In recent years, with the increasing exposure of corruption in state-owned enterprises (SOEs), the central government has started to continuously promote SOE reform and strengthen oversight of SOEs. Examples of this include the recent Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Intensifying the Reform of State-Owned Enterprises, the Opinions of the State Council on the Development of Mixed Ownership Economies by State-Owned Enterprises, the Several Opinions of the State Council on Reforming and Improving the State-Owned Asset Management System, the Opinions of the General Office of the State Council on Strengthening and Improving the Oversight over the State-Owned Assets of Enterprises to Prevent the Squandering of State-Owned Assets.
SOE reform and the anti-corruption issue have reached a crucial juncture. The authors have found such enterprises have been plagued by such issues as defective corporate governance mechanisms, frequent unfair connected transactions between SOEs, overstatement of revenues, etc.
Defective corporate governance mechanisms
Under the influence of the traditional hierarchy in SOEs, power is concentrated in management, where a small number of senior officers control decision making, management and supervision powers. They stand in a position of absolute power.
Even in SOEs that have undergone the conversion into companies, their corporate systems, including articles of association, rules of procedure for the shareholders’ general meeting, rules of procedure for the board of directors, and rules of procedure for the supervisory board are only there to satisfy the statutory procedure. The power to control personnel affairs of senior management in fact lies in the hands of the state-owned assets supervision and administration authority or the higher-level management company, and review by the board of directors and supervisory board is mere window dressing.