The 16th Party Congress in November 2002 identified the reform of state-owned assets management system as a very important task of the deepened economic reform. It marked a new stage at which China promoted SOE (State-owned Enterprise) reform and development by deepening the state-owned assets management system reform. Over the past two years, the reform of state-owned assets management system has made important progress, the SOE reform has been deepened continuously, and the strategic adjustment to the layout and structure of state economy has made new steps forward. The reform of state-owned assets management system has started to produce notable results.

1. A new framework for state-owned assets supervision and administration authorities has been primarily established. On March 24, 2003, SASAC was founded. State-owned assets supervision and administration commissions of provincial governments have completed formation, while state-owned assets supervision and administration authorities of city governments are under construction. State-owned assets supervision and administration commissions of some provinces and cities have reformed and adjusted the state-owned assets management companies. A management framework has been primarily established under which the central government and the local governments perform the functions of investor on behalf of the state respectively.

2. The legal system for state-owned assets supervision and administration has been further improved. On May 27, 2003, the State Council issued Interim Regulations on Supervision and Management of State-owned Assets of Enterprises. On that basis, SASAC released 32 supplementary rules and normative documents to standardize SOE transformation, property rights transfer, performance assessment, etc., providing important grounds and positive forces for deepening state-owned assets management system reform, enhancing state-owned assets supervision and administration, preserving and increasing the value of state-owned capital. Meanwhile, it sorted out 257 laws, regulations and normative documents concerning state-owned assets supervision and administration. Up till now, 12 out of 53 central SOEs on trial have established the general counsel system. 101 central SOEs have set up organizations specialized in legal affairs.

3. Performance assessment and related systems have been established to ascertain the responsibilities of state-owned assets management. SASAC and State-owned assets supervision and administration commissions of provincial governments have universally carried out performance assessment. By October 2004, SASAC has signed performance contracts for 2004 with 187 central SOEs. Office-term assessment for responsible persons of central SOEs has formally started. To coordinate performance assessment, the remuneration for responsible persons of central SOEs has been standardized, while the statistics system for state-owned assets and the evaluation system for enterprise performance and accountability have been improved. Some provinces and cities have primarily established the state-owned capital budget system.

4.The work of SOE supervisory panels has been strengthened. Previously, it was the State Council that dispatched supervisory panels. To meet the needs of state-owned assets management system reform, SASAC now dispatches supervisory panels on behalf of the State Council. In 2004, supervisory panels carried out a general and on-the-spot inspection of central SOEs, providing a great amount of first hand material for enhancing enterprise supervision and management and offering measures for improvement. To strengthen and improve the work of SOE supervisory panels, the Interim Regulations on Supervisory Panels Dispatched to Key SOEs is being revised.

5. The fundamental management of state-owned assets has been intensified. SASAC and state-owned assets supervision and administration commissions of provincial governments have universally started to make an inventory of assets and liabilities, and the work concerning central SOEs supervised by SASAC has been primarily finished. Most enterprises have universally carried out Enterprise Accounting System. A dynamic system for monitoring the financial status of central SOEs and a system for the financial supervision work of investor have been set up. Intensified efforts have gone into the definition of state-owned property rights, registration, appropriation, transfer, disposal, appraisal, settlement of disputes, etc.

6. The supervision has been strengthened over the trading of state-owned property rights. Beijing, Shanghai and other provinces and cities have adjusted and optimized property rights exchanges. Regional property rights exchanges have emerged one after another. The coordination and communication among property rights exchanges have been enhanced. The trading of state-owned property rights within property rights exchanges has increased notably. From January to September this year, property rights exchanges in Beijing, Shanghai and Tianjin have completed 2697 trading cases of state-owned property rights of enterprises and the trading volume has reached 58.26 billion yuan. The two figures have increased by more than 30% and 40% than last year respectively. Among that, the trading volume involving central SOEs has exceeded 7 billion yuan.

The continuous deepening of the reform the state-owned assets management system, especially the establishment of state-owned assets supervision and administration authorities at various levels, has vigorously promoted the reform and development of SOEs. As specially established institutions performing the responsibilities of investor authorized by the people's governments at corresponding levels, and as the main bodies for performing the responsibilities and carrying out activities of preservation of and increase in the value of state-owned assets of the supervised enterprises, the methods and means in pushing forward SOEs reform and development of the state-owned assets supervision and administration authorities at various levels have changed obviously. They bear greater responsibilities in pushing forward SOEs reform, and the measures they take have clearer aims and are more effective with more obvious achievements. Over more than one year, SASAC has taken a series of measures in pushing forward the reform and development of central SOEs and in guiding the advancement of the reform and restructuring of SOEs.

First, the joint-stock system reform of large SOEs has made active progress. Some large state-owned companies such as China Aerospace Science and Industry Co. Ltd., China Shipping Container Lines Co. Ltd., China Power International Corporation Ltd., China Network Communications Group Corporation, Sinotrans Ltd. etc, have gone public overseas. The assets of the core businesses of a group of large companies such as China Mobile Communications Corporation, China Telecommunications Corporation, Wuhan Iron and Steel (Group) Co. etc, have been basically listed as a whole through issuing more shares or purchasing assets etc. The joint-stock system has become the major form of large SOEs reform.

Second, the structure of corporate governance has been further perfected. We have chosen 7 wholly state-owned central companies as pilots for establishing board of directors and worked out implementation plans for the pilots and supporting documents. Their main contents are to establish external directors system and set up special committees under the board of directors such as strategy committee, nomination committee, remuneration committee and performance evaluation committee to further perfect the structure of corporate governance.

Third, the merger and bankruptcy work has been pushed forward steadily. By April 2004, there were altogether 8095 merger and bankruptcy projects that have been done nationwide, involving 292.8 billion yuan of bad accounts of national commercial banks and credit losses of financial assets management companies. Among those, there were 3377 closing down and bankruptcy projects, verifying 223.8 billion yuan of bad accounts.

Fourth, the work of separating minor businesses from core businesses and transforming minor businesses has made substantial progress. By the end of September 2004, there were 775 large and medium SOEs that have implemented the separation of minor businesses from core businesses in various regions, concerning 2639 transformed enterprises and 708,000 redundant personnel. By the end of October 2004, there were altogether 62 central SOEs which had turned in their overall plans for separating minor businesses from core businesses, transforming minor businesses and split-flow of personnel. At present, the overall plans of 43 enterprises have been approved.

Fifth, the adjustment of the layout and structure of central SOEs has made new progress. The suggestions on the adjustment of the layout and structure of central SOEs have been proposes based on research. We have strengthened guidance on the activities of the merger, acquisition and restructuring of central SOEs which promoted the restructuring of the central SOEs engaged in the same industries. By October 2004, upon the approval of the State Council, there were 36 or 18 pairs of central SOEs that have carried out coalition and restructuring on voluntary basis.

Sixth, the transformation of SOEs and transfer of state-owned property rights have been further standardized. The General Office of the State Council disseminated the Opinions of SASAC on the Work of Standardizing the Transformation of SOEs, the Interim Regulations on the Transfer of State-owned Property Rights of Enterprises has been put into effect. In March 2004, SASAC regarded China Beijing Equity Exchange, Shanghai United Assets and Equity Exchange and Tianjin Equity Exchange Center as pilot institutions for central SOEs to trade state-owned property rights. From January to September 2004, the actually traded prices of state-owned property rights transferred by central SOEs were higher than posted prices by 4%. On the basis of self-checking and self-correcting by various provinces and municipalities, SASAC, the Ministry of Finance, the Ministry of Supervision and the State Administration for Industry and Commerce formed 6 inspection groups and carried out supervision and inspection on the situation of the transformation of SOEs and transfer of state-owned property rights in 12 provinces and municipalities such as Guangdong, Jiangsu, Jiangxi, Anhui, Shandong, Henan, Fujian, Shanxi, Guizhou, Yunnan, Gansu, Sichuan etc. Seen from the results of the inspection, after the establishment of local state-owned assets supervision and administration authorities of various provinces and municipalities, especially after the promulgation of the two regulations, the transformation of SOEs and transfer of state-owned property rights have been further standardized.

Seventh, some pilot central SOEs have preliminarily completed the work in separating their social functions. This year, upon the approval of the State Council, China National Petroleum Corporation, China Petroleum & Chemical Corporation and Dongfeng Motor Corporation carry out pilot work for separating the social functions from enterprises. By the middle of November 2004, except some individual provinces, the three pilot enterprises have preliminarily made agreements with local governments on the units, personnel and assets to be transferred. It is expected that after the completion of the transfer, there are 796 primary and middle schools, public security organs and 94,000 workers and staff (including retired teachers) to be separated from enterprises, which will lighten the burdens by nearly 4 billion yuan annually.

Eighth, the work on talents in central SOEs has been further strengthened. SASAC promulgated "The Directives on the Further Improvement and Reinforcement of Central SOE's Work on Human Resources". The directives set the overall target and principal tasks for the implementation of central SOEs' great initiative called "Enterprises Propped up by the Talents". In 2004, SASAC broaden the scope to enlist senior managerial staffs both from the home and abroad. At present, 22 senior management posts offered by 22 central SOEs have been filled through public tendering and competition. "Worker's Quality Building Project" has made great progress. 3.14 million person-times joined the various technical training program and technical competition. 240,000 got promoted in term of their professional qualification. 128 workers were honored "National Technical Master". 34 central SOEs have launched the new mechanism with respect to the fostering of technical talents.

Thanks to the efforts by various parties, SOEs' sales revenues and profitability have registered marked growth. From the start of the 2004 to the end of October; Central SOEs had realized the total turnover of 4.5 trillion RMB, a 29% rise on a yearly basis. The overall profit accomplished by Central SOEs had reached 418.8billion RMB, a 53% growth comparing with the same period last year. Our projection is that the total revenue and profit realized by Cental SOEs will reach 5.3 trillion and 450 billion RMB respectively. At the end of Oct. 2004, central SOEs under the oversight of SASAC had amassed the total assets of 9.2 trillion RMB, a 12.5% rise comparing with the same period last year, and enjoyed 3.9 trillion net assets, a 10.5% growth on yearly basis. From January to October 2004, central SOEs' ROC (return on capital) is 7.3%, a 2.3 points higher than 2003. ROA (return on assets) is 6.5%, a 1.5 points higher than the figure in 2003.Our practice has demonstrated the necessity and validity of further strengthening the reform on State-owned assets' management regime and the establishment of the ad-hoc entity as the representative of the state-owned assets.

It is admitted that some achievement on the reform of state-owned asset's management system and state-owned enterprises started to show their effect, yet we recognize that the reform of state-owned asset's management system is an exploratory and challenging work and many issues need to be further examined and to be solved. The SOEs' reform still face quite a few underlying contradictions and problems, the whole SOEs' reform process is still in the critical juncture. To perfect the socialist market economy and fulfill the lofty goal to establish a full well-off society, we should unswervingly stick to the general direction of the socialist market economy. We should make new breakthrough in terms of the joint-stock reform on SOEs and corporate governance, attain new achievement on the establishment and perfection of the management system of the state-owned assets and the supervision on state-owned assets. We will push forward the reform of state-owned asset's management system and state-owned enterprises via standard process and ensure the stability of the SOEs as well as the whole society. Here are the key points for our work in 2005.

1. Further improve the supervision and management system of the state-owned assets. We will speed up the establishment of local state-owned assets supervisory entities to solidify the supervising responsibility and liability. We will accelerate the formulation and promulgation of a series of laws and regulations on these aspects such as state-owned capital budget System, the administration on authorized operation of state-owned enterprises, the regulations on the supervisory panels dispatched to the key SOEs (Revised), the administration of the significant affairs of the SOEs' important subsidiary companies. We will actively participate the formulation and modification on the laws and regulations such as "The State-owned Assets Law", "The Company Law", "The Bankruptcy Law" etc. We will also perfect the performance evaluation on the SOEs' top executives, the system of target evaluation on the SOEs' top executives throughout their whole tenure, and the remuneration system. And we will continue to perfect the system of "Supervisory Panel dispatched to the key state-owned enterprises".

2. Speed up the establishment of modern enterprise system. We would further promote the joint-stock system to the big SOEs, and support the qualified SOEs to restructure and list its core assets. We would take the build-up and perfection of the board of directors in big SOEs as the prior access to improve SOE's corporate governance and would introduce "external director " to our SOEs step by step. We will also promote the build-up of "Corporate Counsel System' which takes the General Counsel as its core, perfect the management system on the major legal dispute and lawsuit of central SOEs, and establish the preemptive system to protect the central SOEs from legal risks; We will establish the "liability pursuant system for SOEs' major decision-making blunders". We will further the labor, personnel, and remuneration reform inside the SOEs and enlarge the scope to enlist the SOE's senior managers from the open market. We will speed up the severance and restructuring of the non-core business from the core business. We will push forward the central SOEs to peel off their social-interests function from the corporate function, and will try to address the problem of "Big collective funded by the SOEs" via various means. We will carefully examine the new issues and concerns ensuing as the result of the SOEs' reform to safeguard the social and enterprise stability and stop the loss and squandering of State-owned Assets.

3. Actively promote the readjustment of the state economy's layout and structure. We will strive to foster and develop the global-competent big corporations and corporate groups that have their own intellectual property and well-recognized brand. We will continue to make the medium and small sized SOEs more flexible by various means. We will push forward the merge and acquisition activities among SOEs. We will examine, formulate and implement the guidelines directing the state-owned assets adjustment in various industrial sectors and SOEs' restructuring. We will continue the "Policy Bankruptcy" for the insolvent SOEs and strive to perform the restructuring and upgrading for the central SOEs in Northeastern region of China.

4. Promote the SOEs to transform their pattern of growth. We will direct and oversight the SOEs to adopt the scientific development view to sharpen their core assets, contract the management chain, accelerate the technology renovation, save energy and resources, bolster sense of risk, reinforce internal management, enhance the quality and profitability and apply new way of industrialization. We will also reinforce the management on central SOEs' strategic planning. Aligning with the compiling of "National 11th five-year Plan", we will direct the SOEs to formulate and perfect their mid-term and long-term development plan.

5. Further enhance and improve SOEs' party-building work. We will carry out the spirit of the "The Directives Issued Jointly by Department of Organization of CPC Central Committee and the SASAC's CPC Committee to Enhance and Improve Central SOEs' Party Building". Adapting to the requirement of modern enterprise system, we will improve the working mechanism and highlight the function of SOE's CPC committee as the political core. We should well connect the general principle of "Cadres ruled by the party" with "sourcing managers form the market", reform and perfect the personnel appointment and promotion mechanism in SOEs. We will explore the new methods to effectively let employees join the democratic management of the SOEs and protect the legitimate rights and interests of the employees during the process of restructuring and bankruptcy. We will speed up our work to build-up 5 "teams" representing 5 genres of talented people: representatives of investors; managerial staffs; technicians; political motivators; skilled workers. We will improve and innovate on the works of SOEs' cultural and ideological progress, political motivation, and corporate culture construction. We will enhance SOE's anti-corruption work and deepen corporate efficiency supervision work.