A new round of reform in the management of China's enormous State assets is looming as the government busily drafts a package of measures to plug loopholes in property management policies.

Senior officials who have been involved in drafting the measures said they would ensure the efficient use and protection of China's 10 trillion yuan (US$1.2 trillion) worth of State assets.

"To enliven China's State economy, which is relatively sluggish compared with the private and foreign economies, is another objective of policy reform," said Fan Hengshan, director-general with the Economic Restructuring Office of the State Council, in an exclusive interview with China Daily yesterday.

"A new State assets management system that is designed to be market-oriented will be established," said Fan, whose office is a crucial think-tank helping the premier decide major policies in China's economic reform.

He said the reform of ownership of State assets is the most pressing task.

According to Fan, the principle has been established that owners' rights are divided among central and local governments, while State assets management functions will be taken over from various ministries by specialized entities.

A State-owned Assets Supervision Commission will be established at central government level while provincial, municipal and prefectural governments should set up State property management organizations. This was outlined by President Jiang Zemin at the 16th National Congress of the Communist Party of China held in November.

"Governments at all levels should only act as investors on behalf of the State, and they will not be involved in managing the property," said Fan, adding the current inefficiency of the State sector has mainly resulted from chaotic management.

He noted that China's State-owned enterprises (SOEs), which represent a large part of State assets, are currently administered by an array of organizations like the Ministry of Finance, the Ministry of Personnel, the State Development Planning Commission, and the State Economic and Trade Commission.

"They offer more interference rather than help. Meanwhile, no governmental departments are willing to take the consequences if enterprises perform badly," said Fan.

Consequently, he suggested the State-owned Assets Supervision Commission should unify responsibility for finance, personnel and decision-making in a single organization.

The World Bank recently suggested China's new State assets supervision organization should be organized as a public service unit, which reports to the State Council and whose work is reported to the annual National People's Congress for evaluation.

The organization should be staffed with full-time professionals whose compensation is market-based, said the bank's recent report based on research of 11 countries' experience in State assets management.

The research was done at the invitation of the State Council Development and Research Center and strived to help China acquire international experience in this field.

Ma Jianxiao, a renowned economist and board chairman with Beijing-based China Found Group, said establishing effective State ownership over China's many profit-seeking non-financial SOEs is a huge challenge.

"Because there is a shortage of staff with the necessary business, management and investment skills in some regions of China, it is necessary to create an appealing climate to attract professionals," said Ma. "But most local governments are unwilling to stop their involvement in personnel allocation and other affairs."

Fan Hengshan said local governments will obtain more power over State assets in this round of reform, but the State will continue to oversee them through fresh laws and regulations.

The central government will only perform the functions of investor in large State-owned enterprises, infrastructure and important natural resources that have a vital bearing on the national economy and State security.

Local governments should represent the State by performing the functions of investor with regard to other property; Fan quoted Jiang Zemin's report at the November Party's congress as saying.

"We are immersed in drafting detailed policies and measures to ensure more concrete and flexible actions are taken," said Fan.

He added: "Local governments should be responsible for local State assets and have State assets management companies to manage the funds on their behalf.

"These companies should operate at funding level only and not get involved in activities at enterprise level."

Fan said the new reform is an extension of the restructuring of the State sector in the past two decades.

"This is a lasting task as we need to change not only the policies, but also the way of thinking," said Fan.

During the planned economy period, China accumulated large amounts of State property. For a long time, policy makers followed the logic that "the larger the State economy, the more advantageous a position that China finds itself in."

"The sector was born in the planned economy and its management and operation means are not suitable now that China is becoming increasingly market-orientated," said Fan.

Zhou Fangsheng, a senior researcher with the Fiscal Science Institute of the Ministry of Finance, cautioned against the possibility of the assets management entities obtaining too much power, which could threaten corporate governance of companies.

He recommended the straight guidance of Company Law, rather than new rules, as well as the establishment of boards of directors at solely State-owned companies.

Tong Daochi, deputy director of the Listed Companies Department under the China Securities Regulatory Commission, endorsed the reform as a key measure for solving the effective absence of the State as a shareholder in China's listed companies - 75 percent of which are controlled by the State.

An estimated 80 billion yuan (US$9.6 billion) of listed companies' capital has been illicitly hogged by their parent companies, Tong said.

(China Daily January 28, 2003)