• Tuesday, October 13, 2015

SOEs to pay larger share of net profits to China's national treasury

Staff Reporter 2013-03-01 13:10 (GMT+8)
An ad promising a high salary at a job fair in Nanjing. (Photo/CNS)

An ad promising a high salary at a job fair in Nanjing. (Photo/CNS)

China will raise the mandatory contribution state-owned enterprises are required to pay to the government from after-tax profits while limiting bonuses paid to company executives, Beijing's Economic Observer magazine reports.

Following instructions from the State Council (the country's cabinet), the Ministry of Finance, Ministry of Human Resources and Social Security, and State-owned Assets Supervision and Administration Commission have already worked out a program and will shortly be seeking input from stakeholders, said the weekly.

As per the program, the weekly cited sources close to the issue as saying that SOEs' earnings paid to the national treasury from net profit would be raised by 5%.

At the same time, payments executives at state-run enterprises receive will be linked to job performance and would take into account not only the profits their enterprises have generated but also the cost of state capital they have used and the loans they were able to secure from banks.

In other words, the weekly said, the performance of enterprises will be measured based on the economic value they created, which would account for half of their performance rating, rather than only on profits earned.

Wen Zongyu, an economist with the Ministry of Finance told the weekly that until 2007, SOEs had not been obliged to give any part of their profits to the government after taxes were paid.

Companies are divided into three groups required to pay 15%, 10% and 5% of net profits, respectively, to the government. The sole exception is China National Tobacco which hands over to the central government 20% its profits, according to Wen.

Although there are some who say SOEs should pay 50% or more, though Wen believes too sharp an increase in the mandatory contribution rate could hurt operations.

He said a 5% raise is appropriate for the time being although a goal of 25 to 35% of profits going into the national treasury should be set - a goal which could be realized after the end of the 12th Five-year Economic Development Program.

Some experts even suggested that the increased contribution from SOEs should be used to fund the nation's social insurance schemes, which experienced a shortfall of 2.2 trillion yuan (US$349.48 billion) at the end of 2011. Wen said the increased payment is expected to yield 35 billion to 50 billion yuan (US$5.5-$7.5 billion) per year, which was too little to cover the shortage in social insurance.

As for executive remuneration, it should be divided into base salary and performance bonuses, the size of which would depend on performance, as assessed by the government, experts suggest.

Under the new program, SOEs' performance will be ranked on a scale grade from A to E. Executives leading companies ranked A, B, and C would get their regular bonus, while those at enterprises rated D and E would receive reduced bonuses.

Although salaries paid to these executives was capped at 12 times the payment given to an average employee of the enterprises, some of their actual income was 14 times that of average employees' salaries because of their gray income --unofficial income in the form of gifts-- said Wen.

Who`s who »
Xu Lejiang (徐樂江)

Xu Lejiang is an alternate member of the 18th CPC Central Committee and serves as chairman of the Board of the Directors of the Baosteel Group Corporation. Xu graduated from the Jiangxi Institute ...