviation, shipping, important mining resources exploration, etc., account for 25 percent of the total central SOEs in terms of number, 75 percent in terms of total assets, 82 percent in terms of state-owned assets and 79 percent in terms of profits. The central SOEs constantly intensified their efforts in R&D, products innovation, technical innovation and introducing, absorbing and re-innovating advanced technologies. They have made great achievements. By the end of 2005, according to statistics, the central SOEs held a total of 30,520 patents, and had won 12 first-prizes and 112 second-prizes of National Prize for Progress in Science and Technology, which respectively accounted for 43 percent and 23 percent of the total number of the prizes in the same rank. At present, the central SOEs invest 1.84 percent of their sales revenue in R&D which increases 36 percent annually. The central SOEs attached great importance to resource conservation and environmental protection. Six of them co-initiated the proposal of building resource-saving enterprises. Seventeen of them took the initiative to make the commitment to the society to save energy and reduce consumption. 220 central SOEs, including both parent companies and subsidiaries, participated in the Energy Saving Movement of 1000 Key Enterprises. And a group of enterprises have achieved new progress in resource conservation. For example, this year, the three major oil companies saved 3.5 million tons of standard coal and 108 million cubic meters of water. The four major steel companies focused on the saving of energy, water and consumption of materials, intensified their efforts in developing a circular economy and further improved their ability of comprehensively utilizing resources. Some consumption-related indexes of these companies have reached leading international levels. The central SOEs in the sectors of oil & petrochemicals, power, metallurgy, building materials, etc., eliminated a batch of equipments with high energy consumption, heavy pollution and low production capacity. A group of central SOEs published the White Paper of building resource-saving enterprises and the report of corporate sustainable development, voluntarily accepting the supervision from the society.

Fourth, the management of enterprises has been enhanced and their competitiveness and risk control capacity have been further improved. To achieve good performance, the central SOEs all strengthened their financial management of capital, strategic planning, informitization, risk monitoring and prevention, etc. According to their characteristics, many central SOEs carried out comprehensive budget management, centralized their capital management, created new ways of capital management, enhanced capital efficiency, and thus improved financial management in an all-around way. Most central SOEs gave priority to strategic planning, and made their production and operation comply with the strategic planning. Some central SOEs applied information technology in an all-round way, established a platform for integrated data and a system for quick response and decision-making, modernized the ways of management and enhanced the controlling power of headquarters. Some central SOEs established comprehensive risk management system and spent more efforts in sorting out high-risk businesses. Important progress has been made in establishing the general counsel system in the central SOEs. 70 percent of the central SOEs have set up organizations specialized in legal affairs. 42 central SOEs have set up the general counsel system. The central SOEs have enhanced their capability for making decisions, running, safeguarding their legal rights and interests in accordance with law.

Fifth, the Party building in enterprises has been improved and strengthened, and the leadership teams of the central SOEs have adopted a good outlook. Through the self-improvement educational drive, the overall strength of Party members in the central SOEs has been improved; the building of Party organizations has been intensified; some prominent problems concerning the reform, development and stability of the central SOEs and some practical issues concerning the employee and public interests have been resolved; a long-term effective system has been gradually established for educating Party members constantly and maintaining their progressive nature. Through the Program of Building a Leadership Team with Good Political Quality, Good Operational Performance, Good Cooperation and Good Style of Work, the leadership teams of the central SOEs have taken a brand-new outlook, and pragmatism, solidarity and innovation have become the mainstream. Active progress has also been achieved in corporate culture construction, employee development programs, and democratic management by employees, etc.

Over the past three years and under the leadership of the Central Committee of the Party and the State Council, state-owned assets supervision and administration authorities at various levels earnestly carried out the spirits of the 16th Party Congress, the Second Plenary Session and the Third Plenary Session of the 16th Party Congress, firmly and carefully performed the responsibility of investor, grew up while facing up to challenges, and moved forward through constant explorations. Active progress has been made in the state-owned assets management system reform.

First, the basic framework for the state-owned assets management system has been primarily established. By June 2004, state-owned assets supervision and administration commissions have been established in 31 provinces (or autonomous regions, municipalities) and Xinjiang Production & Construction Corps; at present, the set up of state-owned assets supervision and administration authorities in cities has been basically completed, and the organizational system for state-owned assets supervision and administration has been primarily set up. In accordance with the Interim Regulations on Supervision and Management of State-owned Assets of Enterprises, SASAC formulated and released 16 rules and regulations and more than 40 normative documents concerning enterprise transformation, property rights transfer, assets evaluation, performance assessment, financial monitoring, etc.. State-owned assets supervision and administration authorities of local governments released more than 1000 local laws, rules and regulations, and the legal system for state-owned assets supervision and administration has been primarily set up. SASAC evaluated the performance of the responsible persons of central SOEs on both annual and tenurial bases, and preliminarily put the remuneration management in order. State-owned assets supervision and administration commissions of the local governments also gradually evaluated the performance of the invested enterprises and explored effective ways of evaluation and motivation, and the accountability system for preserving and increasing the value of state-owned assets has been primarily set up.

Second, the supervision and management of state-owned assets have been strengthened. SASAC has made inventories on assets and liabilities in all central SOEs, required final accounts in advance and strengthened dynamic monitoring on the financial affairs of enterprises, enhanced the supervision and management of major financial matters of enterprises, and intensified efforts in the auditing of final accounts of enterprises. SASAC actively promotes the enhancement of risk management in the central SOEs, released the Guidelines for Overall Risk Management in the Central SOEs which was publicized and implemented with various forms. By insisting on and improving the Supervisory Board System, SASAC strengthened the examining on those cases related to the interests of state capital and security of state-owned assets, reflected and corrected timely the major problems concerning state-owned assets security and enterprise development while the invested enterprises were engaged in such activities as investment and financing, restructuring and transformation, making inventory of assets and liabilities, property right transfers etc.. SASAC also formulated the Interim Measures to Guide and Supervise the Regulation of Local State-owned Assets, and gradually sorted out and standardized the relationship between guidance and supervision within the system of state-owned assets supervision and management authorities.

Third, transformations of SOEs and state-owned property rights transfers have been standardized. Focusing on the problems arising from transformations of SOEs and state-owned property rights transfers, SASAC, together with related departments, drafted related documents which were later relayed by the General Office of the State Council, formulating a series of policies and regulations, intensifying the supervision and examination on the transformation of SOEs and state-owned property rights transfers. At the same time, we promoted the set up and standardized operation of equity exchanges. Local authorities of state-owned assets supervision and management performed in earnest their responsibilities, strictly checked on and promoted the standard and orderly execution of the transformation of SOEs and state-owned property rights transfers. With participation of many departments, an all-round, multi-level and diversified system for supervising and examining state-owned property rights transfers of enterprises and a system requiring the trading of state-owned property rights of enterprises to be conducted in equity exchanges were gradually established, which effectively restrained the loss of state-owned assets, protected employees' legal rights and interests and ensured the stability of enterprises and the society.

Our practice in the past three years has shown that the guidelines and policies of deepening SOE reform since the 14th Party Congress of the Chinese Communist Party (CPC) are correct. The important decision about deepening the management system of state-owned assets which was made at the 16th Party Congress of the CPC is absolutely correct. We must stick to the right direction of SOE reform and state-owned assets supervision and management system reform, unswervingly accelerate SOE reform and unceasingly improve state-owned assets supervision and management system.

We are also quite aware that the reform task is arduous. We still face some deep-rooted contradictions and problems while deepening SOE reform and state-owned assets supervision and management system reform. Next year marks the beginning of the second term of performance assessment for the central SOEs. We will regard it as a new starting point, carry out and put into effect a scientific outlook on development comprehensively, take the building up of a socialist harmonious society as our duty, speed up the paces of reform, accelerate restructuring, and enhance supervision and management of state-owned assets. We will achieve excellent results to meet the ardent expectations of the Central Committee of the Party and the State Council, and repay the society for their care, support and help for the reform and development of the central SOEs and the reform of state-owned assets supervision and management system.

(China Development Gateway December 19, 2006)