The State-Owned Assets Supervision and Administration Commission
of the State Council (SASAC) released a new regulation on August
14, compelling all state-owned enterprises (SOEs) supervised by the
central government to keep their investments in non-core businesses
to under 10 percent of their total investment as well as ensuring
that their on-hand funds do not surpass 30 percent of the overall
investment sum. The SASAC, currently managing 166 large SOEs, will
also look into these enterprises' debts-to-assets ratios and
investment shares among new projects in the context of each
enterprise's yearly investment package. These four areas will serve
as indicators to guide the SASAC in its reviewing process.
Statistics show the total investment from SOEs reached 1
trillion yuan (US$125.3 billion) in the course of 2004, and only 5
percent of these funds were injected into non-core businesses.
However, to stimulate business expansion and diversification, some
enterprises pump too much cash into non-core businesses, unaware of
pre-existing loopholes and concealed management problems.
All domestic investment undertaken by SOEs, whether in the form
of fixed-asset investment, equity purchases or long-term
shareholding, will come under scrutiny. Given that SOEs, over the
last two years, have shown themselves to be consistently
unqualified in terms of the four indicators, the commission will
conduct a thorough analysis, leading to some suggestions for
improvement.
For projects presenting only minor problems or flaws, the
relevant enterprises may be asked to tackle these problems directly
or to take appropriate risk-prevention measures. However, any
investment plan falling under the following conditions will
automatically meet with a veto: projects not in accord with
national development guidelines and industrial policies; projects
that violate decision-making procedures and the management system;
non-core business investment at odds with enterprise restructuring
and reform or that in any way hinders the development of core
businesses; projects where debts are beyond the sustainability of
the investing enterprise.
According to the new regulation, SOEs are now required to
stipulate investment decision-making procedures and outline a clear
management system while establishing a specific administration
department and reporting all such plans to the SASAC. In addition
to the management systems that will govern the process from
feasibility research to implementation and completion appraisals,
enterprises now must also prepare back-up plans in case of any
problems and set up clear regulations allocating and ascertaining
relevant responsibilities.
The regulation will have little impact on general investment,
but it is obvious that SASAC has decided to set stricter management
examples on non-core business investment, a chief accountant of a
SOE told China Business News.
"Since the examination process for non-core business investments
will become more thorough, enterprises will have to be prudent, and
these blind expansions will be curbed accordingly," the accountant
said.
(China.org.cn by Tang Fuchun, August 18, 2006)