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The focus of China's reform of state-owned enterprises (SOEs) shifted to corporate governance in 2003, after designating a specified investor representing the rights of state-owned assets.
In the past 25 years, China has made unremitting efforts to improve the efficiency of SOEs, including giving SOEs more management decision-making power, contracting with managers to improve their performance, and establishing a modern enterprise system to make SOEs independent players in the market.
But it was still difficult in China to set up an adequate framework to handle the relations between rights, duties and interests among the state, the real investors of the SOEs, and managers.
As shown by developed market economies, corporate governance is the most effective way to ensure the managers to protect investors' interests, economists say. China recognized this and stated in 1999 that the core task of the modern enterprise system is to establish corporate governance mechanism.
However, without a tangible investor for state-owned assets, it is impossible to set up standard corporate governance mechanism, the major purpose of which is to balance the managers' interests and those of the investors.
In March 2003, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) was established, serving as the investor of China's 189 major SOEs. The watchdog of state-owned assets at the provincial and municipal level was also set up, serving as investors of other SOEs.
With a clear investor in place, China now is able to find ways to improve corporate governance of SOEs. In October, the Communist Party of China declared that establishing standard corporate governance is the main purpose of reform for the first time in one of its key documents.
The SASAC took a series of measures to improve corporate governance of major SOEs, the latest being the implementation of an evaluation method on Thursday. According to the method, the performance of SOE managers will be assessed by financial indicators and salaries will be based on corporate performance.
SASAC Director Li Rongrong also stated recently that the commission will focus on the establishment of directorates in SOEs invested solely by the state in 2004.
The SASAC hosted its first international forum on mergers and acquisitions in November, inviting foreign and private capital to participate in SOE reform. By transforming large SOEs into joint- stock companies, China is trying to lay the foundation for a standardized corporate governance system.
(China Daily January 2, 2004)
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