SASAC Flags Bigger Role for Both Party and Boards at Central State-owned Enterprises

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Increasing the role of the board of directors sit at the top of the reform agenda for China’s central state-owned enterprises in 2018, alongside shoring up Chinese Communist Party influence upon corporate governance.

At the Central State-owned Enterprise Local SASAC Executives Meeting held on 15 January in Beijing, SASAC head Xiao Yaqing said that certain central SOE’s would be selected for further equity diversification measures in 2018, as well as the introduction of administrative mechanisms and supervisory models that were distinct from those of wholly state-owned firms.

Xiao pointed in particular to increasing the role and decision-making influence of the boards of directors for central SOE’s.

“The reform of the corporate structure of state-owned enterprises is only the first step of reform,” said Xiao. “The key will be to use continuous reform to drive the improvement of a modern corporate system for state-owned enterprises, and bolster their corporate legal person administrative structure.

“In 2018 [we] must drive the comprehensive establishment of standardised boards for central SOE groups, and strengthen the decision-making capability and overall function of boards.”

While increasing the roles of boards is step towards making state-owned enterprises function in a manner more akin to independent listed companies, Xiao also flagged measures to shore up the internal influence of the Chinese Communist Party.

Xiao said that SASAC would “explore effective mechanisms for establishing enterprise party organisations that are embedded in corporate management structures, and continually improve the modern state-owned enterprise system with Chinese characteristics (中国特色现代国有企业制度).

In December the Paulson Institute published a study arguing that Beijing’s efforts to expand the control of the Chinese Communist Party over state-owned enterprises will likely have a regressive impact upon corporate governance reforms.

According to the study by Houze Song entitled “State-owned Enterprise Reforms: Untangling ownership, control and corporate governance,” Beijing’s ongoing efforts to increase the clout of party organisations within SOE’s is undermining other much-needed corporate governance reforms.

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