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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)
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