GuoFa [1997] No.15 April 29, 1997

The State Council approves The Suggestions on the Work of Deepening the Experiments of Large-size Enterprise Groups of the State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission which are transmitted to you for earnest implementation.

The work of deepening the experiments of large-size enterprise groups is essential for promoting the basic transformation of the economic structure and the mode of economic growth. Stress should be laid on running a number of large-size enterprise groups well, linking and bringing along the reorganization and development of a number of enterprises, pressing forward structural adjustment, forming scale economy, improving the operational efficiency and performance of the state-owned assets and actively extending the role of large-size enterprise groups as the backbone of the national economy in line with the requirements of establishing the modern enterprise system and managing well the entire state-owned economy. The State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission should step up the organization and guidance of the work, and all regions and all departments concerned should actively coordinate with one another and create good external conditions for the growth in strength of the large size enterprise groups.
Attachment:
The Suggestions on the Work of Deepening the Experiments of Large-size Enterprise Groups
April 8, 1997

For the purpose of adapting to the requirements of establishing the socialist market economic system and in accordance with the spirit of the Fifth Plenary Session of the Fourteenth Central Committee of the Communist Party of China that "the State must lay the stress on running well a batch of large-size enterprises and enterprise groups which play the role of backbone in the national economy" and the State Council's requirements for the selection of second batch of large-size enterprise groups for experiments, the following suggestions are hereby put forth on the related questions on the work of making experiments and the list of second batch of enterprise groups selected for experiments:

I The Necessity and Purpose of Deepening the Experiments of Enterprise Groups
Since the transmission of the Circular of the State Council on the Approval and Transmission of the Report Requesting Instructions on the Selection of a Batch of Large-size Enterprise Groups for Experiments Submitted by the State Planning Commission, the State Restructuring Commission and the Production Office under the State Council (GuoFa [1991] No. 71), positive progress has been made in the work of making experiments by 57 enterprise groups in the first batch and the purpose of making experiments has been basically realized. The main manifestations are as follows: explorations have been made in smoothing the internal relations of the enterprise groups with capital as the linkage; functions of the enterprise groups have been extended and the strength of the groups has grown, having initially formed a batch of enterprise groups with considerable market competitiveness which has played a positive role in promoting structural adjustment and improving scale performance; having deepened the internal reform of the enterprise groups, promoted the transformation of the operational mechanism of enterprises and improved the operational and management level of enterprises; the experiments having played a demonstrative role in the building and development of enterprise groups throughout the country.

At present, national socio-economic development in our country has entered a new phase. The transformation of the economic system from that of the traditional planned economy to one of socialist market economy and the transformation of the mode of economic growth from the extensive management to intensive management are underway. In the process of establishing the socialist market economic system, it has been determined that the direction of the reform of state-owned enterprises is the establishment of the modern enterprise system with the promulgation and implementation of The Company Law of the People's Republic of China (hereinafter referred to as The Company Law). With further extension in opening up to the outside world, enterprises face increasingly fierce competition in the domestic and world markets. Therefore, during the crucial period of realizing the two basic transformations in the development of the national economy, it becomes all the more necessary to deepen the experiments of large-size enterprise groups in accordance with the requirements for the establishment of the modern enterprise system and good management of the entire state-owned economy.

The following major purposes should be served in deepening the experiments of large-size enterprise groups:

(1) Form a batch of large-size enterprise groups in the key fields and key trades in the national economy and actively bring into full play the backbone role of large-size enterprise groups in the national economy.

(2) By the end of the century, modern enterprise system should be established initially in parent and subsidiary companies of large-size enterprise groups which are legal entities and main body of market competition responsible for their independent operations, their own gains and losses, self-development and self-restraints. The parent and subsidiary structure with capital as the main linkage should be established.

(3) Promote rational flow of production factors and optimal allocation of resources, linking and bringing along the reorganization and development of a batch of enterprises, forming scale economy and enhancing competitive capability in the domestic and world markets.

(4) Improve the operational efficiency and performance of the state-owned assets to ensure the preservation and increment of the value of the state-owned assets.

(5) Effect transfer in government functions and realize step by step the separation of functions of government from those of the enterprise. Promote trans-regional and trans-trade economic association and enhance the macro regulatory and control capability of the State.

II. The Building of the Structure of Parent-subsidiary Companies with Capital as the Main Linkage

(1) On the basis of settlement of assets and verification of capital and defining property rights, the parent companies and their member enterprises of the enterprise groups making experiments should, in compliance with the relevant provisions of The Company Law, carry out standardization or rebuilding, smooth step by step the internal relations of property rights of the groups, and build the parent-subsidiary company structure with capital as the main linkage. The parent companies of the enterprise groups making experiments may, in general, be reconstructed to be state-owned sole-capital companies or limited liability companies with more than two shareholders; the subsidiary companies of the enterprise groups making experiments should generally be reconstructed to be limited liability companies with more than two shareholders or companies limited by shares.

(2) Clearly define the promoters of the parent companies of the enterprise groups making experiments by establishing the promoters' system. Those parent companies of the groups making experiments that are sole-proprietorship state-owned companies, their promoters shall be the state-authorized investment institutions or the state-authorized departments.

A small number of parent companies of the enterprise groups making experiments which have the required conditions can become the state authorized investment institutions with the approval of the State Council.

(3) Establish scientific and democratic leadership structure and decision making structure. The parent companies and subsidiary companies of the enterprise groups making experiments should, in compliance with The Company Law, build the structure of corporate management, and build a mutually separated and checking mechanism of the power structure, the operations departments and the supervisory organs.The boards of directors and boards of commissioners of the parent companies and subsidiary companies of the enterprise groups making experiments shall be formed in accordance with The Company Law and the constitutions of the companies.

The board of directors shall employ a general manager. The chairman of the board of directors generally shall not be concurrently the general manager. The sole-proprietorship state-owned companies approved by the State Council may not establish boards of directors for the time being.

(4) The enterprise groups making experiments should, in accordance with the requirements for the establishment of the modern enterprise system and the relevant provisions of the State, carry out reform in labor, personnel and wage systems and strengthen internal management; carry out pension, medical, unemployment and vocational injuries insurance for workers and staff members in accordance with the provisions of the State; the nonproduction and operational functions undertaken at present should be separated step by step, and measures should be taken for a satisfactory settlement of the personnel upon separation.

III. Further Enhancement of the Functions of the Parent Companies of the Enterprise Groups Making Experiments

The parent companies of the enterprise groups making experiments should play a leading role in formulating the group development strategy, structural adjustment and coordination of interests and become, step by step, the decision-making centers of such major operational activities as investment and adjustment of funds, sci-tech development, foreign trade and economic and technological exchanges. The parent companies of the enterprise groups making experiments should, in accordance with the development of the industries and the market characteristics of the products, rationally determine the operational and management structure of the enterprise groups, perfect the rules and regulations of the groups, standardize the relations of rights and obligations between the parent companies and the member enterprises of the enterprise groups making experiments, and enhance the overall advantages and competitive capability of the enterprise groups making experiments.

(1) Enhance the investment function of the parent companies of the enterprise groups making experiments. Investment of fixed assets in small and below-ceiling projects which are in line with the State industrial policy and distribution policy shall be decided by the parent companies of the enterprise groups making experiments and the same shall be submitted to the competent departments of the related industries for the record.

Projects attracting direct foreign investment which are in compliance with The Interim Provisions Guiding the Direction of Foreign Investment and in the categories encouraged or allowed by The Catalog of Guidance for Industries for Foreign Investment, investment by the Chinese party, and conditions for construction, production and operations as well as the foreign exchange required can be balanced and settled on their own, production projects the scale of investment of which is under US$ 30 million can be decided by the parent companies of the enterprise groups making experiments; and the same shall be submitted to the State Planning Commission and the State Economic and Trade Commission respectively for the record according to the nature of the construction projects, and the contracts and constitutions of the enterprises submitted to the Ministry of Foreign Economic Cooperation and Trade for the record. The State Planning Commission and the State Economic and Trade Commission can veto or put forth suggestions for revision within one month upon the receipt of the documents.

Large- and medium-size and above-ceiling projects shall be processed in accordance with the relevant provisions of the State.

The amount of cumulative investment by the parent companies of the enterprise groups making experiments in other limited liability companies and companies limited by shares in the light of requirements may exceed fifty percent of their own net assets when entrusted by the State Council, with the approval of the State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission and submission to the State Council for the record.
(2) Enhance the function in the adjustment of funds of the parent companies of the enterprise groups making experiments. With the approval of the competent departments concerned under the State Council, the parent companies of the enterprise groups making experiments may engage in adjustment of funds in domestic and foreign financial and stock markets. Priority shall be given to those enterprises which meet the required conditions in the enterprise groups making experiments in making arrangements for the issuance of enterprise bonds and selection of listing companies.

A small number of the parent companies of the enterprise groups making experiments which meet the required conditions can have the right to engage in adjustment of funds abroad with the approval of the competent departments concerned under the State Council.

The parent companies of the enterprise groups making experiments engaging in international project contracting and other businesses of international economic cooperation can have the right of external guaranty in accordance with the provisions of The Circular of the People's Bank of China Concerning the issuance of The Control Measures for External Guaranty by Domestic Institutions and with the approval of the competent department under the State Council.

(3) With the approval of the competent department under the State Council, the parent companies of the enterprise groups making experiments have self-operated import-export right and can engage in import-export business operations in products of identical categories relevant to the groups and matching products. The subsidiary companies or member enterprises of the enterprise groups making experiments which meet the required conditions can apply separately for self-operated import-export right. Encouragement should be given to the organization of export with complete sets of equipment composed mainly of products of the groups.

With the approval of the competent department under the State Council, the parent companies of the enterprise groups making experiments which meet the required conditions can engage in overseas project contracting and overseas services cooperation of their respective industries.

(4) The enterprise groups making experiments which have the required conditions should all set up technology centers, upgrade their capabilities in technological innovation, digestion and absorption of the inducted technologies and in development of new products so as to enhance competitiveness in the world market.

IV Multi-channel Increase and Supplement of the Capital Funds of the Enterprise Groups Making Experiments to Extend their Role in Structural Adjustment

The parent companies of the enterprise groups making experiments should, in keeping with the requirements of division of labor in specialization, carry out structural adjustments in internal organizations of the groups, in industries and products so as to improve structural performance and scale performance.

(1) Adjust rationally the liability structure of the state-owned enterprise groups making experiments. Concerning the question of turning the "appropriated-changed-to-loaned" funds of the enterprise groups making experiments into state capital funds, it should be implemented in accordance with the provisions of The Circular of the State Council on the Approval and Transmission of the Suggestions of the State Planning Commission, the Ministry of Finance and the State Economic and Trade Commission Concerning Turning the Balance of the Principle and Interest of the "Appropriated changed-to-loaned" Funds of a Number of Enterprises into State Capital Funds.

The departments concerned under the State Council should study ways to increase and supplement the state capital funds of the parent companies of the state-owned enterprise groups undergoing experiments through various channels to enable the state capital funds to reach the prescribed percentage step by step.

(2) Establish rules for the input of capital funds. The parent companies and subsidiary companies of the enterprise groups undergoing experiments without capital funds or whose capital funds do not reach the level as prescribed, their promoters should put in capital funds.

(3) Actively support the enterprise groups making experiments in the reorganization of the state-owned stock assets. The parent companies and subsidiary companies of the enterprise groups making experiments in cities undergoing experiments on the "optimization of capital structure" of enterprises determined by the State Council can implement the relevant provisions on enterprise merger, bankruptcy and reemployment of workers and staff members laid down in the Supplementary Circular of the State Council Concerning Questions Relating to the Trial Implementation of the State-owned Enterprise Merger, Bankruptcy and Reemployment of Workers and Staff Members in a Number of Cities (Guo Fa [1997] No. 10); the state-owned enterprise groups making experiments in cities not undergoing experiments can likewise implement the relevant policy provisions in Guo Fa [1997] No. 10 Document, however, they are subjected to the approval of the National Leading Group on Enterprise Merger, Bankruptcy and Reemployment of Workers and Staff Members upon submission of the reports by the Coordinating Teams on Enterprise Merger, Bankruptcy and Reemployment of Workers and Staff Members of the provinces and autonomous regions wherein the enterprises are located and the same shall be integrated into the national work plan for enterprise merger, bankruptcy and reemployment of workers and staff members.

V Strengthening of Supervision over and Evaluation of the Enterprise Groups Making Experiments

(1) The parent companies of the enterprise groups making experiments which are sole-proprietorship state-owned companies should, in accordance with the provisions of the Regulations on the Supervision and Control of Assets of State-owned Enterprises, form boards of commissioners composed of commissioners sent by the relevant authorized supervisory organs.

(2) The authorized supervisory organs or the departments concerned with functions of promoters should carry out regular supervision over or evaluation of the operations and management of the assets and operations of the state-owned capital of the parent companies of the enterprise groups undergoing experiments and decide on the reward or penalty based on the completion of the evaluation targets.

(3) The enterprise groups undergoing experiments should, in accordance with the State provisions, establish rules for accounting statements and tables for group amalgamation. Internal financial and accounting rules and rules for auditing and supervision of capital operations of the groups should be perfected to improve the efficiency of capital operations and regular truthful report on capital operations made to the promoters or supervisory organs.

(4) The enterprise groups undergoing experiments and their member enterprises which make tax payments on a consolidated basis should, in accordance with the relevant provisions of the State Taxation Administration, be subject to the supervision and control of local tax organs.

VI Extension of the Scope of Large-size Enterprise Groups Making Experiments and Eligibilities

The scope for the selection of second batch of enterprise groups making experiments is:(1) industries suitable for group development which the State industrial policy renders major support; (2) enterprise groups with stronger market competition capabilities or outward-oriented enterprise groups with strengths; and (3) the parent companies of enterprise groups with state-owned enterprises as the main body, while simultaneous consideration will be given to enterprises of other forms of ownership which meet the required conditions.

The main eligibilities for the selection of second batch of enterprise groups making experiments are:(1) the enterprise groups already established with the approval of the State or the departments concerned at the provincial level, or the enterprise groups the formation of which are underway in the light of the requirements of the State industrial structural adjustment. (2) The enterprise groups which hold a decisive position in the scale of assets, production and operations, export and foreign exchange earnings and contributions to the country and rank high in the industries. In case of the parent companies being industrial enterprises, they should, in general, be ultra-large-size enterprises. (3) The enterprise groups with better operational achievements and prospects for development, sound rules for operations and management and higher leadership quality. (4) The parent companies which do not perform the administrative functions of the government.
63 large-size enterprise groups have been ascertained to take part in the experiments for the second batch (list enclosed) on the basis of the above-mentioned principles and eligibilities with the approval of the State Council.

VII Carrying out Efficient Organizational Work and Exercising Good Leadership in the Experiments of Enterprise Groups

The State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission should, in accordance with the division of labor and requirements prescribed in Guo Fa [1991] No. 71 Document, continue to do a good job of organization, guidance and coordination in conducting the experiments, and all local people's governments concerned and the relevant departments under the State Council should continue to provide positive coordination.

The enterprise groups making experiments should, in accordance with the requirements put forth in this Document for deepening the experiments, work out proposals for experiments to be submitted to the State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission as well as the departments concerned under the State Council or the local governments. The work of coordination and guidance for the formulation of proposals for experiments shall be headed by the State Economic and Trade Commission. The formulation of proposals for experiments should be completed by the end of June, 1998. To do a better job in conducting experiments in enterprise groups, the State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission may, in the light of the actual progress made in the experiments, put forward suggestions for necessary readjustments in the list of enterprise groups making experiments in conjunction with the sides concerned and submit the same to the joint session of the State Council on the reform of the state-owned enterprises for examination and finalization.

On the questions of the establishment of financial companies by the enterprise groups making experiments and application for authorization of examination and approval in foreign affairs, the provisions laid down in Guo Fa [1991] No. 71 Document shall continue to be observed; payment of enterprise income tax on a consolidated basis shall be processed in accordance with the existing procedures; administration of the main leading personnel of the parent companies of the enterprise groups making experiments shall follow the existing management structure and the relevant provisions of The Company Law ; in principle, there shall be no new additions of enterprise groups making experiments listed as independent units in the state plans and enjoying the political treatment of the corresponding levels. Where there are inconsistencies in respect of other contents in Guo Fa [1991] No. 71 Document with this Document, this Document shall prevail. The departments concerned under the State Council should, in accordance with the spirit of this Document, revise and perfect the matching documents formulated for the experiments of enterprise groups in the past or work out new documents, and promulgate the same for implementation in conjunction with the State Planning Commission, the State Economic and Trade Commission and the State Restructuring Commission, so as to create conditions for pressing forward the experiments of enterprise groups.

Attachment: List of the second batch of 63 enterprise groups making experiments(omitted)

Promulgated by The State Council on 1997-4-29