China was likely to issue a detailed regulation on management buyouts (MBO) in small and medium-sized State enterprises within the first quarter to improve discipline in the sector.

The draft of the new regulation, which is aimed at curbing irregularities in MBOs with detailed standards and procedures, has already been completed and has been distributed to experts and relevant departments for consultation, according to Li Rongrong, minister of the State-owned Assets Supervision and Administration Commission (SASAC).

The rule was expected to be published in the first quarter of this year, or some time around the Spring Festival in Fubruary, Li said.

"We are not forbidding MBOs at small and medium-sized enterprises, but encouraging them to do a good job," said Li.

But he said no MBOs would be allowed at major State-owned enterprises (SOEs).

MBOs at smaller firms will only be allowed to take place under the strict supervision of local State assets management agencies and according to a clearly-defined equity rights scheme.

MBOs, in which the management of an enterprise can become owners through corporate transactions and acquisitions, have aroused a great deal of public concern during China's SOE reform, as some enterprise managers abused their power for personal gain.

The expected new regulation on MBOs will be China's first detailed regulation on this issue. Existing laws and regulations only have some guidelines or principles.

Li said 2005 would be a crucial year for the SOE reform and more breakthroughs should be made in this sector.

The SASAC would work with related government departments to launch a nationwide inspection on the transfer of the State assets and equity in the fourth quarter of this year.

(China Daily February 4, 2005)