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01.20.2014 19:05

Ministry of Finance 'Wants More SOEs to Hand over Profits'

Official says the thousands of smaller state-owned companies around the country are being audited to they can give the government some of their earnings
By staff reporter Wang Changyong

(Beijing) ­– More companies that are owned by central government agencies will be required to make contributions to the government's coffers this year, an official at the Ministry of Finance told Caixin on January 17.

The official said the ministry is making the move based on an order from the State Council, the country's cabinet.

State-owned enterprises (SOEs) that are linked to what the government calls "the budget system" are required to hand over a certain proportion of their net profits depending on their line of business. The levels range from 5 to 20 percent for SOEs around the country. China National Tobacco Corp. is the only enterprise that is required to hand over 20 percent of its profits.

The comments by the ministry official are in line with the central government's desire to reform SOEs. Backers of change say the public should get a greater share of profits from SOEs, which, they argue, have not honored their obligations to society. A major Communist Party meeting in November decided to make SOEs hand over at least 30 percent of their profits to the government for social security spending by the end of 2020.

But just counting SOEs is something of a chore in China. The State-owned Assets Supervision and Administration Commission (SASAC) oversees 112 large SOEs, but then there are thousands of smaller firms scattered across the country. Some are as small as a single factory.

A 2012 report by the National Audit Office said about 4,000 companies and subsidiaries owned by central government departments have not been incorporated into the so-called budget system.

The Ministry of Finance is auditing these companies and plans to incorporate them into the budget system gradually, the official who spoke to Caixin said. Despite this, there is no official tally for the exact number of enterprises owned by central government departments.

"The central department-owned enterprises are undergoing a continuous restructuring process, so the number may be different every day," he said.

For example, in late October 2010, the Ministry of Education owned 623 enterprises, but by last year the number was cut to 389.

The idea for establishing the budget system was first introduced in the Budget Law in 1995, but the system was not implemented until 2007. For a long time, state-owned companies were not required to hand over profits to SASAC. Their contributions to the government was mostly in the form of taxes.

The State Council began to run trials of the budget system in 2008, starting with a few central enterprises directly managed by SASAC. The trial has expanded to include other central enterprises under various ministries.

Three years later, 651 enterprises under central ministries and departments were included in the system. Another 301 enterprises were added in 2012.

The enterprises added in 2010 and 2011 are required to hand over 5 percent of their after-tax profits to the state.

In 2012, the government raked in 97 billion yuan from the budget system. Over 90 percent came from China Tobacco and enterprises supervised by SASAC.

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