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Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), went on record as stating that there remain four major negative conditions that must be resolved before optimal management of Chinese central state-owned enterprises (SOEs) can be achieved, and the government should direct great attention to those primary issues, according to People's Daily on December 26.

Li warned that if these problems cannot be effectively resolved, state-owned enterprises may again fall into a financial trap.

Four problems

Problem 1 -- Some SOEs do not respond effectively to the changing realities of business. Additional effort should be devoted to promoting the strategic flexibility of SOEs, so that the operations can better contend with evolutions in the marketplace.

According to Li, due to changes in the market in the second half of this year, growth of profits for some SOEs began to slow. The matter of descending profits for 45 SOEs was somewhat serious, with the net asset growth of 36 SOEs at less than 1 percent. From January to November, the number of loss-generating enterprises was 17, and the ratio of loss-making enterprises to total SOEs reached 10.1 percent.

Problem 2 -- The increase of SOE management expense is rising too fast. Compared to last year, the cost of production for some SOEs increased by 23.5 percent. And there are 80 SOEs for which cost growth exceeded income growth.

Problem 3 -- The fiscal risk for some SOEs has increased. As of the end of November, the central SOEs' loan volume was increased by 12.4 percent. The number of industry enterprises for which the ratio of debts to assets surpassed 70 percent was 27, occupying 42.9 percent; non-industry enterprises for which ratio of debts to assets surpassed 80 percent was 29, occupying 27.6 percent.

To maintain normal operating levels, some SOEs took out new loans from banks to pay down old debt. Thus some now face the potential crises of capital chain rupture.

Problem 4 -- The non-regular management of finance. To put forth the image of achievement, some SOEs provide false accounting information through various means, such as delaying capital transfer, confirming profits in advance and other substandard tactics.

Reaching a positive conclusion, however, Li expressed confidence that settling these problems could produce great future achievements.

(China.org.cn by Wang Ke, December 28, 2005)