Key Points

  • Shanghai government issued new provisions on supervision of  concurrent position of the leaders in state owned enterprises.
  • The implementation of the provisions is the deepening of the  SOE reforms initiated from the end of last year with regard to  improvement of company governance and utilization of human  resource.

Background

It was reported on April 27, 2014, that the Shanghai government  recently issued the Provisions on Strengthening the Supervision  of Vertical Concurrent Position of the Leaders in State Owned  Enterprises Directly Managed by Shanghai People’s Government (the  “Provisions”), which restrict the leaders of state owned enterprises  directly managed by Shanghai People’s Government (the “SOEs”)  from taking leadership positions in affiliated enterprises. These  Provisions are parts of Shanghai’s state-owned enterprises reforms  since the issuance of the Opinions on Further Deepening Shanghai  State Owned Asset Reforms to Promote Enterprise Development  on December 17, 2013, also known as the “20 Article Scheme”,  intending to improve the SOE management mechanisms and state  owned asset administration and supervision in Shanghai, where the  improvement of company governance is emphasized.

Highlights

These Provisions were issued as a result of a survey taken last year  that found that more than two thirds of leaders in SOEs act as leaders  or officers in affiliates. Though the whole text of the Provisions  remains to be published, the main points according to reports from  major media in China regarding these Provisions as follows:

  • In principal, leaders in SOEs will not be permitted to take a  concurrent position in affiliated enterprises in general.
  • Only under certain circumstances where concurrent position  is of necessity may such leaders concurrently hold positions  in affiliated enterprises. In such cases, they cannot hold more  than two positions, subject to the filing with the Organization  Department of Shanghai Municipal Committee of the Communist  Party of China (“Organization Department”). 
  • Under extremely special circumstances where the leaders in  SOEs are necessary to take more than two concurrent positions,  such concurrent positions should obtain prior approval by the  Organization Department or State-owned Assets Supervision and  Administration of Shanghai.
  • The leaders shall never act as leaders in vertically affiliated  enterprises with interest conflicts, and will not be permitted to  pay compensation for the held concurrent position(s) in any case. 
  • The SOEs shall correct any non-compliance concurrent positions  within a specified period, otherwise the responsible SOEs and  leaders may receive administrative or even criminal liabilities.

Conclusion

The Provisions aim to achieve the goal of making the SOEs to 
be governed more in accordance with the laws and market-oriented economy to reduce opportunities for corruption and to 
enhance efficacy for operation in SOEs. The reforms, although 
positive, will be challenged by the deeply rooted bureaucratic culture, which means the current progression will be a long term revolution 
that needs to be pushed.