Fourteen years of debate have gone into the drafting of the State Assets Law, and it still faces serious hurdles after being submitted to legislators for deliberation. Because of this, many are worried that the long-expected law will be difficult to promulgate. The much-debated draft was submitted to the 31st Session of the Standing Committee of the 10th National People's Congress (NPC), the country's top legislature, for initial deliberation on December 23, 2007.

According to Chinese legislative procedures, a drafted law must go through three rounds of deliberations by the NPC and/or its Standing Committee, during which there can be many revisions. After deliberation, the draft will be voted on and can be passed only when more than two thirds of the legislators give their yea.

Since the drafted State Assets Law is a basic law for the administration and protection of China's huge state assets, the legislators certainly know its significance to the country's economic and social progress.

An overdue law

The State Assets Law was added to the NPC legislation schedule in early 1993.

In 1994, China began massive reforms in its state-owned enterprises (SOEs). This should have been the best occasion for the promulgation of the State Assets Law, but for various reasons, the law had not yet been passed.

In 2003, the NPC added the law to its five-year legislation plan and established a high-level drafting group. During the following four years, the State Assets Law became one of the legislation projects with the most proposals and advice put forward by NPC deputies.

In contrast with the difficult birth of the State Assets Law, China's state assets have experienced three periods of losses.

Since the initiation of reform and opening up in the late 1970s, private enterprises have developed rapidly. Large amounts of state-owned mineral resources were held by private enterprises with low prices or acquired through takeovers.

After 2000, a large number of foreign investors began to acquire SOEs. Some local SOEs, in order to obtain international capital, sold state assets or stocks at low prices, leading to large losses of state assets.

Losses of state assets caught the attention of some economists. In 2004, there was much debate about the losses of state assets and the path of SOE reform.

According to statistics from the National Development and Reform Commission, by the end of 2006, counting state-owned and state-holding non-financial enterprises alone, total assets and net assets stood at 29 trillion yuan ($3.97 trillion) and 12.2 trillion yuan ($1.67 trillion), respectively.

"To protect state assets, develop the state-owned economy and improve the vigor and influence of the state-owned economy are of great importance to building up comprehensive national strength," said Shi Guangsheng, Deputy Director of the NPC Financial and Economic Committee and President of the China Association of Enterprises with Foreign Investment.

The body of the law

According to reports from Xinhua News Agency, there are four key points of the drafted State Assets Law:

First, the draft stipulates that the law is applied to operational state assets, that is, capital provided by the state to SOEs and rights and interests formed therefrom.

The concept of operational state assets is in contrast to resource assets like land, forest and assets held by public institutions and government agencies not for business purposes.

According to Shi, operational state assets account for a large proportion of all state assets, have a special position and play a special role. In practice, a special law is urgently needed for their regulation.

Second, according to different types of enterprises, namely, wholly state-owned, state-holding and joint ventures, the draft stipulates major themes, ways and responsibilities of government-authorized agencies acting as the investor.

At present, besides the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC), the State Council also authorizes some local agencies and other departments to fulfill investor responsibilities. Therefore stipulations of the draft not only consider the present situation, but also leave room for the State Council to adjust the agencies who will fulfill investor responsibilities.

Third, the draft stipulates that the Central Government should establish a budget system for the operation of state-owned assets, managing revenue and payouts. "The profits made by SOEs, which should be contributed to the state assets, the income from state asset transfers, and income which belongs to state-owned assets during the calculating and check of SOEs should be written into the budget," reads part of this segment of the draft.

"Revenue generated from the operation of state assets belongs to the state," Shi said. "To incorporate the revenue into budget management is beneficial to better readjust and regulate revenue allocation between the state and SOEs, improve the government's macro control capability, further assist the structural strategic readjustment of the state-owned economy and promote reform and development of SOEs. It can also help share the fruits of state capital operation."

Fourth, the draft details procedures for the restructuring of SOEs, stipulating that the assets of SOEs should be accurately calculated, audited and assessed before restructuring or ownership transfer. "State assets should be transferred at reasonable prices," the draft states.

The merger, restructuring and application for bankruptcy of SOEs should come through consultation with trade unions and after soliciting advice from the employees through meetings or other approaches, according to the draft. It bans the management of SOEs from embezzling state-owned assets.

At the same time, the draft affirms that some provisions and practices have proven to be effective and mature. For example, based on the experience in the past, the draft stipulates the basic principles for restructuring, transactions with related parties, transfer of state assets and asset evaluation.

Intense debate

The academic circles have debated whether the State Assets Law should be created in a broad or a narrow sense. Advocates of the broad formulation of the law contend that operational state assets, assets held by public institutions and government agencies not for business purposes and state-owned resource assets should all be incorporated into the administration of the State Assets Law. Since most problems were seen in state-owned resource assets-especially land-in recent years, the State Assets Law shouldn't be too narrow.

However, the currently drafted law is narrow. Liu Junhai, Director of the Institute of Commercial Law at the Renmin University of China, is one in the latter camp. According to Liu, protected objects under the State Assets Law should be as extensive as possible.

In fact, after years of intensive reform and restructuring, SOEs have held a smaller proportion in the national economy and the amount of state assets has largely decreased. Under these circumstances, if the administration of state-owned financial and resource assets and state assets held by public institutions and government agencies are not changed, what's the real worth of a State Assets Law?

Besides the major debates, there have been many minor debates.

Yang Guoliang, member of the NPC Standing Committee, said that although the draft puts forward the concept of the institution that fulfills responsibilities of the investor and stipulates some basic principles to the institution, it still doesn't make clear the systematic problem that troubles the management of SOEs.

In Yang's opinion, although the SASAC fulfilling the responsibilities of the investor can avoid the problem of the multi-management of state assets that occurred in the past, it also brings many other problems. In practice, the SASAC is more like a super management corporation, assessing SOEs with their profits and selecting management personnel for SOEs. Such a supervision mechanism does not comply with the provisions of the Organic Law of the State Council and the Civil Servants Law and is unfavorable for regulating the behavior of management personnel at SOEs. There is not a solution in the draft to solve these problems.

"The State Assets Law should not only be a law that authorizes government agencies to manage state assets, but also one that restricts the intervention of government agencies at all levels of SOE management," Yang said.

According to Wang Zhan, an NPC deputy, the State Assets Law should make clear the role of employees at SOEs. In the present draft, the role of employees in protecting state assets is not stipulated in the chapter of general provisions, only mentioned in two specific articles. "These two articles only mention the role of employees when their rights and interests are involved," Wang said. "The draft also does not stipulate the employees' supervision over the enterprises and when important decisions are made, the employees have no right to speak. I think this is improper."

Sources with the NPC Standing Committee said that during the first deliberation, more than half of the speeches presented were objections.