Ninety-six percent of state-owned enterprises (SOEs) -- 172 out of 179 -- passed their performance evaluations for 2004, the State Council's State-owned Assets Supervision and Administration Commission (SASAC) announced on Friday.

Three firms including China Southern (CSN) were downgraded, and four companies the commission would not identify failed.

This is the first time the SASAC, the industry watchdog, has publicized SOEs' performance appraisals.

"It aims to preserve and appreciate state assets and avoid asset losses during the restructuring of the SOEs," said Li Rongrong, director of the SASAC.

China National Offshore Oil Corp (CNOOC), Shenhua Group and China Shipping Group led the list of 25 SOEs that were graded A for their outstanding performance.

Grades of B (good) and C (fair) were given to 141 companies. Nine were in group D because they failed to meet some indices, and four received E because of faked financial reports and poor management.

China Southern involved in a financial scandal dropped from B to C. Police arrested its vice president, Peng Anfa, on Tuesday on charges of embezzling and accepting bribes.

Because of big accidents in production, China Coal Group was downgraded from A to B, and Sinohydro Corp from B to C.

"The evaluation system will make management personnel more conscious of their responsibility and encourage them to perform efficiently," Li said.

SASAC designed a comprehensive performance appraisal scheme, combing the annual performance evaluations during company presidents' three-year tenures.

Their performance was assessed and graded based on company corporate profits, return on net assets and a number of other factors. The salaries and bonuses of enterprise leaders are directly linked to corporate profits.

Ma Zhongchao, secretary of the Party committee of China Light Industry Economic and Technological Cooperation Co, thought highly of this performance evaluation scheme.

"With such a scheme and quantified indices, we have a clear target, and we know where we should place more effort," he said.

Dong Peijiang, vice president of China Energy Conservation Investment Corporation, agreed.

"The scheme does make a difference," he said. "We now know clearly that we will be kicked out if we are bad performers, and rewarded if performing well."

Li Shousheng, director of SASAC's Performance Evaluation Bureau, said the commission will strengthen the evaluation system to put it in line with international standard.

Restructuring of SOEs centered

Speeding up the shareholding restructuring of SOEs remains the highlight in the second half year. "Strategic investors are welcomed to push the restructuring or listing of SOEs' core business," said Li Rongrong.

Meanwhile, the reshuffle and adjustment of SOEs will further move on.

"Our target is to develop 80 to 100 enterprises with top-notch technology and competitiveness in the international market through the reshuffle," Li said.

The number of central SOEs has shrunk from 196 to 169 in the past two years.

In line with the economic globalization, many SOEs had stepped up their expansion into the international market.

China Metallurgical Construction Group joined hands with China Minmentals Corp to export complete sets of metallurgy equipments valued US$236.5 million to South Africa, a breakthrough for China's metallurgy equipments export.

A subsidiary company of China Harbor Engineering Group signed a lift contract valued US$220 million with Rotterdam Port, the largest contract in the industry.

SOEs reported a sharp profit growth in the first half-year, thanks to the sound national economic development and the deepening of shareholding restructuring.

Those flagships of their industries earned 298.8 billion yuan (US$37 billion) in profits in the first six months of 2005, a 29.1 percent increase on a year-on-year basis.

The growth rate was 4.5 percentage points higher than sales income in the same period, which topped 3.1 trillion yuan (US$382 billion).

These enterprises also saw a 27.1 percent jump in industrial output, which totaled 1.9 trillion yuan (US$234.5 billion) in the first half-year. And SOEs' investment on fixed assets maintained a steady growth, hitting 388.5 billion yuan (US$47.9 billion), 3.7 percent lower than the social average.

But there are still problems, Li said. A total of 106 SOEs saw a profit setback compared with the same period of last year, and part of them suffered from a soaring cost.

"Although the price hikes from energy and raw materials contributed to the jump of cost, lack of an efficient cost-controlling system and rapid increase of labor cost should never be neglected," an analyst with China Securities told China Daily.

(China Daily August 20, 2005)