By the EO Editorial Board
Issue 632, August 12, 2013
News, page 1
Translated by Tian Shaohui
Original article: [Chinese]

Recently, the 2012 performance assessment of centrally-administered State-Owned Enterprises (SOEs) and their directors was completed. However, the version released to the public was incomplete.

The document merely listed results for the enterprises who’d received the highest “Grade A” mark from the State-owned Assets Supervision and Administration Commission (SASAC). The nearly 70 enterprises that received the lower Grade B, C, D, and E marks where inexplicably absent. 

Of course, the performance results of these enterprises did not actually “disappear,” but were barred from reaching public eyes for some reason.   

There’s no doubt that last year's economic environment had adverse effects on the performance of the major SOEs; especially those in the shipping, coal and steel industries. During the first eight months of 2012, these industries experienced negative profit growth.  

In 2012, companies that had been Grade A in 2011 like China National Aviation Corp. (中國航空), China Southern Airlines (南方航空), China National Coal Group Corp. (中煤集團(tuán)) and China National Gold Group Corp. (中國黃金集團(tuán)公司) all fell from the top tier. Furthermore, the number of Grade D enterprises was higher than in previous years.

SASAC had a choice: adopt a fair, impartial and open approach when releasing this list, or pull a fig leaf over the badly performing SOEs. Obviously, it chose the latter. That choice allowed the Grade A companies to win praise and allowed the lower grade companies to avoid public scrutiny. But was that really a wise decision?

Firstly, it’s a basic requirement to inform the public of SOEs’ operational performance. Even the SASAC itself has issued Enforcement Rules of the SASAC's Information Publicity (《國資委信息公開實施辦法》). The rules say that the SASAC should actively disclose information concerning stated-owned fixed assets of investors and the overall situation of SOEs’ operational performance.

Secondly, is it really good for poorly performing SOEs to be blessed with such leniency from the SASAC? What if an SOE loses its nerve to face public scrutiny? Then how can it dream of going global and participating in the fiercely competitive international market?

Furthermore, the performance assessment results aren’t just numbers of interest. They actually affect the standing of SOE leaders’ “Lizi” (里子), “Position” (位子) and “Face” (面子).

“Lizi” refers to the fact that 60 percent of an SOE head’s salary is pegged to performance results.

"Position" means that if an SOE is rated Grade D for two consecutive years, its head cannot keep his position. 

"Face" means that a leader will be publically disgraced if his enterprise gets a poor review.

Regardless of whether the results are published or not, “Lizi” and “position” will be affected, since they’re in the hands of the SASAC. However, whether or not an SOE head loses face relies on whether or not information about his company is made public.

But if the simple request to publicize performance results can’t be met - even though it’s required by the SASAC’s own rules - then that in itself should be a serious loss of face for everyone involved.

Officials at the SASAC once stated that SOEs should stay on par with private enterprises in terms of information disclosure. And as early as 2009, the SASAC experimented with publishing the key performance indicators of 118 centrally-administered SOEs including turnover, profit, amount of taxes paid and total assets. This was an unprecedented move and the SASAC promised that information disclosure would continue to become even more transparent.

But actions speak louder than words. The trial didn't go any further and instead of more transparency, SOEs' performance results have become even more guarded.

Going forward, the SASAC should not only disclose the performance results of companies at every grade, but also their detailed indexes and sub-scores. Only through these measures can the public be assured that SOE leaders aren’t earning excessive salaries; that the evaluation process is rigorous; and that personal connections aren’t being used to favor any enterprises during the evaluation procedure.