State-owned Assets Supervision And Administration Commission Research Articles

Board reforms and managerial risk-taking incentives: evidence from Chinese central state-owned enterprises

PurposeThis paper examines the effect of board reforms on managerial risk-taking incentive provision in state-owned enterprises (SOEs) whose managers are undue risk-averse.Design/methodology/approachWe use the staggered implementation of board reforms in Chinese central government-controlled state-owned enterprises (CSOEs) as an exogenous shock to board governance. We collect data on board reforms for a set of pilot CSOEs during the period 2005 to 2020 from the State-owned Assets Supervision and Administration Commission (SASAC) website by hand. We use a generalized difference-in-difference (DID) design to test the effect of staggered board reform adoption on managerial risk-taking incentive provision.FindingsWe find a positive relationship between board reforms and risk-taking inventive provision, i.e. pay-performance sensitivity, promotion-performance sensitivity and performance target difficulty. The documented relationship is stronger when the value of risk-taking is higher. We also find that board reforms lead to greater risky but value-enhancing investments and that managerial risk-taking incentive provision acts as an important channel through which board reforms improve value-enhancing risk-taking.Originality/valueOur findings suggest that board reforms that improve board governance are effective in addressing risk-related agency conflicts in emerging markets. The findings also highlight the importance of managerial risk-taking incentive provision in inducing risky but value-enhancing investments.

Does SASAC boost the innovation of state-owned enterprises?

This study examines the causal effect of government monitoring on the innovation of state-owned enterprises (SOEs). By exploiting an exogenous shock to SOEs caused by the establishment of the State-owned Assets Supervision and Administration Commission (SASAC) in 2003, our difference-in-differences estimates show that government monitoring effectively promotes SOEs' innovation, and this positive innovation-driven effect becomes more prominent in SOEs with lower initial governance quality, stronger policy intensity, and greater innovation intensity. Furthermore, the underlying mechanisms are that this reform helps reduce corporate policy burdens and improve management efficiency. In addition, government monitoring promotes SOEs' patent quality, resulting in enables better performance and higher productivity. Taken together, our findings suggest that government monitoring can be vital to SOEs' innovation activities.

Factors influencing the pricing of credit risk mitigation warrants in corporate bond financing

AbstractIn 2022, various Chinese regulatory authorities, including the China Securities Regulatory Commission (CSRC) and the State‐owned Assets Supervision and Administration Commission (SASAC), jointly issued documents and convened seminars at the Shanghai and Shenzhen Stock Exchanges to highlight the importance of credit protection tools, particularly credit risk mitigation warrants (CRMWs), to bolster corporate bond market financing. However, empirical research on the factors influencing CRMW prices in the Chinese market remains scarce. This study examines the factors affecting CRMW creation prices using a sample of CRMWs issued between 2018 and 2023 and analyzes the macroeconomic factors, characteristics of the underlying issuers, and related financial instruments. This study employs Shapley decomposition to evaluate the contribution of each variable. The findings reveal that, on the macroeconomic front, the year‐on‐year GDP growth rate from the previous quarter and the loan balance of financial institutions significantly and negatively impact CRMW prices. Regarding the underlying issuers, the issuer's credit rating and return on net assets significantly negatively affect CRMW prices, whereas the asset–liability ratio and issuer age have a significant positive impact. Additionally, related financial instruments such as bond interest rates and the risk mitigation certificate term positively contribute to the coverage of the underlying bond term and have a significant positive impact on CRMW prices.

Singapore’s Temasek Model and State Asset Management in China

Since the late 1970s, Singapore has been an important policy reference for China. Some Chinese policymakers viewed Temasek, its government holding company, as a model for state asset management. They studied Singapore’s approach, but ultimately chose a different institutional design when establishing the State-Owned Assets Supervision and Administration Commission (SASAC) in 2003. China’s engagement with Temasek subsequently concentrated on corporate governance, specifically boards of directors in state-owned enterprises (SOEs). Yet despite the Temasek model’s appeal, its influence in China was limited by the far greater size and indebtedness of the state sector; the weaker role of firm performance in asset and capital allocation; SOEs’ numerous social and welfare functions; lack of willingness to augment firm autonomy; and divergent interpretations of the Temasek model and its reference value. “Policy collage” by Chinese policymakers explains the existence of formal similarities between China and advanced capitalist economies without fundamental convergence in function.

The impact of audit committee effectiveness on firms’ outcomes in China: a systematic review

PurposeThis paper aims to discuss the academic literature on the impact of audit committee effectiveness on different outcomes (accounting, auditing, governance and economics) in China.Design/methodology/approachThe authors have conducted a systematic review using the PRISMA guidelines.FindingsThe key finding is that the regulatory organisations in China, such as the China Securities Regulatory Commission (CSRC) and the State-Owned Assets Supervision and Administration Commission (SASAC), need to play the active role that is expected of them to enhance the transparency and independence of an audit committee. Also, Chinese listed companies are facing institutional barriers (CEO power, concentrated ownership and government influence) to effectively implement the imported concept within China. Research relating to the audit committee's effectiveness has focused mainly on agency and resource dependence perspectives.Research limitations/implicationsChina’s regulatory bodies (CSRC and SASAC) should make necessary reforms to enhance the audit committee’s effectiveness. This study also provides implications for the other settings that have imported the audit committee concept from the Anglo-American countries.Originality/valueThis study contributes to the literature by synthesising the prior mixed findings on audit committee literature in China and providing suggestions to the regulators and future research.

The impact of employee compensation restrictions on labor productivity in state-owned enterprises: Evidence from China

Employees are important stakeholders in an organization. This paper aims to examine the effectiveness of limits on employee compensation in state-owned enterprises (SOEs), a policy for employees of state-owned enterprises issued by the China State-owned Assets Supervision and Administration Commission (SASAC) in 2010. Employing a difference-in-differences analysis for a sample of Chinese listed companies from 2007 to 2013, the results show that employee compensation restriction enhances the labor productivity of SOEs. This policy effect is mainly due to the contribution of compensation limits to the external fairness of employee compensation, and the findings remain unchanged after a series of robustness testing procedures. In addition, the employee compensation restriction policy significantly affects labor productivity improvement in monopolistic industries or mature SOEs.

EVA Application in the Performance Evaluation of State-owned Enterprises in China—Take Gree Group as an Example

China’s capital economy developed relatively late. In 2010, The State-owned Assets Supervision and Administration Commission (SASAC) officially stipulated that state-owned enterprises (SOES) should adopt EVA evaluation index. First introduced the traditional financial index system and measure of EVA index, and then by state-owned joint-stock enterprise group as an example, through the study of the application of EVA index in Gree, comparing to traditional financial index, analysis of the advantages of EVA index in performance evaluation of state-owned enterprises in China, and on the basis of the application of EVA index in our country state-owned enterprise puts forward some Suggestions to improve and perfect.

Human vaccines industry in China, 2019: Part—I

China is presently the most populous country; the annual birth rate is estimated at above 18 million each year over the next 5 years. The number of the aged population is also increasing. Continuous in-country demand for vaccines will, therefore, be maintained, providing opportunities for the manufacturers. China produces a large number of vaccines, presently estimated at 55 different types, which are used to protect against 28 types of individual infectious microbial diseases. The country has presently a total of 41 vaccine manufacturing companies, of which 21 are the major ones. The manufacturing capacity appears to be over 1000 a million doses per annum and the annual production in 2019 was over 700 million doses. Chinese imports of vaccines have remained low. The major government establishment, the China National Biotec Group (CNBG) companies are the leading manufacturer of vaccines in China and supply more than 50% of all the vaccines consumed in the country. CNBG is a research-driven biotech establishment and is engaged in RD the six institutes are also engaged in the manufacture, distribution, and sale of vaccines through their manufacturing companies and establishments in China. CNBG has seven vaccine manufacturing units. CNBG is a subsidiary of China National Pharmaceutical Group Corporation (Sinopharm). Sinopharm infrastructure shoulders the social responsibility of Chinese national medical and pharmaceutical reserve on a sustainable long-term basis, including handling of emergency situations. Sinopharm is under the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council of China and is engaged in 10 core business activities that cover biopharmaceutical products, including vaccines.

Does the Full Coverage of State-owned Enterprise Audits Promote the Preservation and Appreciation of State-owned Assets? On the Regulating Effect of the Transformation of State-owned Enterprises’ Supervision Functions in the State-owned Assets Supervision and Administration Commission

As the backbone and cornerstone of the national economy, state-owned enterprises have the primary responsibility of maintaining and increasing the value of state-owned assets. The 18th National Congress of the Communist Party of China opened a new round of state-owned enterprise reforms in China. The reform of the external supervision system of new state-owned enterprises clarifies that the National Audit Office have fully covered the auditing supervision of state-owned assets, and the State-owned Assets Supervision and Administration Commission （SASAC） has promoted the transformation of the supervision function of state-owned enterprises through the management of capital. How to realize the preservation and appreciation of state-owned assets is a new task and challenge faced by the National Audit Office and the SASAC. Based on the announcement of the audit results of the central government’s financial revenue and the expenditure announced by the National Audit Office in 2013-2018, starting with the breadth and depth of national audit coverage, and selecting 2012-2017 Commercial Central Enterprise Holding Listed Companies as samples, this paper empirically examines the relationship between the full coverage of state-owned enterprise audits and the preservation and appreciation of state-owned assets, and the regulating effect of the state-owned assets supervision and management function change of the SASAC on the relationship between the two. The study finds that: First, the coverage expansion of the auditing supervision objects of state-owned enterprises can effectively promote the preservation and appreciation of state-owned assets, and the deep increase is not conducive to the preservation and appreciation of state-owned assets. Second, the transformation of the SASAC’s function of managing capital has significantly enhanced the positive correlation between the coverage of the auditing supervision objects of state-owned enterprises and the preservation and appreciation of state-owned assets, but it does not affect the annual coverage of the auditing supervision content of state-owned enterprises and the preservation and appreciation of state-owned assets. The above conclusions are still established after the robustness test and the endogeneity test. Therefore, the National Audit Office should actively use the good opportunities created by the reform of the state-owned enterprise supervision system, expand the coverage of the auditing and supervision objects of state-owned enterprises, select the types of the auditing supervision contents of state-owned enterprises in a focused manner according to the annual work priorities of the party and the state, and design a more reasonable and effective state-owned enterprise audit coverage plan to promote the preservation and appreciation of state-owned assets. At the same time, the National Audit Office and the SASAC should also clarify their respective state-owned enterprises’ supervisory duties and responsibilities, give full play to the synergy between the two, and jointly promote state-owned enterprises to deepen reforms and realize the preservation and appreciation of state-owned assets.

State ownership, performance evaluation and tax avoidance

ABSTRACTIn 2004, the central and local State-owned Assets Supervision and Administration Commission (SASAC) announced how to evaluate the performance of management of state-owned enterprises (SOEs) that are under its control. This article examines how the different performance evaluation systems in different provinces influence the tax avoidance behaviour of SOEs. We find that only four of them – Shanghai, Guangdong, Zhejiang and Fujian – adopt after-tax profit as the evaluation index, while all the other provinces use before-tax profit. We believe that SOEs which use after-tax profit as an evaluation index have higher incentives to reduce the tax burden than those which use before-tax profit as an evaluation index. Following previous literature, two measurements of tax avoidance are used in this paper: effective tax rate and book-tax difference. Based on 8426 observations from 2007 to 2015, we have two main conclusions: (1) compared with SOEs that are evaluated using before-tax profit as the evaluation index, SOEs that are evaluated using after-tax profit have lower effective tax rate (ETR) and higher book-tax difference (BTD); (2) compared with SOEs that are evaluated using before-tax profit as the evaluation index, SOEs that are evaluated using after-tax profit have a higher level of substitution between debt financing and tax avoidance.

Chinese state owned enterprises: an observer's guide

Not all of China's SOEs have evolved equally. To understand modern SOEs the paper contrasts the giant centrally owned firms in the energy and utilities sectors under the control of the central state-owned Assets Supervision and Administration Commission (SASAC) in Beijing - some of which have financial resources comparable to medium-sized countries - with the tens of thousands of provincially and locally owned SOEs that have survived reform with various degrees of state ownership and across all sectors. The paper finds that giant central SOEs may be politically important to Beijing, but most SOEs are provincial and local businesses operating in competitive, rather than monopolistic, environments. Instead of dealing with SOEs as a class, the challenge for policymakers is to deal with market structures that undermine competition, and to regulate socially harmful behaviour, irrespective of the ultimate owner of the capital involved.

Where’s the Government?

Where’s the Government? Joseph Fewsmith (bio) In his new book, Markets over Mao: The Rise of Private Business in China, Nicholas Lardy takes on those who argue that China has developed a form of state capitalism that is directing and steering Chinese development. To the contrary, Lardy argues that Chinese development has been market-driven, not only in the 1980s as rural and urban markets were liberated from the restrictive policies of the Maoist era but also during the Hu Jintao and Wen Jiabao era when the creation of the State-owned Assets Supervision and Administration Commission (SASAC) and the high profitability state-owned enterprises (SOE) enjoyed in the early 2000s brought cries of “the state advances as the market retreats” (guojin mintui). Lardy argues the obverse: namely, that markets have continued to expand and the state has retreated. Today, SOEs account for about a quarter of industrial production and only 13% of urban employment (pp. 76 and 82). Lardy estimates that private enterprises employ 183 million urban workers, about two-thirds of all urban employment (pp. 83–84). Much of Lardy’s argument is convincing (and I am not going to argue economics with him), but it is less so when he discusses the role of the government. He disagrees with Steven Green’s assessment that “China has a large and powerful government sector” (p. 138). Interestingly, Wang Jianlin, China’s richest entrepreneur, agrees with Green. A recent article in the New York Times quotes Wang as saying, “It’s a fact that China’s economy is government-led, and the real estate industry depends on approvals, so if you say you can ignore the government in this business, I’d say it’s impossible.”1 In looking at the role of the party-state, it is useful to start with the definition of “private.” As an economist, Lardy is primarily interested in whether the dominant ownership of enterprises is state or private. By this measure, Lardy estimates that the private sector, including privately owned foreign firms, generates about 60% of China’s industrial output. He recognizes [End Page 156] that this figure may overestimate the role of the private sector somewhat because “there must be some firms where the extent of the government’s de facto control exceeds its ownership share” (p. 71). He also regards all agricultural production as private (p. 62). Although these assumptions seem reasonable, it is not clear how “private” private is. For instance, in the agricultural sector, the lack of private land ownership means not only that farmers cannot buy and sell land but also that they cannot mortgage their land to raise capital to start urban businesses. More important, local authorities often feel free to requisition land, giving farmers minimal compensation, in order to attract investment. So there are real limitations on the ability of farmers to control their supposedly private farms.2 Moreover, in the manufacturing sector, large private firms now often have party branches, and the party secretary, usually hired from outside the firm, is generally well-paid and often sits on the board of directors. This seemingly odd arrangement often works to the advantage of both the state and the enterprise. Party secretaries, many of whom worked previously in the government, can lobby the government for necessary permissions. In a polity in which the approval process remains extremely important (as Wang Jianlin, above, reminds us), this relationship is critical for the development of private enterprises. For the government, the expansion of the party into the private realm reflects a continued refusal to acknowledge a legitimate line dividing state and society as well as a continuing distrust of the private sector, despite all the studies that have shown that private entrepreneurs would rather be close to government than push for political change.3 Moreover, the government has been important in both stimulating and retarding economic development over the years. It was a government rethink of rural policy that brought about the household responsibility system in the late 1970s and early 1980s, and the annual Document No. 1 on rural policy that pushed those developments forward. Although land remained collectively owned (a largely ideological impediment to thoroughgoing privatization), these policies...

Energy conservation in China’s energy-intensive enterprises: An empirical study of the Ten-Thousand Enterprises Program

The Ten-Thousand Enterprises Program is China’s keystone energy conservation and climate change program. The program has effectively created a class of energy-intensive enterprises that are regulated by the government for energy conservation purposes. Through an empirical study conducted in Changchun, this paper shows that the adoption of energy efficiency technologies and practices has been highly uneven in this class of enterprises because of two reasons. First, a de facto two-tier regulatory system has emerged within the framework of the Ten-Thousand Enterprises Program. Central state-owned enterprises are closely regulated by the State-Owned Assets Supervision and Administration Commission (SASAC) which is a central government apparatus, whereas local state-owned enterprises and privately owned enterprises are regulated by the local government, which has fewer resources and incentives to implement the program rigorously. Second, the Ten-Thousand Enterprises Program bundles together different types of enterprises. This approach places smaller enterprises at a disadvantage and limits their ability to conserve energy.

The Relationship between Ownership Identity, Ownership Concentration, and Firm Operating Efficiency: Evidence from China 2005-2012

China restructured its state assets management system through the establishment of the State-owned Assets Supervision and Administration Commission (SASAC) in 2003. In consequence, de facto ownership rights to local state-owned enterprises (lo-cal SOEs) were granted to local governments. Chinese policymakers assumed that the split of state ownership between central government and local authorities would in-crease government’s fiscal incentives for improving SOEs’ economic efficiency. This study investigates whether the redefined state-owned firms have improved their performance and whether this performance is better than that of local government SOEs and privately owned firms. We have traced the identity of the largest shareholder among publicly listed firms and have classified it as the central government (SOECG), local government (SOELG), or privately owned (PRIVATE). Using panel data com-prising 13,273 firm-year observations for the period 2005-2012 and OLS, 2SLS, difference, and difference-in-difference regression, we report that the identity of the largest shareholder does matter. Our results show that the listed, central government owned SOEs’ operating costs are similar to those of local government owned SOEs and privately owned firms. The fact that the performance of central government owned SOEs is inferior to that of local government owned SOEs and privately owned firms suggests that helping-hand and protectionist policies have been an important contributing factor to SOECGs’ performance. This result is also supported by empirical analysis which suggests that central government shareholding is an important determinant for SOECGs’ performance. The policy implication of this study is that helping-hand and protectionist policies have been a barrier to fully realizing the benefits of ownership reform of listed companies in the absence of a competitive market and an effective legal infrastructure in China.

The Rise of SASAC: Asset Management, Ownership Concentration, and Firm Performance in China's Capital Markets

Since the mid 1990s the State-Owned Assets Supervision and Administration Commission (SASAC) has emerged as a key institution governing firm ownership in China, but its impact on firm performance is understudied. Through an analysis of Chinese firms listed on the Shanghai and Shenzhen stock exchanges from 1994-2003, we examine how the changing ownership patterns following the rise of SASAC influenced firm performance. We have three findings. First, contrary to the popular view that state ownership in China's listed firms has declined, we find that the state shares have been moved from the original state offices to the SASAC in the format of ‘state institutional shares’. Second, compared with the old state shares, the SASAC institutions affect firm performance more positively. Third, after controlling for state and SASAC ownership, ownership concentration is a strong positive factor in firm performance. Our findings fit squarely within a long tradition of agency theorists who argue that ownership concentration helps solve the free-rider problem and thus has positive effects on firm performance. However, we focus on the ways in which ownership concentration allows firm owners to monitor and stabilize firm behaviour, which has more important implications for emerging economies such as China's domestic capital markets.

Partial privatisation and the role of state owned holding companies in China

China has never agreed to full privatisation of its state-owned enterprises (SOEs). This essentially means a dual role for the government—as a shareholder of privatised SOEs and a regulatory authority of the corporate sector. This begs the question—how does the government avoid being caught in the awkward state-first condition where political-economic interest overrides the commercial interest as its exercises both the shareholder and regulatory roles? This paper argues that a positive way forward is to establish state-owned holding companies (SOHs). As shareholders representative of the government, the SOHs serve to monitor the performance of partially privatised firms and see that the state receives its fair share of return. In China, the State-Owned Assets Supervision and Administration Commission (SASAC) assumes the role of the SOH. However, the relationship between the central government and SASAC is ambiguous with evidences suggesting SASAC’s commitment to political-economic goals. To play the role more effectively, this paper argues that SASAC must function independently of the government. SASAC must demarcate the government’s role as a shareholder and a regulator with SASAC assuming the role of a shareholder representative of the government.

Between Owner and Regulator: Governing the Business of China's Telecommunications Service Industry

AbstractThis study explains the institutional structure and mechanism of economic regulation in China's telecommunications basic service industry. The case of telecoms basic service provides an excellent window to explore how Chinese leadership governs strategic state sectors whose assets and profits are central to the national economy. Challenging the ideational model of independent regulator, this study argues that the State-owned Assets Supervision and Administration Commission (SASAC) explains much of the telecoms business regulation, as the authority of the Ministry of Information Industry has been circumscribed by other party-state institutions. The SASAC's regulatory power suggests that the primary goal of the Chinese industrial economy is the best protection of state assets through the creation of large and strong state firms, not the protection of consumers' interests by breaking up the monopoly in markets.