State Council General Office Guiding Opinion on Further Improving the Governance Structure of State-Owned Enterprises

The State Council General Office Guiding Opinion on Further Improving the Governance Structure of State-Owned Enterprises was issued on April 24, 2017. 
While its title might at first seem unrelated to social credit, this document is important not only for corporate governance, but for the construction of a Chinese social credit system as well, because it mandates the inclusion of information about breaches of law by directors, supervisors, and managers of SOEs in the National Credit Information Sharing Platform, and disclosure of their breaches of trust via the internet. 



State Council General Office


Guiding Opinion on Further Improving the Governance Structure of State-Owned Enterprises


Guobanfa 2017no. 36
To all provinces, autonomous regions and municipalities directly controlled by the central government, all State Council ministries, and all directly controlled institutions:
Perfecting the governance structure of state-owned enterprise is an intrinsic requirement of comprehensively advancing ruling enterprises in accordance to the law, promoting the modernization of the national governance system and governing ability. It is an important task of the new round of SOEs reform.At present, most state-owned enterprises have initially established a modern enterprise system, but judging from the situation in practice, the modern enterprise system is still imperfect. Some enterprises have not yet formed an effective corporate governance structure. The powers and responsibilities are not clear, constraints are not sufficient, the lack of checks and balances and other issues are prominent. Some board of directors exist in name only, and cannot bring their function into play.According to the spirit of the “Central Committee, State Council Guiding Opinion on Deepening the Reform of State-owned Enterprises”, in order to improve the governance structure of state-owned enterprises, and perfect the modern enterprise system of SOEs, the following Opinion is issued with the agreement of the State Council:
I. General Requirements
(a) Guiding Ideology.
Comprehensively implement the spirit of the Party’s 18th Congress and its 3rd, 4th, 5th, 6th plenary sessions; thoroughly implement the spirit of the important speeches of the General Secretary Xi Jinping and the new strategic ideology of managign state affairs; earnestly implement the CPC Central Committee, and State Council’s strategic deployment, to advance the overall plan and the coordination of the “Five-in-One” strategic deployment; firmly establish and implement the concept of innovative, coordinated, green, open, and shared development concept; depart from the reality of state-owned enterprises in order to establish as a direction a system of sound and clear property rights, clear responsibility, separation between government and enterprises, and a modern enterprise system. Actively adapt to the needs of the new situation of state-owned enterprises reform, uphold Party leadership, strengthen Party construction, improve the institutional mechanisms, regulate authority in accordance with the law, graspe the main points according to the classification of functions, and further improve the responsibilities, accountability, coordinated operation, effective checks and balances of state-owned enterprises corporate governance structure.
(b) Basic Principles.
1. Uphold deepening reform. Respect the market subject status of enterprises, follow the law of market economy and the law of enterprise development, focus on standardizing the decision-making mechanism and perfecting the mechanism of checks and balances, uphold the combination of incentive mechanisms and restraint mechanisms, embody the principles of efficiency and fairness, fully mobilize the enthusiasm of entrepreneurs, promoting the marketization of state-owned enterprises, and the modernization of their entrepreneurial level.
2. Uphold Party leadership. Implement the strategic deployment of comprehensively strictly governing the Party. Bring together strengthening Party leadership and improving corporate governance, specify the statutory position of Part organizations in the corporate governance of State-owned enterprises, bring into play the core leadership and core political role of Party organizations in State-owned enterprises, guarantee that Party organizations maintain their direction, manage the general situation, and guarantee implementation. Uphold the principle of Party management of cadres, and the choice of managers by the Board of Directors in accordance with the law, combine the exercise of human authority and power by managers in accordance with the law, actively explore effective forms to improve the anti-corruption system.
3. Uphold managing enterprises in accordance with the law.According to the “People’s Republic of China Company Law”, the “People’s Republic of China Enterprise State-Owned Assets Law”, companies articles of association are the code of conduct, the position of rights and responsibilities and the use of authority should be standardized. Without authorization, no government department or agency should interfere in the normal productive and management operations of enterprises, the rights and responsibilities and the way of the right; without authorization, no government departments or agencies shall interfere with the normal production and management activities of enterprises. Establish the organic unity of enterprise reform and corporate governance in accordance with the law.
4. Uphold the equivalence of rights and responsibilities.Uphold the unity of right and duty, standardize the operation of power, strengthen the equivalence of rights and responsibilities, reform the system of authorized management of state-owned capital, deepen the reform of power operation and supervision mechanism, construct a supervision system which conforms to the national conditions, perfect duty evaluation and accountability mechanisms, strictly pursue the responsibility for dereliction of duty and malfeasance, and establish a system of lifelong accountability for decisions, [their] implementation, and [their] supervision.
(c) Main Objectives.
By the end of 2017, the reform of state-owned enterprise system will be basically completed.By 2020, the statutory position of Party organizations in the governance structure of state-owned enterprises will be firmer, the basic role of companies statutes in corporate governance will be brought into full play, all sole-investor state-owned enterprises and wholly funded enterprises will establish a board of directors where the majority is held by of external board members. State-owned holding enterprises will carry out the external Board of Directors system and will complete the reform of the external Board of Supervisors. They will give full play to the role of entrepreneurs, create a large number of chairmen and managers who are politically firm, good at management, full of vigor. They will cultivate directors and supervisors uniting ethics to integrity, proficient in business, courageous and daring. The construction of Party’s clean governance responsibility for subjects, and supervision responsibility will fully be implemented. Enterprises democratic supervision and management will manifestly improve. Following the law of market economy and the law of enterprise development, State-owned enterprises will become a self-managing, self-responsible market subject responsible for their of losses and for their risk, and which will discipline themselves and develop autonomously.
II. Norms and responsibilities of main bodies
Improve companies statutes as the core of the enterprise system, give full play to companies statutes as the basis of corporate governance. In accordance with laws and regulations and the company’s statutes, strictly regulate the performance of responsibilities by the investing institutions (hereinafter referred to as the investor institutions), the rights and responsibilities of the shareholders ‘ meeting (including the general meeting of shareholders, same for what follows), the Board of directors, the management, the Committee of Supervisors, Party organizations and the Workers ‘ Congress. Strengthen the equivalence of rights and responsibilities, guarantee the effective performance of duties, and perfect the governance structure of State-owned enterprises in line with the law of the market economy and our national circumstances, and further improve the effective operation of state-owned enterprises.
(a) Rationalize the responsibility of investors and change the mode of supervision.
1. The Shareholders’ assembly is an institution of the enterprise’s authority.The Shareholders’ assembly will appoint and replace directors, supervisors (excluding the workers’ representatives) in accordance with laws and regulations and the company’ statute. It will examine and approve the Board of Directors and the Board of Supervisors annual work reports, approve the company’s financial budgets, profit distribution plans. It will perform appraisals of and supervise performance of duties by the Board of Directors and the Board of Supervisors.The investing institution shall enjoy shareholders rights on State-invested enterprises according to legislation issued by the same level people’s government.
2. Sole-investor State-owned enterprises do not have a shareholders assembly, and shareholders authority shall be exercised by the investing institution.Reform the authorized management system of State-owned capital on the basis of the management of capital. The investing institutions will regulate the distribution of state-owned capital, regulate the operation of capital, strengthen restraints on capital, raise returns on capital, and maintain capital security towards directly-invested State-owned enterprises.Investing institutions in State-owned enterprises, State-owned holding enterprises perform their duties by participating in shareholders meetings based on the total of their shares, by reviewing items to be approved by the shareholders assembly, by negotiation major resolutions with other shareholders, and in other ways. Except for laws, regulations and the company’s statute, they shall not interfere with the enterprise’s independent exercize of business activities.
3. The investing institution enjoys shareholder’s rights and fulfils shareholders’ obligations in accordance with the laws and regulations and the company’s statute. Relevant regulatory content shall be incorporated in the company’s statute in accordance with the law. According to the requirements of managing capital as a priority, the investing institution will change its job function and improve its working methods. It will strengthen the management of the companies’ statute, it will clean up relevant regulations and normative documents, it study and put forward the list of the items to be approved by the investing institution, it will establish a compliance review mechanism for major decisions of the Board of Directors, it will formulate concrete measures, on constructing the Board of Supervisors, on concrete measures to pursue responsibilities, in due course it will establish measures on preferred stocks and on State special management stocks.
(b) Strengthen the Board of Trustees and implement the functions of the Board.
1. The Board of Directors is the decision-making body of the enterprise, it is responsible towards the shareholders assembly, it carries out its decisions, and decides on the enterprise important matters in accordance with statutory procedures and the authority of company statute. It receives the supervision of the shareholders meeting and the Board of Supervisors, it earnestly carries out the duties of decision-making, internal management, risk prevention and deepening of reform. Sole-investor state-owned enterprises shall implement and maintain the major decisions by the Board of Directors in accordance with the law, the election of personnel, the distribution of remuneration and other rights. They shall enhance the independence and authority of the Board of Directors, implement the system of annual reporting by the Board of Directors. The Board of Directors shall fully communicate with the Party organ, and conduct orderly pilot trials of management election by the Board of Directors of wholly State-owned companies, and strengthen the management and supervision of the management.
2. Optimize the board structure.The chairman and the general manager of wholly state-owned and wholly-owned enterprises shall in principle be divided into internal executive directors and report regularly to the board of directors.The Chairman of wholly state-owned enterprises, as the legal representative of the enterprise, has the primary responsibility for the reform and development of the enterprise, and should make timely reports to the Board of directors and shareholders of major managerial problems and risks.The directors of wholly state-owned company are responsible for the investing institution and are guided by the investing institution. Among them, the election of external directors shall take place by the investing institution after nomination by the relevant organ, and their appointment shall take place in accordance with statutory procedures.The directors of wholly state-owned enterprises and state-holding enterprises shall be dispatched under recommendation by relevant shareholders according to their shares. They shall be elected or demoted by the shareholders’ assembly. Directors dispatched by state shareholders shall actively safeguard the rights and interests of the state-owned capital. External directors of State-owned wholly-owned companies are recommended by shareholders other than the controlling shareholder. They shall be elected or replaced by the shareholders’ assembly. State holding enterprises shall have a definie proportion of external directors, which shall be elected or replaced by the shareholders’ assembly.
3. Regulate the board’s rules of procedure.The Board shall strictly implement collective deliberation, independent vote, the individual responsible decision-making system, the equal and full expression of views, one-person-one-vote, to establish a clear and transparent information disclosure system of major deliberations and a disclosure of information to the outside. It shall ensure the integrity of Board meeting’s records and motions. It shall establish the Board of Directors to follow up on the implementation of resolutions and evaluation system, and it shall do a good job of liasing with other main governance bodies.The Board of Directors shall set up special committees such as the Nomination Committee, the Remuneration and Assessment Committee and the Audit Committee to advise the Board or Directors. Among these, the Remuneration and Evaluation Committee and the Board of Auditors shall be composed by external directors.Improve the evaluation methods of the Board of Directors and directors, improve the annual and quarterly assessment system, and gradually form and evaluation system and incentive mechanism in line with the characteristics of enterprises.
4. Strengthen the construction of the board. Conduct the pre-appointment and continuing training of directors, do a good job in managing directors’ appointment and tenure. Establish and improve the external directors selection and management system, strict procedures to determine their qualification and examination, broaden the source of external Directors, expand the contingent of full-time external directors, select a number of current directors of State-owned enterprises to be transferred to full-time external directors, regularly report on the situation of external directors.Sole-investor State-owned enterprises should perfect the system of convening independent external directors, and the convenor shall be periodically elected by the external directors. External directors should strengthen communication with the funding institution.
(c) Maintain the autonomy of business and stimulate the vigor of management.
1. The management level is the executive body of the enterprise, which is appointed or demoted by the Board of Directors in accordance with the law, and is subject to supervision by the Board of Directors and the Board of Supervision.The General Manager shall be responsible before the Board of Directors. He shall manage production and operations in accordance with the law, organize and implement decisions of the Board of Directors, report work to the Board of Directors, and report work to the Chairman when the Board of Director is not in session.
2. Establish a standardized management system for the managment, implement a differentiated system of compensation which matches the mode of appointment, is suited to the functional nature of the enterprise, and is linked to the enterprise achievements. The management of state-owned sole-investor enterprises shall gradually implement the tenure and contract management.According to the different situations of enterprise property rights structure, degree of marketization and so on, orderly advance the construction of professional management system, gradually broaden the Professional management team, orderly implement a market-oriented salary, explore and perfect medium and long term incentive mechanisms, and conduct research on issuing relevant guiding opinions.State-owned enterprises should actively explore the implementation of the professional management system, implement a combination of internal training and external introduction, put into place channels for the smooth conversion of professional managers into companies managers.Carry out pilot projects on the dispatch of General Accountants in State-owned enterprises by the investor institution.
(d) Bring into play the supervisory role and improve accountability mechanisms.
1. The Board of Supervision is the enterprise’s supervisory institution. In accordance with relevant laws and regulations and the company statute, it supervises the professional conduct of the Board of Directors, and of the managment.Improve the proportion of full-time supervisors, strengthen the independence and authority of the Board of Supervisors.Implement the system of the external Board of Supervisors on enterprises invested by State-owned Assets Supervision Institutions.The external Board of Supervisors is dispatched by the Government to check the financial affairs of the enterprise, supervise major and crucial decisions of the enterprise, the board of directors and managers. It does not participate in or interfere with business management activities.
2. Improve the democratic management system with the workers’ assembly as its basic form, support and guarantee the workers- assembly exercize of its authority in accordance with the law, strengthen the democratic management and supervision workers, and safeguard workers’ lawful rights and interestsThe Board of Directors and the Board of Supervisors of State-owned enterprises and Wholly-funded State-owned enterprises shall have their respective staff.Establish a clear and transparent information disclosure system of major deliberations of State-owned enterprises and a disclosure of information to the outside.
3. Strengthen the sense of responsibility, determine the boundaries between power and responsibility, establish and govern the main bodies to adapt to the accountability system.Directors, supervisors and the management shall abide by the laws and regulations and the company statute. They shall have a faithful and diligent obligation to the company. Their credit information shall be included in the National Credit Information Sharing Platform, and their breaches of trust shall be disclosed on the “Credit China” website. Directors shall participate to Board of Directors’ meetings. They shall take responsibility of major resolutions by the Board of Directors. Where resolutions by the Board of Directors violate the laws and regulations, or contravene the company’s statute, decisions by the Shareholders’ Meeting, causing the company to suffer severe losses, directors shall be held responsible in accordance with the law. If a member of the management violates the laws or regulations or the companies’ statute, causing the enterprise to suffer a loss, the enterprise shall be held responsible for the liability of the managers concerned in accordance with the law.If the executive directors and managers are not in time to report to the Board or the state-owned shareholders of major business issues and operating risks, the relevant personnel shall be held accountable according to law.The members of the Enterprise Party organization shall strictly investigate the responsibility in accordance with the relevant provisions of the party organizations when there are major mistakes and dereliction of duty and malfeasance in the course of their duties.According to the requirements of “Three Sistinctions”, a necessary mechanism shall be established to tolerate mistakes and stop mistakes in the reform process, and motivate enterprise leaders to innovate business.
(e) Uphold Party leadership and exert political advantage.
1. Adhering to the Party’s leadership and strengthening the Party’s construction is the unique advantage of state-owned enterprises.To clarify the statutory position of Party organizations in the governance structure of State-owned enterprises, the general requirements of Party building work shall be incorporated into the company statutes of State-owned enterprises, to clarify the responsibilities and working methods of Party organizations in enterprise decision-making, execution, and supervision, and to make Party organizations become an organic party of enterprise governance structure. Full play shall be given to the leading core and political core role of Party organizations, to leadership of the ideological and political work of enterprises, support to the Board of Directors, the Board of Supervisors and managers in the fulfillment of their duties in accordance with the law, and in ensuring implementation of the Party and State policy.
2. Full play shall be given to the supervisory role of discipline inspection committees, inspection work tours and audit. Party members among directors, supervisors and managers of State-owned enterprises shall report to the Party Committee on a regular basis every year on their personal performance and self-discipline.Superior level Party organs implement the system of delegation and the turn-over system toward the chair of the discipline inspection group of the State-owned enterprise (Commission for discipline inspection secretary). The chair of the Party discipline inspection group (Commission for discipline inspection secretary) must uphold principle and reinforce supervision.He chair of the Party discipline inspection group (Commission for discipline inspection secretary) may attend the meetings of the Board of Directors and board committees.
3. Actively explore organic combinations of channels and methods of the principle whereby the Party manages cadres and the Board of Directors appoints the management.Uphold and improve the two-way entry, crossing leadership system. Leading members of State-owned enterprises Party groups (committees) where conditions exist may enter the Board of Directors, the Board of Supervisors, the management, through statutory procedures. Party members among members of the Board of Supervisors, of the Board of Directors, and of the management where conditions exist may become members of the Party group (committee) through statutory procedures. The office of Secretary of the Party group (committees) and of Chairman is normally held by one person. Promote the ingress of full-time deputy secretaries of the Central Enterprise Party Committee (CPC) to the Board of Directors.In the work whereby the Board of Directors appoints the management, superior-level Party committees and their organizational departments, and the Party committees of State-owned Assets Supervision organizations shall play the role of determining standards, standardizing procedures, participating in inspection and recommending candidates.Actively explore the Board of Directors’ election of managers by having a number of candidates higher than available positions.
III. Implement the Organization Well
(a) Summarize experience in a timely way, an implement it in an orderly and sequentialy fashion.Based on the pilot projects standardizing the Board of Directors in teh construction of State-owned enterprises, summarize experience, and improve the system. Central enterprises of the State Council SASAC should be transformed into wholly state-owned enterprises or state-owned holding enterprises. Comprehensively regulate Board of Directors.The capital investment and the corporate governance structure of the operating State-owned enterprises should be refined according to the policy of employing multiple forms and apply particular policies to each of the enterprises in the company statute.Other central enterprises and local State-owned enterprises shall, in accordance with their own reality, be responsible for perfecting the governance structure of State-owned enterprise through the responsibility of the investing institution.
(b) Carefully standardize operation, and do a good job of cohesion.State-owned enterprises should improve their corporate governance structure according to the requirements of perfecting the corporate governance structure of legal persons, comprehensively promote corporate governance in accordance with the law, perfect the companies’ statute, specify the rights, obligations and responsibilities of internal organizations, realize their respective accountability, standardize their operations, connect with each other, and check them effectively.The State Council shall, in conjunction with the relevant departments and units, draw up the rules for the examination and approval of the Articles of Association of State-owned enterprises.
The reform of state-owned enterprises, such as those finance and culture, shall be carried out in accordance with relevant provisions of the central government.
                           State Council General Office
                           April 24, 2017


(This document has been publicly issued)

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