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Home >> Great Minds China Forum >>  3rd Great Minds China Forum >>  Reflections from Micro Economic Perspective: Supervision and Corporate GovernanceReflections from Micro Economic Perspective: Supervision and Corporate Governance
Feng Genfu:the corporate governance structure and supervision problems of the st


Good morning, dear guests!


Mr. Patrick Bolton has mentioned the product deregulation and the change of ownership concentration in American power companies. And Dean Tian Guoqiang gave us his comments on it. I’m very inspired by that.



Now, I’m going to talk about the corporate governance structure and supervision problems of the state-run enterprises in China. It has been 40 years since the reform of state-run enterprises in 1978; China’s state-run enterprises reform has successively experienced the phases of economic responsibility system, contracted production system, and joint-stock system reform before the 18th Party Congress. And eventually, the Congress confirmed that the direction of the state-run enterprises reform was to establish a modern enterprise system. In general, we made a great progress in the reform before the 18th Party Congress; accordingly, the productivity of state-run enterprise got apparently improved. But we got several problems, too. For example, the Party leadership in the state-run enterprise was actually weakened, and we lack of efficient restrictive mechanisms to restrict the major leaders in the state-run enterprise from doing evils.



Fortunately, after the 18th Party Congress, we have made a new progress in the governance and supervision of the state-run enterprises in China. Say, we enhance the leadership of the Party in the state-run enterprises, and reinforce the restriction and supervision of the major leaders of the enterprises, and effectively curb the corruption of a few enterprises’ leaders. However, we shall be aware that there are still some unsettled problems. For instance, the mixed ownership reform doesn’t make substantial progress in state-run enterprises, for the incumbent leaders of localities chant many slogans but practice little. Or some local cadres just partially understand the indication of making the state-run enterprises bigger and stronger. They give no help to those strategic industries and enterprises relating to national lives and security, but simply enlarge the amount and scale of state-run enterprises owned by local governments. Then, they can use the state-owned capital to acquire those low-tech private enterprises, like that in the real estate industry.



Besides, in the governance and supervision of state-run enterprises, some phenomena should raise our attention. That is, those entrenched unreasonable problems, which have been solved before, start to reappear today. For example, recently in some places, the system of leading and supervising the cadres of state-run enterprises by multiple institutes is put into practice. The intention is positive, but the result is negative, because the multiple leadership and supervision over the cadres of state-run enterprises recurs. Multiple leadership and supervision will not only lead to the vacancy of owner, but of people accountable for state-owned assets. As a consequence, the decision efficiency of state-run enterprises will be lowered. In addition, another phenomenon worthy of our attention is that when reforming the governance and supervision of state-run enterprises, some local governments don’t act in accord with the principles of the socialist modern enterprise system, but frequently act beyond their terms of reference. Say, according to the regulations of enterprises, the salary of the major leaders in the state-holding listed enterprise should be proposed by the board of directors, and determined on the shareholders meeting. However, in some localities now, the salary is just directly determined by related departments in government, the board of directors and the shareholders meeting is merely a part of accomplishing the process. Also, formerly, the deputy general manager of the state-holding listed enterprises is nominated by the general manager and approved by the board of directors. But now this issue is dependent on local governments, the board of directors has no real authority.



Moreover, in the governance and supervision of state-run enterprises, there are many significant theories and practical problems needing discussion and resolutions. Among those listed companies, there are many state-holding enterprises, whose goal is to optimize the interests of related beneficiaries in the name of national interests. However, in the market, the goal of the modern enterprises is to optimize the related beneficiaries, that is, the investors. Apparently, the goals of these two are contradictory. So, how to solve this contradiction in practice is not only very essential in the healthy development of the state-run enterprises, but in the development of private enterprises, especially on the purpose of protecting the small and medium investors of enterprises with these two goals.


In short, we do make many progresses in the governance and supervision of the state-run enterprises in China. However, there are still many theoretical and practical problems remaining unexplored and unsettled. The voyage of reform should still continue at the moment.

◆please indicate the source if authorized: National Economics Foundation

◆photo:National Economics Foundation