Push to Get 6,000 COEs to Pay Dividends to Ministry of Finance

By Xi Si
Published: 2010-08-25

News,Cover,Issue 484, August 23
Translated by Tang Xiangyang
Original article:

The Ministry of Finance (MOF) is soliciting opinions from 82 ministerial agencies in a bid to win support for their plan to start collecting dividends from the over 6,000 central-owned enterprises (COEs) that currently operate under the control of various central government ministries and departments.

China's COEs can be divided into two categories: The first are the 123 COEs currently under the control of the State Council's State-owned Asset Supervision and Administration Commission (SASAC) - the central government has plans to reduce the number of these companies to between 80 and 100 by the end of the year. The other category of COEs includes those that are directly under the control of certain central government ministries, agencies or departments.

According to an anonymous source with the MOF, this project is predicted to get approval from the State Council and more ministerial COEs will hand in profits next year. “This move is unlikely to result in a large increase in the amount of dividends being collected, rather it is being interpreted as a show of the central government's determination to better regulate the management of all COEs and to ensure that all COEs are treated equally,” Wen Zongyu, director of the Ministry of Finance’s Scientific Economic Research Institute, said.

Ministry Opinions Differ

The above official with the MOF told an EO reporter, after soliciting opinions in August, “The Ministry of Finance will talk with ministries one by one about their respective feedback.” Those COEs affiliated with ministries will not start to be covered by the policy one by one, but ministry by ministry. “For example, if we have a successful discussion with the Ministry of Agriculture, then all the COEs under its authority will be subject to the policy.” Over 100 COEs under SASAC along with China National Tobacco Corporation and China Post have already placed their dividends into the national, state-owned capital operation budget. Now the MOF is taking the lead to bring COEs under ministry control into the scope of this new policy.

“It’s a tough job. Those COEs with a good business performance are unwilling to be subject to the policy while the COEs who are willing are all losing money. The remaining COEs are in complex situations because of the current COE management system,” the source with the MOF said.

Over the past few months, the MOF and the NDRC held many talks with ministries about the policy before they formally solicited their opinions.

An official with the MOF disclosed that after feedback is provided, the MOF will find out which ministries are willing to be included in the plan, which are not and why, and whether such a reluctance can be solved or not. Then it will hold more talks based on this information.

According to reports, the NPC, the MOF and the NDRC have all agreed to have more COEs hand in their dividends to the MOF, but there are many different attitudes towards the plan among central government ministries. Those ministries such as the Ministry of Agriculture and the Ministry of Railways, are willing to be included in the plan as long as they receive a subsidy. “Although all the COEs under the Ministry of Railways are big enterprises, they are actually losing money,” Wen Zongyu said.

Profitable COEs are attempting every means possible to avoid being covered by the plan. Wen said, among ministry affiliated COEs, movie companies, TV stations, publishing agencies and video companies were big money-makers, but it is not easy to have them included because these COEs are linked with censorship bureaus and inclusion represents a conflict of interest between ministries.

More COEs are obstructed by the current management system. According to Wen Zongyu, though the Ministry of Education has many enterprises under its scope, most of them were started up by universities and research institutes. For example, the well-known Tsinghua TongFang and Tsinghua Ziguang companies are tied to Tsinghua University and are both listed on the A-share market. If the MOF wants to collect dividends from these two companies, it has to go through their parent company: Tsinghua Asset Group. “TongFang and Ziguang have relatively high profits. However, Tsinghua Asset Group has many other subsidiaries. If all of its subsidiaries were to be integrated, it is possible that the Group would no longer profit and thus would not have any dividends to hand into the Ministry of Finance.”

Officials with the Ministry of Finance said, COEs under the Ministry of Education need further evaluation before being required to hand in profits because they are connected to public institutes such as universities and research institutions.
Financial COEs have been considered to be a main target of this policy because they are able to make huge profits. But it is unlikely they will be included this year. According to officials with the MOF, although financial COEs are big money-makers, they are managed in a special system.

An official with the MOF said: “For example, all the commercial banks are operating under the joint-stock system. You may only get their profits through their investor: The China Investment Corporation (CIC). But the CIC actually has no money. It finances itself through issuing state bonds that it has to pay back one day. How can we collect profits from these types of COEs? This method can only be successful after this system is reformed.”

The China Post has been included among the ranks of COEs to pay dividends to the MOF because it recently underwent a systemic reform integrating its postal businesses including mailing, publishing, currency exchange, logistics and stamp issuance and is now under the authority of the State Post Bureau.

Too Low a Ratio

According to statistics provided by SASAC, from January to July, COEs have earned 755.8 billion yuan in profit, among which, COEs under SASAC gained 619.2 billion yuan while ministry affiliated COEs earned 136.5 billion yuan, only accounting for 18 percent of the total.

When the SASAC was founded in 2003, 189 COEs were put under its administration. “They are all big money-makers,” Wen Zongyu said. The remaining COEs were divided into three categories. The first is former public institutes; the second is enterprises founded by associations unwilling to be managed under SASAC, such as the enterprises under the All-China Women’s Federation and the third category is small-scale COEs who have been suffering from heavy losses.

Wen Zongyu said, though there are now many COEs affiliated with ministries, most of them have a poor performance record and are suffering losses. They would not bring a large amount of dividends to the MOF even if they were covered by this policy.

Over the past three years, the MOF has collected a total of 157.22 billion yuan in dividends from these companies, but only about one billion yuan of these funds has added to the MOF’s revenue, the rest has been ploughed back in to the expansion of the COE sector.

Wen Zongyu said, even among those 128 COEs that were required to pay profits to the MOF now, only 20 monopolies were actually handing in their dividends. The others were paying either very small profits or nothing at all. 

With COEs earning more and more profits, the attempt to expand the scope of the state-owned asset operation budget and to increase the amount of profits COEs pay the MOF have been intensified. This topic of expansion was discussed in this year’s CPPCC (Chinese People’s Political Consultative Conference) and NPC (National People’s Congress).

The MOF has also made including developed COEs that are ministry affiliated in the state-owned asset operation budget one of its key jobs for the second half of this year. Jia Zhan, director of the MOF’s enterprise department, said that, aside from expanding the coverage of the new plan, they would raise the dividend ratio COEs must pay to the MOF.

Since 2007, most of the country's COEs have been required to pass on between 5 and 10 percent of their dividends to the SASAC every year. In 2008, they handed in 7.9 percent of their profits to the Ministry of Finance; in 2009, they handed in 9.5 percent. “Generally speaking, the ratio is too low. We are going to adjust it based on NPC requirements,” Jia Zhan said.

Wen Zongyu said both the government and academic circles considered it necessary to raise the ratio. “After the adjustment, the dividend ratio paid by COEs with an industry monopoly will be raised from 10 percent to somewhere between 25 and 35 percent. The ratio for competitive COEs will be lifted from 5 percent to somewhere between 8 and 10 percent. I believe this is not a very high ratio.”

This article was edited by Rose Scobie and Paul Pennay