New rules for enterprise bosses

PUBLISHED : Tuesday, 14 July, 2009, 12:00am
UPDATED : Tuesday, 14 July, 2009, 12:00am

China has toughened its anti-corruption regulations towards senior managers in state-owned enterprises (SOEs) to stave off misconduct and stop the loss of state-owned assets.

A provision published in the People's Daily yesterday places new restrictions on senior SOE managers, clarifies old legal terms and updates other language to make the law more reflective of today's reality. It replaces a version published in 2004.

The restrictions deal with such issues as SOE leaders' leaking secrets in corporate deals for personal gain, taking kickbacks from deals that allow outside companies to launch 'wealth management programmes' in the SOEs, making deals for houses and cars at prices that differ greatly from the market level, and taking trips on public funds.

The key in the new version is that it introduces a new legal term, 'persons with special relationships', which is defined as people who are either close relatives of the SOE leaders or share some common interests with them.

According to the new regulation, 'persons with special relationships' of SOE leaders are prohibited from investing in all firms having business connections with the enterprises that the leaders head.

All state firms are also banned from entering any entrustments, leases and contracts to transfer assets to the 'persons with special relationships' of the firms' senior managers.

'The definition of 'persons with special relationships' has greatly expanded and clarified the subjects affected by the anti-corruption law and is a timely answer to most corruption cases now involving SOEs,' Jiao Jingfeng, a lawyer with the Beijing firm Sam and Partners, said.

One case involved a suspended death penalty given in February to Anhui railway official Zhang Haiying, who misappropriated more than 87 million yuan (HK$99 million) of public funds via a company operated by her relatives.

In one court hearing last year, New China Life Insurance ex-chairman Guan Guolian admitted funnelling 261 million yuan through companies run by his brother.

The updated regulation does a better job of deterrence, experts said, but what SOEs urgently need to stem corruption are sound corporate governance and more transparency.

'Our research found that the practice of multinationals buying otherwise off-limits information mostly took place in sectors dominated by big state firms, and I don't think it's a mere coincidence,' Jiang Yong, a researcher with the China Institutes of Contemporary International Relations, said.