The State-owned Assets Supervision and Administration Commission (SASAC) recently called for thrift as central State firms are poised to reap record profits this year.
In a notice issued last week, the SASAC required the 186 state-owned enterprises (SOEs) under its supervision to better their final accounting of revenue and expenditure against any year-end spending spree.
Thanks to the robust growth of the national economy, the State sector maintained a sharp profit growth in the first three quarters of the year.
As the flagships of their respective industries, those central SOEs earned 320 billion yuan (US$38.7 billion) in gross profits in the first nine months of this year, up 45.6 percent over the same period last year.
The SASAC's warning against spendthrift is timely even though it is understandable that the management of central SOEs might attempt to slice a portion of the record profits to reward their employees.
Acting on behalf of the State on those central SOEs, the SASAC should not only bear the responsibility of ensuring the appreciation of State-owned assets but also play a significant role in improving the overall efficiency.
By requiring central SOEs to strictly relate employee benefits to actual corporate profitability, the SASAC obviously intends to drive home a needed sense of efficiency-oriented incentives.
However, while dealing with the big profits central SOEs made in this good year, the SASAC should focus more on establishing a truly effective incentive mechanism among central SOEs in the long run, that will be a prerequisite for sustainable profitability.
An effective incentive mechanism is integral to the modern enterprise system the Chinese Government has been trying to introduce into SOEs.
Such a mechanism, however, can only succeed when it first works with the executives of SOEs. If the incentive mechanism cannot fully reward those top managers in line with their performance, it is hard to expect the whole staff will be adequately motivated by it
(China Daily November 23, 2004)
