State-owned Assets Supervision 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.

A Study on the Performance of Mergers and Acquisitions in the Context of State-Owned Enterprise Reform: The Case of Ansteel and Benxi Steel

The State-owned Assets Supervision and Administration Commission emphasizes that promoting the reorganization of state-owned enterprises (SOEs) can focus their advantageous resources, which plays a positive role in addressing issues such as the uneven distribution of state-owned capital, inefficient resource allocation, and homogenized development. This paper, set against the backdrop of SOE reform and central enterprise reorganization, uses the merger and reorganization event of Ansteel Group and Benxi Steel Group as a case study to investigate how central enterprise reorganization can improve the performance of central enterprises, based on the theory of synergistic effects. The study finds that under the theory of synergistic effects, after the reorganization of Ansteel Group and Benxi Steel Group, the operational, financial, and managerial synergistic effects of Ansteel Group continue to be realized, thereby enhancing the performance level of Ansteel Group. This paper aims to demonstrate the improvement of enterprise performance through central enterprise reorganization and calls on other central enterprises to actively respond to the national requirements for mergers and reorganizations, offering suggestions for subsequent reorganizations of central enterprises.

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.

Challenges and Innovations in Implementing Sustainable Supply Chain Smart Manufacturing in the Metal Recycling Industry

Recently, the State-owned Assets Supervision and Administration Commission of the State Council and the Ministry of Industry and Information Technology jointly launched the common chain action for integrating and developing the industrial chain of central enterprises (referred to as the common chain action). The government has actively taken measures to promote the modernization of industrial and supply chains, with digital intelligence empowerment becoming a key driving force. In this context, metal recycling companies face new challenges and opportunities in supply chain construction. This paper aims to deeply explore how digital intelligence empowerment affects the supply chain of recycled metal companies, as well as the difficulties faced and innovative solutions.

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.

Political Party System and Enterprise Innovation: Is China Different?

ABSTRACT A significant feature of corporate governance in China is the participation of party organizations, reflecting the involvement of the Chinese political party system in enterprises. Using a sample of A-share market listed central state government owned enterprises (hereinafter referred to as “CSOEs”) from 2003 to 2020, this study examines the influence of China’s political party system and state-owned assets supervision system on enterprise innovation. The empirical results show that the participation of party organizations in corporate governance can significantly promote CSOEs’ innovation, especially in the case of CSOEs with weak state-owned assets supervision. The party organization’s role in promoting innovation is mainly achieved through the board of directors and senior management, rather than through the cooperation of the board of supervisors. We also find that this role exists in both substantive and strategic innovations, but mainly exists in areas with weak market allocation resources. Our findings contribute to the literature examining the determinants of firm innovation, and have practical implications for corporate governance in developing countries.

Review of the monograph by Alexandr Svetlicinii “Chinese State Owned Enterprises and EU Merger Control”

The review concerns the monograph «Chinese State Owned Enterprises and EU Merger Control», which analyzes the features of mergers and acquisitions in the European Union, with the participation of state-owned enterprises from the PRC. Main attention is paid to how the author of this monograph analyzes the influence of the Communist Party of China and the State-owned Assets Supervision and Administration Commission of the State Council on the corporate governance of Chinese state-owned companies.

Audit Supervision, State-owned Assets Supervision and State-owned Enterprise Governance: A Study Based on the Background of Audit Officials in State-owned Assets Supervision

In the context of the deepening reform of state-owned enterprises (SOEs) and particularly the duty of accountability audit and supervisory committee assigned to the government audit offices during the recent reform of government institutions, audit supervision plays an important role in the supervision of state-owned assets (SOAs) and the governance of SOEs. The existing literature mainly studies the governance effect of government audit on the listed central SOEs based on the audit finding announcements of central SOEs issued by the National Audit Office, but it generally regards government audit as a black box. In fact, officials usually play an active and significant role in the government’s decision-making. Therefore, this paper tries to examine the underlying mechanism of the governance effect of audit supervision on SOEs from the perspective of the background of audit officials in the supervision of SOAs.We conduct an empirical study with a sample of A-share listed local SOEs from 2003 to 2017, and find that the background of audit officials in the supervision of SOAs can improve the accounting information quality of SOEs. This result is more significant when audit officials’ supervision experience of SOAs is longer, audit enforcement is more powerful, and SOEs’ internal corporate governance is weaker. But the intervention of local leading officials due to political promotion incentives can weaken the governance effect of audit officials on SOEs. Further analysis indicates that the background of audit officials in the supervision of SOAs also has a real effect on SOEs, which can reduce the real earnings management, improve innovation performance, and ultimately increase the firm value.The findings of this paper not only confirm the heterogeneous impact of audit officials’ subjective initiative on the supervision of SOAs and the governance of SOEs from the perspective of individual work experience, but also reveal the transmission path of local leading officials’ influence on the decision-making of micro enterprises from the perspective of government audit, a professional administrative institution. Meanwhile, in the process of realizing the integration and optimization of audit supervision power and establishing a unified and efficient audit supervision system for the supervision of SOAs, the regulator should not only pay attention to training and improving the professional competence of audit officials through position experience, but also further strengthen the independence of audit offices and audit officials through deepening reform.

The Design Path of the Employee Stock Ownership Scheme of the Conventional Holding and Mixed Ownership Enterprises

Employee stock ownership is one of the common medium and long-term incentive methods for state-controlled mixed ownership. As the current state-controlled mixed-ownership enterprise employee shareholding is still in the pilot stage, the State-owned Assets Supervision and Administration Commission of the State Council is still relatively strict on the implementation of relevant conditions for enterprises. Based on the analysis and research on the relevant policies and corporate practices of employee stock ownership, this paper puts forward the implementation path of state-controlled mixed ownership enterprises to carry out employee stock ownership, and gives reminders and early warnings of common risks in the implementation process.

Toward a theory of internal governance structure of China’s large SOEs

This research constructs a simple model to reveal the trade-off between decentralized and centralized governance structures of large state-owned enterprises (SOEs) in China. Our model shows that delegating the decision-making authority to large SOE managers enhances their initiative in terms of local investment while also perhaps leading to the ex-post moral hazard problem. The managerial entrenchment effect causes a misalignment between large SOE managers’ personal interests and organizational interests. We construct a model by introducing a mechanism called the constrained-delegation governance structure approach to illustrate the issues, such that by eliminating some of large SOE managers’ managerial entrenchment investment choice through partially delegating SASAC (State-owned Assets Supervision and Administration Commission of the State Council) officials’ decision-making authority to the party committee within large SOEs, the trade-off between centralization and decentralization with respect to loss of control versus the local initiative can be resolved. We also show and discuss how the efficiency of the constrained delegation governance structure within Chinese large SOEs delivered through party committee control is mitigated with the presence of collusion between the party committee secretary and large SOE managers. By eliminating the self-selection endogeneity issues, some further empirical evidence including the robustness check shows that (1) the existence of a party committee could reduce the overinvestment problem of listed large SOEs, and that (2) the monitoring effect of the party committee is more pronounced when the CEO herself is a party member.

The Investment Model of Aviation Industry VCGF Based on AHP Analysis of Computer Simulation

Venture capital guidance funds (VCGF) are a new way for the government to provide support to specific industries, especially for projects with funds far larger than the government’s financial support capacity. The airline industry has a large capital footprint and a long return cycle. It will not be able to do so if it relies solely on government financing to invest. At present, the audit work of state-owned assets supervision and administration commission (sasac) and the ministry of finance on public-private cooperation projects is gradually strengthened, and VCGF has become an important development direction and realization way of the government’s financial investment. Through the analytic hierarchy process, this paper constructs the investment model with computer simulation technology, makes a comprehensive analysis of the VCGF entering the aviation industry, and puts forward some strategic Suggestions.

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.

Preliminary Study on the Evaluation System of Technological Innovation Index for the Central Enterprises of International First-class Enterprises

The State-Owned Assets Supervision and Administration attached great importance to the construction of technological innovation capabilities of central enterprises, and clearly proposed to study the evaluation index system of technological innovation capabilities of central enterprises, carry out evaluation of technological innovation indexes, and guide and encourage enterprises to upgrade the level of technological innovation. Technological innovation has become a powerful driving force for continuously promoting the scientific development of central enterprises. It is of great significance for accelerating the improvement of the level of technological innovation of central enterprises to carry out the evaluation of central enterprises’ technological innovation index, establish an effective mechanism to guide technological innovation of all departments, and provide scientific decision-making basis for technological innovation of central enterprises. The core of this research revolves around the technology innovation index of central enterprise for building a world-class enterprise. First, systematically sort out the characteristics of technological innovation in world-class enterprises. Second, analyze the characteristics of technological innovation of central enterprises and the shortcomings of current state-owned enterprises’ technological characteristics compared with first-class enterprises. Third, build a technology innovation index evaluation system of world-class enterprises.

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.

Author's Response: Assessing China's Potential Growth

Author's Response:Assessing China's Potential Growth Nicholas R. Lardy (bio) The commentators on The State Strikes Back: The End of Economic Reform in China? for the most part agree with the first of the two key themes of the book: that the increased role of the state in resource allocation in recent years has been an important contributor to China's slowing economic growth. They mostly disagree with the second key theme: that since China's level of GDP per capita is only about one-quarter of the level of advanced industrial economies, it potentially has substantial room for convergence toward higher levels of development that might be captured by a return to the more market-oriented economic policies of the past. In this response, I will focus on addressing some of their concerns around both of these themes. The State Contribution to China's Slowing Growth Loren Brandt focuses in his review on the state's role in the economy. He acknowledges that productivity growth in the state sector has slowed, but he argues that the most important reason for China's slowing economic growth is the declining productivity of private firms. In support of this, he points to research showing how productivity growth in industry slowed after 2005 and eventually turned negative. Industry, he contends, is largely private, so the productivity growth of private firms must have fallen. There are two problems with this approach. First, in 2005, one-third of value added in industry was contributed by state firms.1 The decline in return on assets of state firms by two-thirds after 2007 may explain most of the downturn in industrial productivity that Brandt reports. Second, Brandt's approach ignores China's service sector, which as early as 2005 was as important as industry in terms of its contribution to output and is much more heavily dominated by state firms than industry. But the return on assets of state service companies is lower than for state industrial firms and also fell substantially after 2007. [End Page 174] Brandt questions the use of return on assets, which looks at profits relative to assets, as a proxy for productivity—a measure of value added in constant prices relative to an appropriately weighted basket of assets and labor. For two reasons, however, the sharp decline in the return on assets of state industrial firms relative to private industrial firms is a good proxy for underlying trends in the productivity in firms of the two types of ownership. First, to claim that the productivity of state firms did not fall relative to private firms after 2007, one would have to show that there was some combination of accelerated employment growth relative to assets in private industry and an unusual slowdown in employment growth relative to assets in state industrial firms. Second, Brandt also points out that changes in market power can influence profitability and thus the return on assets, making the latter an unreliable guide to underlying productivity. But the consolidation of large state firms under the State-owned Assets Supervision and Administration Commission, established in 2003, likely gives state companies more influence on pricing relative to the influence of private firms. This suggests that the data in the book showing a sharp decline in the return on assets of state companies understates the pace of deterioration in their underlying economic performance. The Potential for Convergence China faces three potential headwinds that were absent or possibly less significant in the other East Asian economies that converged toward advanced-economy levels of per capita output—demographics, the environment, and corruption. One or more of these is mentioned by each of the reviewers. Kenneth Pomeranz refers to the demographic issue of China's workforce. China's ratio of the working-age population to the non-working-age population began to decline in 2010, a trend that will continue for at least two more decades. Other things being equal, this is certainly adverse for China's potential growth. But other things need not be equal. Most importantly, as I point out in the book, China has a very low labor force participation rate among older age cohorts. This is a function...

Big Chinese chemicals merger likely

A long-rumored merger of two of China’s largest state-owned chemical firms seems to be moving ahead. According to the Chinese news organization Caixin, the State-Owned Assets Supervision & Administration Commission is engineering the merger of the chemical trading and production firm Sinochem with China National Chemical Corp. (ChemChina), a conglomerate that owns dozens of chemical plants. Sinochem’s chairman, Ning Gaoning, will oversee the merged company, Caixin reports. The merger is reportedly China’s condition for endorsing ChemChina’s $43 billion acquisition of Syngenta.

Corporate Board Structure and Corporate Performance: Empirical Analysis of Listed Companies in China

Using cross section data of 3 years 2000, 2007, and 2014 for non-financial listed firms in China, this study quantitatively analyzes the relationship between government-affiliated corporate executives and corporate performance. We classify the sample firms into two groups, based on whether their chief executive officers (CEOs) and independent directors are prior government officials or not. Then, we empirically examine the difference in corporate performance between the two groups. We find that the appointment of CEOs and directors of listed companies in China is significantly affected by government shareholders. The results also suggest that prior to 2000 government-affiliated CEOs impaired corporate performance. But with the establishment of State-owned Assets Supervision and Administration Committee and the completion of the Split-Share Structure Reform in 2006, government as a shareholder began to give priority to corporate value maximization, and government-affiliated CEOs began to help improve corporate performance. However, due to the slowdown of economic growth after 2012, problems such as inefficiency and corruption brought by government-affiliated executives manifested again, and therefore, corporate performance deteriorated. Meanwhile, government-affiliated independent directors have limited influence on these factors.