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From "salary limitation" to structure reform, China enhance management on SOEs
Latest Updated at 2009-April-10 09:24:39
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The Ministry of Finance on Thursday ordered state-owned financial institutions to impose a cap for top executives as part of the country's efforts to narrow gap between the rich and the poor.

The new rule said that pay, including salary, bonus, and social insurance, for executives in 2008 should be no more than 90 percent of the level in 2007.

"It is a big step for China to strengthen supervision and monitoring on its enterprise, and the state-owned enterprises (SOEs) was of no exception," said Tang Min, deputy secretary general of the China Development Research Foundation.

SOEs have been the backbone of China's economic development for years. However, they are now increasingly under public scrutiny, and high salaries are one of the gripes the public moans about.

In February, Guotai Jun'an Securities, a brokerage with the government holding a majority stake, bowed to public pressure by disclosing its executives' pay in attempts to prove they were not overpaid.

The pay for a director on the board was 830,000 yuan (about 121,522 U.S. dollars) last year while executives above assistant president level received 570,000 yuan per person on average.

Although the company said the high salary level was the result of a different accounting rule, and the real salary of executive management was not as much as it "appeared", the public was still not persuaded and they continued to complain.

"It is understandable that profitable state-owned financial enterprises pay high salaries to management, but the payment should in line with executive performance," said Yang Zhiyong, a researcher with the Chinese Academy of Social Sciences, a government think tank.

"However, many executives in SOEs are overpaid, and the salary cannot reflect their contribution to the company or society," he added. "There is a lack of strict supervision and standardization from the government."

In a bid to meet public complaints and standardize salaries of SOE executive management, the country introduced a draft law on salary management at SOEs, which said the maximum salary before tax should not exceed 2.8 million yuan.

In response to the regulation, a number of state-owned manufacturers including the Aluminum Corporation of China, Wuhan Steel and Iron Corp. and China Eastern have announced their plans since last November to slash executive pay by 15 to 20 percent.

Sany Heavy Industry Ltd. Co., a company that makes heavy machinery, said in an announcement earlier this year that the board chairman agreed voluntarily to get one yuan payment.

Yi Xianrong, a finance researcher from the Chinese Academy of Social Sciences, praised the government's move as well as some companies' gesture to standardize salary, saying this will be helpful to reduce the gap between the rich and the poor.

Meanwhile, the country has been investigating some other "invisible income" in addition to the "visible salary", in a bid to further limit expenditure of SOEs and prevent corruption.

The so-called "invisible income" is transportation fees, communication fees, and other material benefits that SOE officials enjoyed privately but did not pay for.

Very frequently, some SOE officials take advantage of their job and occupy public facilities and resources without paying.

Sources from China Business News said on Thursday that the government has launched an investigation on "job-relevant income" of SOEs nationwide, as part of its efforts to root out corruption and standardize income of SOEs.

On February, the Ministry of Finance issued a circular on salary control of SOE senior management, saying state-owned enterprises should take substantial measures to control and manage" job-relevant expenditure", and gradually avoid such expenditure in the future.

As part of the government's efforts, Chinese Premier Wen Jiabao announced on March a crackdown on government "hospitality" budgets, including a 15-percent cut in car-buying and fuel funds.

Wen asked the government to take the leading role in promoting frugality and should ensure government spending goes where it is most needed amid the economic crisis.

An Tifu, School of Finance, Renmin University of China professor, told Xinhua it was very necessary for China to supervise and control this expenditure, and the government should introduce more detailed and stricter regulations.

He said: "The country provides the SOEs with many favorable policies such as tax breaks and fund supports, and it is the SOEs' responsibility to save public resources and respect surveillance from the public."

Besides the supervision on "human factors", the government is also seeking a way to support its centrally-administrative SOEs by encouraging mergers and acquisition (M&A) between these enterprises.

China's centrally-administrative SOE will be adjusted down to 138 enterprises from 141, according to China's state property regulator State-owned Assets Supervision and Administration Commission (SASAC).

China Electronics Engineering Design Institute and China National Complete Plant Import and Export Corporation will be incorporated into State Development and Investment Corporation as its wholly-owned subsidiaries.

China Satellite Communications Corporation will be merged into China Aerospace Science and Technology Corporation as its wholly-owned subsidiary.

SASAC targeted at reducing the number of centrally-administered SOEs to 80-100 by 2010 through merger and restructuring, compared with 196 SOEs in 2003.

Yang Zhiyong said M&A will help the country's enterprises to better cope with the financial crisis and take part in world competition.

Statistic showed, China's SOEs achieved a profit of 665.29 billion yuan in 2008, representing a decrease of about 30 percent year on year.

Nineteen SOEs were on the list of the World top 500 fortunes in2008, including Sinopec, the State Grid, PetroChina, Baosteel, among others.

Editor: Yan

By: Source: China View website

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