China released details of the regulation on performance evaluation of the chiefs of the central group of 189 state-owned enterprises (SOE) Monday.

The regulation, to take effect on January 1, was designed by the State-owned Assets Supervision and Administration Commission (SASAC), which directly supervises the central group of 189 biggest and most important SOEs in China.

It sets out comprehensive standards for a new system for evaluating SOE chiefs, including chairpersons, vice-chairpersons, general managers, deputy general managers, board directors and chief accountants.

These people are to sign contracts with SASAC guaranteeing efficient performance of their duties.

Their performance will be assessed and graded based on company corporate profits, return on net assets and a number of other indices, the regulation states.

Li Rongrong, chairman of SASAC, already signed such contracts with the first batch of 20 enterprises in mid-December.

The salaries and bonuses of enterprise leaders will be directly linked to corporate profits.

Those doing the best job will receive bonuses of as much as three times their basic salary, while those who fail to meet designated targets will face cuts in pay or even dismissal.

The performance evaluation system, which breaks the iron rice bowl of SOE leaders, is a crucial part of the reform of China's State-owned assets management scheme, which is aimed at preserving and appreciating State assets and avoiding asset losses during the restructuring of SOEs.

It is expected to put more responsibility on the shoulders of SOE chiefs in management positions and to encourage them to perform efficiently, Li said.

The remaining central SOEs that have not signed such performance contracts with SASAC this year will sign them next year, said Li.

While the good performers will be rewarded, those causing big losses of State assets or trying to make fake financial reports will be punished, according to the SASAC regulation.

Those committing crimes will face criminal charges.

The significance of the evaluation system is not just a matter of fulfilling targets, said Zhao Hang, president of the China Automotive Technology & Research Center, a State-run institution that is also expected to be one of the central SOEs to sign a contract next year.

"It will make management personnel more conscious of their responsibility," he said.

The exact target for each enterprise, however, will vary according to industry environment. For many, a 3 to 5 percent annual profit growth, a moderate target will not be hard to reach, analysts said.

Li Shousheng, director of the performance evaluation bureau of SASAC, said the commission will further strengthen the evaluation system to put it in line with international standards.

A budget management scheme will also be established later on in the SOEs and the performance evaluation will be made part of the overall corporate development strategy.

(China Daily December 23, 2003)