Organic governance

By Zhang Hongpei Source:Global Times Published: 2017/9/5 20:08:39

SOE amendments strengthen Party role, creating more returns for shareholders

Driven by the central government's efforts to resolve the weakening and marginalization of Party organizations within China's State-owned enterprises, Party-building rules have successfully been written into articles of association of such enterprises. As a result, an organic type of company governance has emerged under Party leadership.

A cargo ship manufactured by COSCO Shipping with maximum capacity of loading 13,386 standard containers debuts in Nantong, East China's Jiangsu Province. File photo: VCG

The Communist Party of China (CPC) has been ramping up efforts with regard to extending its representation in State-owned enterprises (SOEs).

Recently, more and more companies have been including Party building clauses in their articles of associations, which are in-company constitution-like laws.

All centrally administered SOEs have completed their amendments of articles that address Party-building at the group level, which are currently under review and waiting to be published, according to a June 20 report by the People's Daily, the media organ of CPC Central Committee.

A total of 3,076 second- and third-level companies under centrally administered SOEs have adopted the amendments within their articles of association, a goal that all such companies must achieve by the end of this year, the report said.

The amendments generally outline that Party organizations should play a core role, in both leadership and politics, in order to navigate development direction. For example, when major business issues arise, they should first be discussed by Party organizations, and then boards of directors or managing groups can make decisions accordingly.

Leadership confirmed

Wang Jipeng, chairman of Beijing Redetac Management Consulting Co, told the Global Times on Monday that, before the recent collective amendments, Party organizations within enterprises played only a political role, now they will play a leadership role as well. "Previously, the legal status of a Party organization was not confirmed and its responsibilities not specified, as a result, its role was not concrete or normalized, which resulted in the emergence of the weakening, emptying and marginalization of Party building," Wang said.

As an important part of the national governance system, an SOE embodies a unique political disposition and shoulders different corporate social responsibilities, said Wang Jingbo, a professor at the Beijing-based China University of Political Science and Law.

"Putting Party-building content into SOEs' articles of association promotes the specification and systematization of the Party's core role in SOE leadership and politics, a significant measure that will tackle the weakening of Party work within enterprise operations," she noted.

COSCO Shipping, the first SOE to incorporate Party building into its articles of association, altered Party-related clauses in June by adding an independent chapter about the specific obligation of Party organizations, including guaranteeing and supervising the implementation of CPC and national policies within the company.

Sun Jiakang, deputy chief of the Party organization, also deputy general manager of COSCO Shipping, told the Global Times in a note that, according to cadre management permissions, the Party organization can put forward its opinions or advice on nominees selected by the board of directors or general manager, and it can also recommend nominees.

At the end of April, Xinxing Cathay International Group Co, a pilot Party- building SOE selected by the Party committee of the State-owned Assets Supervision and Administration Committee (SASAC), obtained the approval of its amendments, Zhi Wenguang, the secretary of the company's Party affairs department, told the Global Times on Monday.

However, "amendments written on paper are not enough to ensure the concrete role a Party committee plays," Zhi said, adding that specialized and supportive regulations can help guarantee that words of the Party organization are actually put into practice.

For instance, the company has rolled out its own rules for its Party committee regarding its participation in key issue discussions by firstly defining what a "key issue" refers to. Particularly, this clarification of definition relates to the company's strategy and mechanism adjustment, operation suspension, salary adjustment and other major issues, Zhi noted.

Wang, the aforementioned Beijing Redetac chairman, also suggested that, from a dialectical point of view, the new decision-making mechanisms and supervisions under Party leadership can avoid potential risks, whereas the extended procedures might reduce the time efficiency of tackling issues.

Exploring with determination

As senior officials pointed out at the Party Construction Working Conference of State-owned Enterprises held in October 2016, the modern SOE system with Chinese characteristics lies in integrating Party leadership - the root and soul of SOEs - in all the procedures of company governance, which forges a unique advantage.

ICBC President Yi Huiman said the organic combination of Party construction and company governance, while strengthening the two, is for the purpose of enhancing company values, creating more returns for shareholders and celebrating employees' achievements, according to a note ICBC sent to the Global Times on Friday.

The Shanghai-listed bank passed its articles of association amendments at its annual general meeting in June, which noted the establishment of a Party committee within the bank. The committee includes one secretary, who is also the president, two deputy secretaries and several lower-ranking members.

ICBC, now ranking top among the world's banks in terms of net profits for the eighth straight year, has taken advantage of the Party's political authority, using it in its core strategy, with its new round of amendments helping the Party organization to play a more effective role within companies, Yi noted.  

COSCO Shipping, which was created by the State-driven merger of China Ocean Shipping (Group) Co and China Shipping Group last year, said the core role the Party plays in leadership and politics as well as the fortress of a Party organization have brought an array of achievements following the company's reform. This has not only played an active role in domestic economy, but also helped to realize a comprehensive industrial chain in the global services sector.

However, in terms of companies under centrally administered SOEs, each should confirm its own Party-building amendments according to its equity structure and management mode, Yao Huan, deputy director of the Party Construction Bureau of SASAC, was quoted as saying by the People's Daily.

"The Group required affiliated companies, over 240 in total, to complete their amendments by the end of September. But the procedure for listed ones might take longer since they need to obtain approval from general meetings of stockholders, which requires a two-thirds majority," Zhi said.

For example, the two listed companies under Xinxing Cathay International Group - Xinxing Ductile Iron Pipes Co and Jihua Group Corp - have filed their amendments to the Group and are now waiting for the next step, which is approval from stockholders, noted Zhi.

"Besides [those factors], mixed-ownership companies and joint ventures, where listed companies have holding shares, need specific guidance on Party building at the branch level or individual level under the circumstance that not enough Party members can form a branch, guaranteeing the full coverage of the Party's representation," Zhi said.

In Hong Kong, more than 30 internationally listed arms of China's largest SOEs, representing more than $1 trillion in market capitalization, have added clauses to their central documents that place the Party at the heart of each group, Financial Times reported on August 14.

Hong Kong-listed SOE arms, such as those under CITIC Group Corp and China Everbright Group, were not available to offer a comment when reached by the Global Times.


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