Vice Premier Huang Ju said on Monday that reform of state-owned enterprises to eliminate obstacles to their healthy development is a priority of next year's economic work. Huang was speaking during a work conference in Beijing attended by the heads of 186 central-government SOEs.

The central government is also giving close attention to tightening controls on SOEs that fall directly under the umbrella of the State Council, a move that follows China Aviation Oil's loss of US$550 million in speculative trading.

"Leaders of the central SOEs must have a strong sense of risk management to maintain sound development," said Minister Li Rongrong of the State-owned Assets Supervision and Administration Commission (SASAC). "If we had had a sound internal auditing and risk management system, the China Aviation Oil incident could have been avoided."

The company, which is listed and headquartered in Singapore but primarily owned by the mainland's Aviation Oil Holding Co., racked up huge losses after gambling on the movement of oil prices.

In response, a slew of supervision regulations focusing on subsidiaries of big SOEs will be released next year, with a supervisory committee to play a greater role.

Huang said that main tasks in the year ahead are to improve governance of the SOEs, adjust their areas of operation, regulate their transfers of property and streamline them by shedding auxiliary units.

He urged the adoption of shareholding systems among SOEs in compliance with the standards of modern business systems, adjusting the distribution and structure of SOEs within the national economy and forming large enterprise groups capable of competing in the international market.

Substantial efforts should be made to ensure that "state assets should circulate but not be eroded" and "make the process open and fair, " said Huang, to protect the legal interests of investors and employees.

He also instructed the SOE chiefs to balance reform and development with stability, caring for the lives of needy workers and improving production safety.

Meanwhile, SASAC is working on a system to track liabilities after investment blunders.

"A timely reporting system on major investment decisions and a performance evaluation system will also help fend off various risks that enterprises may encounter," said Li.

"We have to make an overall risk evaluation before making a big decision," said Hu Zhanyun, president of the Management Commission of Ernst & Young (China). "A well-developed restraining scheme among interest groups can also prevent potential risks."

Li agreed. "Sound corporate governance and an effective restraint scheme are the two fundamentals for a solid risk-management system."

Hu also pointed out that many enterprise chiefs keep a close eye on income statements but overlook their balance sheets. "Leaders of enterprises should keep a close eye on their capital and cash flow," he said.

China's flagship SOEs reported sales of 4.5 trillion yuan (US$543.7 billion) by October this year, an increase of 29.2 percent year-on-year. Profits jumped 419.0 billion yuan (US$50.6 billion) in the first 10 months, up 53.2 percent.

Their asset quality also improved. Combined total assets of the 186 big SOEs were 9.2 trillion yuan (US$1.1 trillion), climbing 10.5 percent.

(Xinhua News Agency, China Daily December 14, 2004)