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Issues on Deepening the Reform of State-owned Assets Management System

2003-09-01

Chen Qingtai

Establishing a state-owned assets management system in line with the requirements of a market economy is a major task for economic restructuring. It is also a measure of fundamental significance for deepening the reform of state-owned enterprises and promoting the restructuring of the state-owned economy and the innovation of corporate systems. In short, it is a fundamental institutional building for the socialist market economy. Establishing such a system is vitally important for improving government management, establishing effective corporate governance, increasing enterprises’ vitality, and preserving and increasing the value of state-owned assets. The central government put forward the task of clearly defining ownership relations as far back as in 1993. However, despite repeated explorations both at the central and local levels, this reform did not enter the implementation stage until the 16th CPC National Congress outlined systematically the guiding principles for the reform of the state-owned assets management system.

I. The Main Defects of the Existing State-owned Assets Management System

1. In general terms, the state-owned assets of enterprises belong to the state, and the State Council exercises the right of ownership on behalf of the state. But the ownership-related responsibilities between the central and local governments and between the different departments of these governments are not clearly defined. There is no responsibility restraint. As a result, the state-owned assets are in fact in a state where no body is held responsible for them.

2. Many government departments assume the function of public administration and the function of partial state ownership. Their government functions are not separated from enterprise (assets) management. This situation has made it difficult for government departments to accurately define their own roles and therefore impeded the government from performing normally their public powers. Taking state-owned enterprises as a tool for performing its public functions and allowing enterprises to assume social functions have dislocated the responsibilities between the government and the enterprises.

3. Different government departments intervene in enterprises from the external by administrative means. They are managing state-owned enterprises instead of operating state-owned capital. This management that confuses the right of ownership with the right of operation has brought about two results. One result is that the administrative intervention is "offside", which dampens the market vitality of the enterprises and lowers the efficiency of the operation of the state-owned assets. The other result is the absence of owners from the enterprises, which weakens ownership control and erodes the rights and interests of the owner.

II. The Four Main Issues that Should Be Resolved in Reforming the State-owned Assets Management System

1. Carrying out the responsibilities for the management, supervision and operation of state-owned capital.The state moves from controlling enterprises to controlling capital. Therefore, an entrusted state ownership agency system, which clearly defines powers and responsibilities, should be established so as to form systems and mechanisms with which the ownership-related responsibilities can be traced for every proportion of the operable state-owned assets.

2. Flexible adjustments should be made to the layout of the state-owned economy and the enterprise structure. The government should move from directly managing huge clusters of state-owned enterprises to controlling important enterprises and holding their stocks. The state-owned capital should move from covering all industries and all sectors to concentrating on the industries and sectors the state must control. And the number of enterprises in which state-owned capital is involved should be reduced.

3. The government should establish a capital contributor’s institution, which will be separated from the functional departments in charge of public administration, to exercise the right of state ownership in a centralized and unified way entrusted by the government. The departments that exercise public powers shall cease to assume the capital contributor’s functions. This measure will be the system basis for separating government functions from enterprise management.

4. The right of state ownership should be separated from the right of enterprise operation. The capital contributor’s institution is entrusted by the state to own the stock rights, exercise the capital contributor’s rights as a stockholder in accordance with the Company Law, and perform the capital contributor’s responsibilities. The enterprises possess the corporate property rights, make management decisions independently and be responsible for their own profits and losses within the corporate governance framework, and become independent market subjects. The capital contributor’s institution is not allowed to intervene in enterprises beyond the bounds of their powers.

In summary, the task to reform the state-owned assets management system is to enable the state to move from controlling enterprises to operating capital. The government establishes capital contributor’s institution to exercise the right of ownership in a centralized and unified way and to realize the separation of government functions from enterprise (capital) management and the separation of the right of ownership from the right of operation. The capital contributor’s institution owns the stock rights of the enterprises in which they invest and have stocks, and exercise rights and assume responsibilities as a stockholder in accordance with the Company Law. The enterprises, including those in which the state has investments and owns stocks, should make management decisions independently and be responsible for their own profits and losses within the corporate governance framework, and become independent corporate entities and market subjects. The capital contributor’s institution is accountable to the state in the fields of realizing government policy objectives and ensuring the preservation and increase of the value of state-owned capital.

III. Establish a State-owned Assets Management System that Conforms with the Market Economy

The management of state-owned assets is a system and mechanism that involves the forms of realizing state ownership, the management, operation and supervision of state-owned assets, corporate governance, and many other aspects. These aspects are inter-related, and restrain each other. Reforming the state-owned assets management system is by no means an issue that can be resolved with the establishment of a special institution by the governments at various levels. The management of state-owned assets mainly involves four aspects:

1. The public administration of state-owned assets

It involves the legislation on state-owned assets, the definition of state property rights, the accounting system, statistics, auditing, appraisal, the approval of the operating budgets of state-owned capital and the supervision over the operation of state-owned capital. All these fall into the scope of the functions of public administration of state-owned assets and should be administrated by the departments of public administration in the form of a top-to-bottom nationwide administrative system.

2. The entrusted agency of state ownership

In a situation where government functions are separated from enterprise management and the right of ownership is separated from the right of operation, the "state" must exercise its right of ownership through a series of entrusted agencies. Under the existing management system, the chain of entrusted agency is that the state is the unified owner and the central and local governments respectively represent the state to perform the capital contributor’s responsibilities. The central and local governments then establish their special departments in charge of state-owned assets management – the capital contributor’s institution. The capital contributor’s institution controls the stocks of important enterprises and conducts "authorized operation" of some large enterprises and enterprise groups. Within this system, the core issue is the effectiveness of the entrusted agencies.

3. Corporate restructuring and corporate governance of state-owned enterprises

Corporate system is the foundation for the enterprises whose government functions are separated from enterprise management and whose right of ownership are separated from right of operation. Therefore, state-owned enterprises must undergo corporate restructuring and establish an effective corporate governance structure. Under the arrangement of the corporate system, the state owner moves from "controlling" enterprises through the administrative intervention by the government departments to entrusting the capital contributor’s institution to "perform the capital contributor’s responsibilities" as stockholders. The owners, including the state capital contributors, maintain their final control over the enterprises through the stockholders conferences or through the property rights trading markets. The enterprises possess the corporate property rights, make their management decisions independently and become independent corporate entities. This system aims to protect the rights and interests of state ownership in an environment where the right of ownership is separated from the right of operation.

4. The supervision over the operation of state-owned capital

The government authorizes the competent departments, such as the Ministry of Finance and the National Audit Office, to carry out audit and supervision over the capital contributor’s institution. The capital contributor’s institution carries out audit and supervision over the institution it has authorized to operate.

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