Key Points
- Shanghai government issues 20 Articles Scheme to begin another round of SOA and SOE reforms.
- Reforms intend to improve SOE management mechanisms and SOA administration and supervision
Background
The Shanghai municipal government issued the Opinions on Further Deepening Shanghai State-Owned Asset Reforms to Promote Enterprise Development (“the 20 Articles Scheme”), to initiate another round of Shanghai State-Owned Asset (“SOA”) and State-Owned- Enterprise (“SOE”) reforms. The Twenty Articles Scheme has been introduced to implement a central government initiative aimed at reforming SOAs and SOEs nationwide.
Highlights of the Reforms
These reforms are intended to drive SOE reform through enhancing SOA reform. The Shanghai municipal government believes that the success of the SOE reform must be based upon successful SOA reforms, and a mixed-ownership economy will be encouraged and actively developed. According to the 20 Articles Scheme, the SOA and SOE reforms shall be aimed at marketization, professionalization and globalization.
The basic principle with respect to this round SOA reform and SOE reform is to strengthen SOE positions in the market and promote innovative and sustainable development of the SOA and the SOE. In turn, it is hoped that SOE management mechanisms and SOA administration and supervision will be further improved.
The 20 Articles Scheme’s objective is to further perfect the SOA administration system and mechanism, further optimize the SOA layout structure and improve the SOE’s vitality and competitiveness in three to five years. In particular, 80% of the SOA in the State-owned Assets Supervision and Administration Commission (“SASAC”) system will be centralized in strategic emerging industries, advanced manufacturing and modern service industries, and infrastructure and people’s livelihood security related industries. SOEs are encouraged to engage in outbound investment and multinational operation. The goal is to have two to three capital management companies effectively operate in line with international rules, five to eight multinational enterprise groups with international competitiveness and brand impact, eight to ten leading national enterprise groups and a number of enterprises with advanced technology, specialty products, meticulous operation, specialized production, and famous brand.
SOA Reforms
- Adjusting and optimizing SOA layout structure
Certain industries are set to be further adjusted under these new reforms. Increased focus will be placed on strategic emerging industries that already have some foundations and comparative advantages, such as industries of new energy vehicles, high and new equipment, new generation information technology, and new energy. Manufacturing enterprises are encouraged to conduct innovative development and upgrading activities. Service enterprises shall promote pattern innovation and format transformation.
- Optimizing SOA gains security mechanism
The proportion of SOA gains turned over to public finance will be gradually increased, to not less than 30% by 2020. The SOA gains turned over will be allocated, on average, to industry development and adjustment, infrastructure construction and individual livelihood security. A social evaluation system for the use of SOA gains will also be established.
- Improving SOA administration and supervision mechanism
Government functions will be reviewed. The Shanghai SASAC is to shift its focus of administration and supervision, from SOEs to the SOA. The government authority will gradually give more autonomy to SOEs, increasing their administration and supervision on the SOA. Administrative examination and approval will be further streamlined to practically implement the autonomous SOE operation. In addition, the credit system will be strengthened to encourage and support the SOE to perform in a socially responsible manner.
SOE Reforms
- Promoting and supporting SOEs to go public
SOEs will be encouraged and supported to list the company (or core business of the company) in both the domestic market and overseas, and to attract strategic investors. The SOE will draw on experiences of listed companies with regards to enterprise management model and operation rules, even if not being listed.
The government authority will encourage and support the SOE to conduct cross-border mergers and acquisitions and establish overseas R&D, resource exploitation and processing trade bases. Relevant service mechanisms to support SOE multinational operation will be established and improved in the future.
- Promoting a market-driven employment and management mechanism
The SOE shall fully implement a tenure system and contract management for the employment of enterprise leaders, as well as ensuring they maintain reasonable stability of their enterprise leaders. Responsibilities, rights and obligations of the enterprise leaders shall be clearly and explicitly stipulated and assigned. For SOEs where the marketization level is relatively high, a professional manager system should be adopted.
- Improving a long-term incentive and allocation mechanism
SOE enterprise leaders’ income should be associated with employees’ income, profits and the development goals of the SOE. A more reasonable allocation and incentive mechanism should be established. For example, stated-controlled listed SOEs which have clear development goals and re-financing ability may adopt stock incentive plans or incentive fund scheme. High-technology and innovative SOEs may implement other incentive plans such as contribution for scientific and technological achievements or patents awards. To facilitate enforcement, other ancillary and supporting systems such as financial audit, information disclosure, deferred payment and recourse wages should be established accordingly.
- Three categories of SOE and the administration and supervision polies for each
The 20 Articles Scheme divides the SOE into three categories: (i) the Competitive SOE, (ii) the Functional SOE, and (iii) the Public Service SOE. The main goal of the Competitive SOE is to maximize economic benefits and pay attention to social benefits. The Functional SOE’s major objective is to accomplish strategic tasks, those of governmental importance or special tasks, giving consideration to economic benefits while achieving whichever objective. The Public Service SOE’s primary task is to guarantee the proper functioning and stability of the city and realize social benefits. Administration and supervision of the SOE will be based depending on which of the three categories the SOE fits into.
Other Reforms
The 20 Articles Scheme also provides for the establishment of a fault- tolerant system to encourage reform and innovation. For matters not stipulated by laws and national policies, reform and innovation is encouraged. If reform and innovation fails to reach the anticipated goal, related units and individuals shall not be given negative evaluation and applicable liabilities may be exempted, provided that such units and individuals have made decisions pursuant to laws and policies, have been diligent and not sought personal gain in performance of these duties
