China To Privatize Major State Concerns

by Mary Swire, for LawAndTax-News.com, Hong Kong

19 May 2005

China's State Council is drafting corporate laws that will put major 'State Owned Enterprises' under the control of the legislature when they shortly begin to be partially privatized.

Li Zhimin, a former chairman of the State Council's board of supervisors stationed in key state-owned enterprises, told the South China Morning Post this week that the amendments would enable SOEs to be governed by the legislature instead of government agencies.

"All problems related to the reform of state-owned enterprises will be dealt with by an amended and up-to-date corporate law," said Mr Li, who is now a member of the Chinese People's Political Consultative Conference's economic committee. Mr Li said the central government was also considering inviting senior figures to act as state firms' directors and members of their boards of supervisors, on the western model.

The State-owned Assets Supervision and Administration Commission (Sasac) currently controls 196 large SOEs, with assets worth 9.2 trillion yuan, and all but 30 to 50 of these are to be moved away from direct government administration. Sasac plans to reduce its stake in many of the SOEs by introducing more foreign and domestic capital, or in some cases through IPOs.

Chinese Vice Premier Zeng Peiyan said last month that China welcomes foreign participation in reforming state-owned enterprises and will introduce foreign partners into the banking, energy, telecommunications and mining sectors.

"We will not only focus on capital inflow, but also emphasize the partner's experience and know-how in helping the SOEs improve corporate governance," said Zeng.

State-owned capital will maintain control in some key sectors such as civil aviation, telecommunications, railway and ports, Zeng said, "but in the other sectors, we are fully open to foreign investors."

"To set up share-holding structure for SOEs does not mean to privatize all of them, but aims at forging a reasonable corporate governance mechanism and improving their efficiency and competitiveness," Zeng said.

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