From News, page 5, issue no. 373 June 23, 2008
Translated by Ren Yujie
Original article: [Chinese]

China's Ministry of Finance (MOF) would likely be entrusted with managing the country's 60-trillion-yuan-worth of state-owned financial assets.

The EO learned that the Ministry's role would be written into the state assets draft law, presently under second review.

If that became a reality, the outcome would be contrary to earlier expectations that a special state-owned financial assets commission or a sovereign wealth fund would do the job.

The Ultimate Sponsor and Manager
The draft only contained guidelines in principle, and had yet to specify the sponsor responsible for the massive state financial assets, according to a source from the committee of the National People's Congress (NPC) which was overseeing drafting of the law.  

At present, China has one of the world's largest sums of state-owned financial assets. Valued at about 60 trillion yuan, it accounted for four to five percent of global financial assets.

No other country in the world has so many or such a wide range of state-owned financial assets, said Li Shuguang, a member of the State Assets Law drafting group and professor of China University of Political Science and Law.

The assets covered state-owned or state-controlled commercial banks, securities and futures firms, insurance companies, social security funds, rural cooperatives, sovereign wealth funds like China Investment Corporation, Central Huijin Investment, foreign exchange assets and provincial controlled assets, amongst others.

To date, the management hierarchy for such assets remained chaotic. The Chinese central bank, State Administration of Foreign Exchange, Ministry of Finance, China Banking Regulatory Commission, China Securities Regulatory Commission and Local governments all have their own share of responsibilities. 

For years, policymakers have attempted to establish a brand new management system for China's state financial assets. However, disagreements over who should be in-charge and clashes of interests between various ministries and departments remained a hindrance.

During the third financial working conference held last year, two major opinions prevailed. One demanded the setting up of a State-owned Financial Assets Supervision and Administration Commission (SFASAC) under the MOF, which would take under its wing the Huijin Corporation, the then-government investment arm before China's sovereign fund came into existence. That fund, the China Investment Corporation, eventually became Huijin's parent institution.

The other opinion was to make Huijin Corporation the authority.

Prior to the conference, the MOF had completed research and concluded that the ideal model would be to set up a SFASAC within the Ministry, and under it, establish several financial holdings similar to Huijin Corporation.

If the decision to appoint MOF as the ultimate manager became a reality, would the above model be adopted? Or should other models be considered? These questions continued to spark diverging views.

Diverging Views
The MOF's Fiscal Science Research Institute deputy director Liu Sangxi believed the model should differ from that of the existing State-owned Assets Supervision and Administration Commission (SASAC), which has to handle human resources, policy adjustment and asset management. 

Liu also disagreed with suggestions for making reference to the model adopted by Singapore's Temasek Holdings. He argued that the financial systems in both countries were too different for one to imitate the other.

However, Li Zhaoxi, deputy director of Enterprises Institute of Development Research Centre under the State Council, believed overseas references should be made but not imported lock, stock and barrel.

He suggested that the management model should be three-tier, comprising the sponsor's management department, professional holdings, and a business group.

"In the French model, with the Ministry of Finance and its Shareholding Agency (APE) and Tax Inspection Agency under overseeing the management and supervision of state-owned assets, could be a reference," he said.

Li Shuguang, however, believed the sponsor should be independent of the MOF. He said the founding of a financial state assets commission – like the kind SFASAC mooted during last year's conference – would be more appropriate.

He said the commission's three main tasks should be managing financial risks, making structural adjustments, and maintaining value-appreciation for state-owned financial assets.

Liu Jipeng, also a member of the Law drafting group and the president of the Research Center of Economy and Law under the China University of Political Science and Law, disagreed with either MOF or a special commission being appointed as the sponsor.

"State financial assets and industrial assets could not be easily separated," He said, adding for instance, China Construction Bank held shares of several large state-owned enterprises, such as Bao Steel, State Grid and so on.

Therefore, he believed an agency like the current SASAC, but at a larger scale, should be established and made in-charge. However, he added as SASAC played the role of a regulator and supervisor, it should not be managing the assets.

Instead, he said several asset management companies controlled by the state should be established and put in-charge.