Tighter corporate governance norms for SOEs on cards

The risk of potential malpractice in the management of overseas assets owned by State-owned enterprises remains unacceptably strong, the country's anti-graft authority has revealed.

The Central Commission for Disciplinary Inspection has released the results of an investigation into some of the country's biggest SOEs, including those in the energy, transportation, aviation and telecommunications sectors.

The results have under-lined the central government's intention to introduce tougher levels of corporate governance and more effective management of overseas interests.

Experts said the tightened level of scrutiny highlights Beijing's intention to ensure the smooth launch of its ambitious "Belt and Road Initiative"－the strategy to revive the ancient Silk Road and the maritime Silk Road, which will lead to greater number of overseas projects conducted by the SOEs.

"This action to target potential overseas malpractices by State companies illustrates the government's determination to address existing problems and to create favorable conditions to roll out the Belt and Road strategy," said Xu Baoli, director of the research center at the State-owned Assets Supervision and Administration Commission.

Total assets held by SOEs in overseas markets are now worth an estimated 4.7 trillion yuan ($760 billion), but experts have long considered effective supervision of the operations and investments as a vulnerable part of Beijing's overall regulation of the sector.

Dong Dasheng, a former national deputy auditor-in-chief, said in March that virtually no audit had been carried out on the country's overseas assets controlled by SOEs.

To address the issue, the nation's State asset regulator last month appointed seven independent third-party auditing firms through tender, to conduct a comprehensive review of the portfolio.

The move is being linked to Beijing's ongoing anti-corruption campaign, which has already led to the down-fall of a string of senior SOE executives.

It has been confirmed that 19 top SOE executives are under investigation for corruption after the country's anti-graft watchdog completed its first round of inspections into 26 SOEs between late February and the end of April.

Li Jin, vice-president of the China Enterprise Reform and Development Society, said too many loopholes still existed that could lead to corruption or abuse of power in the overseas management of SOEs, and that it was now essential to set up an effective auditing and verification mechanism to prevent the loss of State assets.

Some experts have suggested that the introduction of public-private partner-ships in the SOE sector could help prevent corruption, as the investment model would create internal checks and balances on the power of the top executives.

"Corruption is always associated with power," said Xu.

"The fundamental solution is to improve the corporate governance of SOEs and break the power monopoly by setting up effective mechanisms, such as the introduction of boards of directors."