On July 12, 2009, the central government and Chinese Communist Party (CCP) released a set of provisions that define good executive conduct for the leadership of State-Owned Enterprises (SOEs) in an effort to prevent corruption. The provisions prohibit SOE leaders from abusing their power to impair the interests of the state or other investors, or using their positions to reap personal gains at the expense of the enterprises.  

The provisions are entitled Several Provisions on Honest and Clean Conduct of the Leadership Members of State-Owned Enterprises). Compared with a set of tentative provisions on the same subject, issued in 2004, the Provisions clarify the scope of their applicability, and set out stricter, more comprehensive rules to prevent SOE leaders from engaging in activities that may benefit them at the expense of the state, other investors or the enterprises. The Provisions have superseded the Tentative Provisions.  

The Provisions specify that they apply to the leadership of both wholly state-owned enterprises and state-controlled enterprises (including wholly state-owned and state-controlled financial institutions), as well as the leadership of their subsidiaries. The Provisions fine-tune a number of rules in the Tentative Provisions that prohibit SOE leaders from extracting personal interests or profits at the cost of state investors. For instance, SOE leaders may not, in violation of relevant procedures, make substantial decisions on the SOE’s operations or the appointment or removal of personnel; make investment, financing or inter-institutional borrowing decisions; or use enterprise assets to incorporate foreign companies, make equity investments or purchase financial products.  

The Provisions also add several rules to protect state investors’ interests. For example, they require state investors’ prior approval before SOE leaders decide on monetary compensation or housing allowance packages for leaders at the same level, and before they commit to large donations or sponsorships.  

In addition, the Provisions incorporate numerous rules to impede SOE leaders from enriching themselves at the enterprises’ expense. SOE leaders are prohibited from accepting property through bogus transactions, for example. Such transactions include buying real properties and automobiles at a price significantly lower than the market price from, or selling such properties at a price significantly higher than the market price to, people who seek to obtain benefits through the leaders’ positions. Likewise, SOE leaders are not allowed to use wealth management tools or services, such as hiring an agent to invest in securities or futures, as a disguise to reap benefits without an authentic investment or at a rate significantly higher than the actual return. They are also barred from using the SOEs’ intellectual properties, business channels, trade secrets or inside information learned in the course of the SOEs’ public listing, merger or reorganization to seek benefits for themselves, their spouses, children or other associates.  

Noticeably, the Provisions strengthen the rule against SOE leaders’ acceptance of interests. While the Tentative Provisions prohibited the leadership of an SOE from accepting or demanding “improper” interests from affiliates, enterprises transacting with the SOE or the objects of the SOE’s management or services, the Provisions ban the accepting or demanding of any “material” interests. The Provisions further stipulate that this prohibition applies both during and after a leader’s tenure at the SOE.  

To manage SOE leaders’ conflicts of interest, the Provisions streamline the old rules under the Tentative Provisions and add several new rules. Similar to the Tentative Provisions, the Provisions provide that SOE leaders may not allow their spouses, children or other associates to make equity investments in enterprises that transact or are otherwise affiliated with the SOEs, or use their positions to facilitate for-profit activities of their spouses, children or other associates. SOE Leaders are also prohibited from working at or investing in privately-owned enterprises, foreign-invested enterprises or intermediary agencies that transact with the SOEs within three years of their retirement or leaving from the SOEs. Additionally, the Provisions provide that enterprises invested in or operated by the spouses, children or other associates of an SOE’s leader may not engage in business transactions with the SOE or its affiliates that may violate the interests of the public or the SOE.  

In order to ensure their implementation, the Provisions require that an SOE create internal regulations to support the Provisions, or else address the Provisions in its Articles of Association. SOE leaders must also file an annual report to the state asset supervision authorities regarding their investment and property status, as well as the employment and overseas residency status of their spouses and children. According to the Provisions, state asset supervision authorities and government auditing departments will audit the SOEs.  

The Provisions provide various disciplinary and monetary punishments to be meted out to SOE leaders who violate the Provisions. Under the Provisions, an SOE leader who is removed from his or her position due to a violation of the Provisions will be barred from serving on the SOE leadership for a certain number of years following his or her removal. An SOE leader who is convicted of a crime will be forbidden from ever serving on the SOE leadership in the future.  

The Provisions do not specifically define SOE leadership. In general, however, the leadership of an SOE includes the members of the SOE’s CCP committee, as well as the SOE’s directors and management team. At an SOE that has a board of directors, the chairman or vice chairman of the board is often the head of the SOE’s CCP committee, and a large number of the other SOE leaders are also likely to be CCP members. In the process of implementation, the Provisions will be interpreted by the Central Inspection Commission of the CCP in consultation with the Central Department of Organization of the CCP and the Ministry of Supervision.  

In recent years, a number of high-ranking SOE executives have been subject to disciplinary and criminal procedures due to corruption, in spite of their reportedly significant contributions to the growth of the enterprises they served. In July 2009, a court in Jinan upheld the death sentence of Li Peiying, former chairman and CEO of Beijing Capital Airport, for the crimes of accepting bribes and embezzlement. In the same month, Chen Tonghai, former chairman of China’s largest state-owned oil company Sinopec, was sentenced to death with a two-year reprieve for accepting RMB 196 million in bribes. Both cases were first investigated by the CCP’s disciplinary department before they were prosecuted.