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Drafter: China's State Asset Bill Still Flawed

Draftee: China's State Asset Bill Still Flawed
From News, page 4, isssue no. 349
Translated by Liu Peng
Original article: [Chinese]

Despite knowing how sensitive and controversial the drafting of the State-owned Assets Law would be, Li Shuguang, a draftee, was still shocked at the intensity of debate surrounding it. After 15 years of contentious crafting behind closed doors, an initial draft of the law was finally unveiled last month. Li, a professor of China's Political Science and Law University, sat down with the Economic Observer for an interview last week to discuss where it must go from here.

Li says that it is an important step forward that the draft does not give the State-owned Assets Supervision and Administration Commission the power to supervise. But ultimate improvements to and passage of the law will depend on the resolve of both the new administration and the National People’s Congress.

The Economic Observer: After more than 14 years of deliberation, why did the draft finally enter its first screening at the end of 2007?

Li: The draft's reviewing at the end of the year coincided with the National People's Congress' second to last meeting, which reflects its importance and the amount of attention it has garnered thus far. It was also an opportune time when work could be done on it. (Editor's note: This year in March, China will welcome a new National People’s Congress).

First, that it has taken fourteen years of deliberation so far to draft this law is an indication of its complexity. Second, there was a sense of trying to catch up with the law by the NPC. Third, the draft is tied to the Property Law, which came into effect last year and which also touches on issues relating to state-owned assets. In some ways, the draft embodies the spirit of the 17th Party Conference.

Meanwhile, although the draft outlines the direction that state-owned asset management will take, it hasn't set down details in lieu of the new government having yet to take office and laying out its own track for government reform.

Seven Focuses
The EO: During the first review, members of the standing committee of the NPC put forward many opinions about the draft, what do you think of them?

Li: The opinions are mainly focused on the following points.

First, many of them speak of the necessity of the law from the angle of managing losses in state-owned assets. Their focus on this issue completely mirrors society’s, and is tied to widespread discussion of it two years ago.

The second is employee rights and interests in state-owned enterprise (SOE). Reform of SOEs, their performance, and asset transfers all affect their employees. At the Party Congress, many took politically correct stances on this. But in reality, the staff’s interests are damaged to some extent.

The third is the law’s definition of state-owned asset. Whether to pass a broad state-owned assets law or a limited one has yet to be decided. Some members think the draft is appropriate, but others maintain that it should be broader and should figure in administrative and resource-based state-owned assets.

The fourth issue concerns the state-owned asset management system. During the discussion, the members didn’t speak of the core issue—the role of SASAC. This is because it is at a politically sensitive time. After the 17th Party Congress, no official would talk about this issue. And before the National People’s Congress and Chinese People's Political Consultative Conference, the issue didn't reach a consensus. As a result, the role of SASAC was avoided.

However, some members did say something about the state-owned asset management system. For example, some suggested that the NPC should supervise state-owned assets, and that SASAC should separate its public functions from commercial ones.

The fifth point involves the process of managing state-owned assets operation, including administration, and policy-making. This is mainly related to the state-owned asset investor’s interests, including the disclosure of important information, the procedure of state-owned asset restructuring, transfer, and sale, and other issues of fairness thereof.

The sixth issue is duties and responsibilities of those managing state-owned assets. This refers to the identities, rights, obligations, and legal responsibilities of board members, supervisors, the board of directors and board of supervisors, and senior managers.

The last is the issues about legal responsibilities, state-owned assets operation budgeting and correlation with other laws.

The questions put forward by members point out the main difficulties and key issues of the law, and reflect concerns from many circles of society. They are the most contentious, and are not on the same level.

From a scholar's point of view, every law should aim to solve the most significant social contradictions and also adjust interests. Every law should have a legislative core. Some members think the state-owned assets law should strengthen the power of socialism and maintain or increase the value of state-owned assets.

Several Questions
The EO: How will the team face these challenges down the line?

Li: The most important job we do is find a way to push further perfection of the draft. The first draft defines the law’s application to the management of non-financial state-owned assets. With this in mind, at least three questions need to be answered:

First, should the law be named "state-owned assets law”, or "operating state-owned assets law”, or something even more accurate? Second is whether to set down some principles for administrative and resource-based assets. Third, should the law apply to all assets, be they financial, national defense, or news?  More details still need discussing.

From my viewpoint, though the law is limited to operating state-owned assets, we should keep an eye on the long-term. We should build this law in a way that connects it to some future, perfect State-owned Assets Law.

To this end, the law should eventually outline non-operating state-owned assets. But before that, the law has to clearly define state-owned assets. Without a clear definition, there will be many problems down the line
Second, the law should apply to all operating sate-owned assets, including financial and news. In particular, we should pay more attention to businesses that serve public functions, or whose administration by the public is unclear.

The third is that the law should consider how to link up to that more comprehensive state-owned asset law of the future.

The EO: what does the draft team think of the role of SASAC?

Li: The questions arising from the first review, to the large extent, involved the state-owned assets management system, but some extent, touched upon the role of SASAC. In actuality, these questions are one and the same.

The present state-owned assets management system is flawed; SASAC is unable to supervise the management of many state-owned assets, especially many operating assets. Meanwhile SASAC has many roles—it is both an investor and regulator.

These are the key issues the new government, the NPC, and the CCPCC should focus on. We should make a comprehensive reflection on the five years of state-owned asset management system and the 30 years of state-owned enterprises reform.

Our review draft defines SASAC as an investor, which is an important step forward. But I still think the review draft still has three shortcomings.

First, it is not enough for the reviewed draft to only define the investors. The investor, trustees, managers, and supervisor should interact and cooperate with each other.

Second, the law is inappropriately ahead of certain other reforms, and makes clarifications that are predicated on other reforms that have yet to be solidified.

The draft notes that besides SASAC, other government organs can serve as investors, like for example the railway department. The railway department exists between several roles, working both towards the public interest and as a business. For the law to be unclear here, and to place all of these kinds of government organs into one boat, is a step backwards.

Third, the draft should define clearly investors' roles. I think the SASAC should purely serve as an investor, and have its regulatory, administrative, and legislative functions  stripped. The SASAC should only act towards maintaining and increasing the state-owned asset and maximizing shareholders’ interests.

In the current draft, the biggest progress is that the regulatory function of the SASAC is deprived. All members have reached a consensus on this point. But the draft doesn’t make clear what body will serve as a supervisor.

Next, we will work to make clear investor’s rights, duties and its responsibility. Innovations is still needed in drawing up reform of the state-owned asset management system. Beyond this, the draft should clarify what the investor, trustor, supervisor, manager, and judicial roles are.

The NPC and people’s congress at all levels should serves as trustors; SASAC in different areas should serve as the investor; the state-owned enterprises as the manager; independent governmental organs as supervisors; and the judiciary serving as legal functions.

Finding a balance between these five organs can effectively avoid the loss of state-owned assets and maximize their shareholders’ interests.

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