State-owned Assets Supervision and Administration Commission
(SASAC) Vice Minister Wang Yong and National Council for Social
Security Fund Chairman Xiang Huaicheng told state-owned enterprises
to help their financial officers to avoid market risks.
They said the chief financial officer should also serve as the
chief risk officer, as uncertainties are emerging as the country
integrates itself into the world economy.
Wang and Xiang were speaking at the weekend's China CFO
Roundtable, jointly organized by SASAC and the Pan-Pacific
Management Institute.
Wang said that the urgency of the need was redoubled after the
recent China Aviation Oil debacle. The fall of the overseas
subsidiary revealed the thorough lack of risk control and crisis
prevention of its parent, the state-owned China Aviation Oil
Holding Company.
Although only authorized to trade crude oil futures up to a
value of US$5 million, or 2 million barrels, the Singapore-listed
company conducted trades of 53 million barrels, resulting in losses
of about US$550 million.
"It indicates that we have a lot to do to avoid further risk
among SOEs, and CFOs should play a bigger role," said Wang.
However, he said the incident could not slow shareholder reform
of the SOEs, some of which are encouraged to seek a greater
presence in the global market.
Wang said overseas talent is welcomed to join in the reforms,
and the positions of CFO in about 60 major SOEs will open to
international applicants by the end of 2005.
By then, all 189 SOEs answerable to SASAC are expected to employ
CFOs as risk controllers.
Wang urged all CFOs to be professional and honest in reporting
financial information. He noted that during SASAC's midterm
assessment in July, some of the enterprises were found to have
fallen short of those marks.
"We have warned them and ordered them to make corrections," said
Wang. He said that SASAC has already flagged such enterprises for
more stringent supervision.
Despite a lagging risk management system, China's big SOEs
reported profit rises of a combined 419 billion yuan (US$50.5
billion) in the first 10 months of 2004, up 53.2 percent.
Theses enterprises, the flagships of their industries, reported
combined sales topping 4.5 trillion yuan (US$543.7 billion) by
October this year, an increase of 29.2 percent year-on-year.
Lin Yueqin, a researcher with Chinese Academy of Social
Sciences, said sound corporate governance and an effective
restraint scheme, including sound internal auditing, are essential
for a risk-management system.
(China Daily December 20, 2004)