China's SASAC fights its corner

Rumours are sweeping Beijing that SASAC, the entity set up last year to oversee the reform of state-owned enterprises, is reportedly tussling with the powerful Ministry of Finance over who draws up its operational budget.

At the end of a recent conference to draw up SASAC's 2005 budget, the agency is said to have circulated a proposal that it should draw up its operational budget itself rather than let the MOF do it. Observers have interpreted this as a clear bureaucratic turf battle between the two giant entities.

Power to set its own budget would herald a new level of autonomy for SASAC, which has long been in the MOF's shadow.

At the 14th party congress, the idea was put forward that in order to distinguish overall tax revenue from SOE revenue, SASAC's budget should be separated from the overall public budget handled by the MOF. However, the motion failed to pass and as a result the revenues and expenditure of the SOE sector has so far remained subsumed in the overall national budget directed.

At the recent 16th party congress, SASAC was made an 'ad hoc commission' answering directly to the State Council. However, although state council agreed in principle SASAC should have its own budget, it did not, in a strange bureaucratic fudge, stipulate who should actually write it.

The MOF has been arguing that since SASAC is not a ministerial-level entity, it should not be allowed to set its own budget.

This is true. SASAC was deliberately not given the title of a ministry because the idea behind SASAC was to weaken links between the government and the SOEs, and thereby encourage the latter to move in the direction of market forces.

A related question is whether or not SASAC is entitled to a share of the profits made by the state-owned enterprises in which it is the majority shareholder.

SASAC supporters argue that its role as the owner and government representative of the SOE sector entitles it to draw up its own budget based on revenue from the assets under its management and ownership. In addition, they point out that there is a directive, drawn up in 1995, which stipulates that the state budget, SOE budget and social security budget should be handled separately. They say this implies a kind of precedent for SASAC having an independent budget, since it represents the SOE sector.

Given that the 187 SOEs directly owned and administered by SASAC generated Rmb 400 billion ($50 billion) in the first eight months of this year, its likely SASAC will fight long and hard to access this honey pot.

With things changing so rapidly in China, legislation can quickly become out of date. SASAC was set up in a hurry last year in order to stop the pell-mell sell-off of state assets by the more independent provinces keen to get rid of loss-making entities and monetize the assets, such as land.

But while the commissioner Li Rongrong has frequently stated that SASAC is responsible for SOE assets, the MOF claims that based on legislation passed in 2001, the ministry's representatives are responsible for the capital, and the financial management of SOEs.

Indeed, the MOF feels it has provided support for SOEs in the past, both in terms of subsidies and funds for dispossessed workers when firms go bankrupt.

So far, SASAC has avoided interfering directly with the financial affairs of SOEs, and has focused more on clarifying ownership issues, such as overseeing the transition of SOEs to a shareholding structure and the sell-off of smaller SOEs.

The sell-off has not been an important source of income for SASAC, however, because its mandate to carry out this sell-off is ambiguous. Progress has slowed this year after it came under withering fire for allowing sweetheart deals. Consequently, what sell-offs there have been seem to have been confined to the most sickly and smallest SOEs.

Given that it has no clear rights to the profits generated by the SOEs, SASAC is in danger of being marginalized for lack of resources, say some local observers. However it is also engaged in what the local media describe as a cunning game of chess for a share of SOE revenue.

Currently, SOEs do not need to hand over any share of their profits to SASAC. And most of them, especially the huge SOEs run directly out of Beijing ministries, are reluctant to have their financial autonomy impinged on.

On the other hand, SASAC has a trump card: The right to hire and fire top SOE executives.

Previously, under the planned economy, SOEs of course had to remit all their earnings to the centre, but this changed in 1993 when under efforts to make SOEs more competitive, they were permitted to keep their post-tax earnings.

It looks like SASAC will have to fight a two-front battle: against the SOEs to get its hands on their profits, and against the MOF, to acquire the right to decide on how to spend the fund, if any, it manages to acquire.

Given the bureaucratic strength and experience of the incumbents, it could be long and bruising battle.