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China: Regulation Boosts SOEs Transparency
Source: China Daily
Source Date: Saturday, July 17, 2010
Focus: Institution and HR Management
Country: China
Created: Jul 18, 2010

The government's new requirement of collective decision-making in State-owned enterprises (SOEs) will play a significant role in preventing corruption, experts said on Thursday.

In the long run, it may reduce the systematic risk of the Chinese economy, which relies heavily on SOEs, they added.

"The old decision-making mechanism of SOEs was leading to a situation that decisions were made by one person. It increased the investment failure rate," said Wang Yukai, a professor at the Chinese Academy of Governance.

The Chinese government issued a regulation on Thursday that requires SOEs to make major decisions through a leader group in the company, rather than relying on single top executives.

The new regulation follows a policy announced earlier this month that requires top SOE officials to disclose details of their family-owned assets.

All major decisions, appointments of high-level officials or executives, decisions on major projects, and the use of large quantities of capital must be jointly taken by a collective leadership, the General Office of the Central Committee of the Communist Party of China (CPC) and the General Office of the State Council announced on Thursday.

Comparing with the similar regulation made in 2008, the revised one provides more details about ways to bring the general principles into practice.

"It's an improvement, and good for supervision," State Council advisor Chen Quansheng told China Daily.

According to the announcement, SOEs are expected to enforce a transparent decision-making mechanism through public participation, expert consultations and collective decision making procedures, including strategy making, filing for bankruptcy, restructuring, mergers and acquisitions, transfers of ownership and overseas investment planning.

In 2004, China National Aviation Fuel Group Corporation suffered $550 million in losses on its investment in the petroleum futures market and Chen Jiulin, former chief executive of the company, was sentenced to three years in prison for it.

Senior SOE officials need to report their personal property, marriage status and immigration situation of their children annually.

"It is very wise to enforce this regulation to prevent the heads of SOEs from abusing their power for personal gains," said Wang.

Chen Tonghai, former chairman of State-run oil refiner Sinopec, was found to have taken almost 200 million yuan ($29.4 million) in bribes and was sentenced to death with a two-year reprieve last year.

The collective decision-making mechanism can reduce the market risk of SOEs and benefit China's overall economy, but it will still take time to observe its effect, Wang said.
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