Guiding Opinions on Strengthening Asset and Liability Constraints on State-owned Enterprises
Guiding Opinions on Strengthening Asset and Liability Constraints on State-owned Enterprises
Guiding Opinions on Strengthening Asset and Liability Constraints on State-owned Enterprises
September 13, 2018
The following guiding opinions are hereby raised to thoroughly implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and the spirit raised at the 19th National Congress of the Communist Party of China, put in place plans announced at the central conference on economic work, the national conference on financial work and the first session of the Central Financial and Economic Affairs Commission, strengthen asset and liability constraints on state-owned enterprises, reduce the leverage ratio of state-owned enterprises, help state-owned capital grow much better and stronger, make the economic growth more resilient, and improve the quality of economic growth.
I. General Requirements
1. General Objectives Strengthening asset and liability constraints on state-owned enterprises is a significant approach to winning the tough battle of preventing and resolving major risks. A sound mechanism will be established for asset and liability constraints on state-owned enterprises, to strengthen the supervision and administration, prompt the liability on asset ratio (LOAR) of state-owned enterprises with high liabilities to drop to a reasonable level as rapidly as possible, help the average LOAR of state-owned enterprises decrease by about two percentage points by the end of 2020, compared with the figure at the end of 2017, and have the LOAR of state-owned enterprises basically kept at the average level of companies in the same industry with the same scale, thereafter.
2. Basic Principles
-- Persisting in the Combination of Full Coverage and Category-based Administration. All industries and all types of state-owned enterprises will be covered under the asset and liability constraint management system. Meanwhile, standards of asset and liability constraint indicators for state-owned enterprises will be set differently by industry, according to the asset and liability characteristics of different industries. Focus shall be placed on regulatory priorities. For a state-owned enterprise where the standards of constraint indicators are surpassed, proper controlling measures will be taken according to the degree of risks, in consideration of which development stage this enterprise falls on and the comprehensive assessment of its different financial indicators and business development prospect. It is required to keep a tough rein on the Liability on asset ratio of state-owned enterprises in the industries with overcapacity, and properly and flexibly adjust the LOAR of state-owned enterprises in such industries as strategic emerging industries, innovative industries, and business starting, which are helpful in facilitating the transformed and upgraded economic development.
-- Persisting in the combination of improved internal governance and strengthened external constraints. Strengthening asset and liability constraints on state-owned enterprises needs to be linked to efforts in deepening the reform of state-owned enterprises, forming the modern corporate system and optimizing enterprises' governance structure, and requires the establishment and improvement of a long-term mechanism. In the meantime, external asset and liability constraints on state-owned enterprises will be reinforced via intensifying the assessment, improving the truthfulness and transparency of enterprises' accounting affairs, and imposing reasonable limits on debt financing and investment.
-- Persisting in the combination of improvements to the quality and efficiency and policy-level support. All related parties shall take active actions, further specify objectives, steps and ways for state-owned enterprises with high liabilities to reduce the LOAR, according to general targets, and have them completed within the designated time limit. State-owned enterprises shall persist in improving quality and efficiency, do their best to boost soft power, accumulate and strengthen enterprises' capital strength through widened business operations, and constantly reduce the LOAR with close attention to preventing the loss of state-owned assets. Meanwhile, a sound policy and institutional environment may be created for efforts of state-owned enterprises with high liabilities to reduce the LOAR, improve the capital supplement mechanism, increase the equity financing, support the activation of stock assets, and conduct the debt reorganization and market-oriented debt-for-equity swaps in a steady and orderly manner.
II. Setting Standards of Asset and Liability Constraint Indicators for State-owned Enterprises by Category
The LOAR will be basic constraint indicator for asset and liability constraints on state-owned enterprises, and state-owned enterprises in different industries and of different types will be managed by category and adjusted dynamically. In principle, the average LOAR of all enterprises above the designated size in the industry concerned last year will be taken as the benchmark line. Five percentage points and ten percentage points, higher than this benchmark line will trigger the current year's warning system for LOAR and close monitoring system for LOAR respectively. The warning threshold and the close monitoring threshold for the consolidated financial statements of the state-owned conglomerate, shall be determined by the relevant state-owned assets management authority, depending on the composition of its major business, development level and requirements on the category-based administration.
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