News, page 3, issue 367 May 12 2008
Original Article: [Chinese]

In response to dipping profits in the first quarter of 2008, China's state-owned enterprises were lobbying to reduce or even be exempt from "bonus payments" to the state treasury that have been levied on their 2007 profits.

The EO has learned that two state-owned power grid giants have submitted applications to the State-owned Assets Supervision and Administration Commission (SASAC) with the hopes that the bonus payments be reconsidered.

Though SASAC is taking a hard look at the applications, central enterprises were ulikely to find leeway, as SASAC director Li Rongrong claimed that the uses for the bonuses had already been budgeted.

"Many (central) enterprises complained about difficulties and have asked for money. More still, some have suggested that SASAC should inject 100 billion yuan into them. What a greedy appetite!" said Li.

According to regulations, state firms were to hand over a portion of their after-tax profits to the national treasury. The system's pilot, which began in 2006, originally touched upon 116 central enterprises. It was concluded last month, with total collected bonuses amounting to 16.3 billion yuan, 70% of which had been already budgeted by the State Council.

Part of bonuses would go to paying for the state-owned enterprise reform and investing in social security.

With the pilot formally over and the system now being applied to all state-owned firms, regulators are calculating the total bonuses to be paid based on the firms' 2007 annual reports.

Last year was a harvest year for these central enterprises, disclosed Huang Shu, deputy director of SASAC, in a meeting that covered performance assessments of central enterprises. Last year they realized 9.84 trillion yuan in sales revenues - an increase of 19.3% over 2006 - and made profits of 996.85 billion yuan, an increase of 30.3%.

However, they crossed a turning point in the first quarter of 2008. Their total profits decreased by 6 billion or 2.9% to 203.4 billion yuan when compared with the same period last year, a first for them since SASAC began operating five years ago.

Li noted that so far in 2008, oil giants Sinopec and PetroChina's refinery operations have suffered losses of 58.7 billion yuan while the five power companies lost 2.8 billion yuan. According to the five power firms' total equipped capacity, the rise in coal prices would add another 43.7 billion yuan in costs, Li added. He estimated that the bonuses central enterprises would be required to hand in may reach 60 billion yuan.

The Finance Ministry and SASAC jointly manage the bonus payments. However, the EO has learned that the Finance Ministry has yet to receive the two power grid giants' applications.

A source from Finance Ministry revealed that if the central enterprises would make some important adjustment according to state policies or if they suffered great losses from natural disasters, they should submit bonus exemption application report to Finance Ministry and the SASAC. At that point the two departments would coordinate and then make a report to the State Council. If the report was approved, the exempted bonuses would be accounted into the enterprises' national capital reserves.