Since the outbreak of the pandemic, the world economy has been hit, and countries have become more nationalistic in the process of saving their own economies. This has created a huge obstacle to the active participation of mainland state-owned enterprises in the realization of the goal of international circulation. But we need to see that with the end of the pandemic on a global scale, the hermeticism is temporary. In the long run, globalization remains mainstream. Whether the mainland has signed the Regional Comprehensive Economic Partnership (RECP) with the 15 ASEAN countries, promoted the negotiation of the China-EU investment agreement, or actively considered joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), all of them reflect the mainland's strong will to expand opening up and promote globalization. From the perspective of the reform of state-owned enterprises, joining international organizations or conventions will help mainland state-owned enterprises actively participate in the international cycle, become bigger and stronger, and provide external impetus for the reform of state-owned enterprises. By fulfilling the obligations under international conventions, introducing overseas investment, and gradually liberalizing monopoly industries, we can provide external competitive pressure on state-owned enterprises and promote the deepening of the reform of state-owned enterprises from the outside in. On the other hand, it has also posed a tremendous challenge to the mainland's economic system. With the rapid development of the mainland, the containment of China's rise by Western developed countries is mainly reflected in the blocking of state-owned enterprises. The main legal means used are countervailing, competitive neutrality and non-independence of state-owned enterprises. Therefore, our coping strategy mainly revolves around the above three points.
1. Adhere to the party's leadership, but the way to achieve it cannot be one-size-fits-all
General Secretary Xi Jinping emphasized at the 2016 National Conference on Party Building in State-owned Enterprises: Adhering to the party's leadership over state-owned enterprises is a major political principle and must be consistent; The establishment of a modern enterprise system is the orientation of the reform of state-owned enterprises, and it must also be carried out consistently. The modern state-owned enterprise system with Chinese characteristics is particularly important in integrating the party's leadership into all aspects of corporate governance, embedding the enterprise party organization into the corporate governance structure, clarifying and implementing the legal status of the party organization in the corporate governance structure, and ensuring that the organization is implemented, the cadres are in place, the responsibilities are clear, and the supervision is strict. Article 170 of the new Company Law provides a legal basis for the leadership of the Party in state-funded companies, that is, the organizations of the Communist Party of China in state-funded companies shall play a leading role in accordance with the provisions of the Articles of Association of the Communist Party of China, study and discuss major business and management matters of the company, and support the company's organizational structure in exercising its functions and powers in accordance with the law. At present, the common practice in practice is to amend the articles of association of the company and add a chapter on the leadership and construction of the party. It is clearly stipulated that the "three major and one major" matters, such as the decision-making on major matters of state-owned enterprises, the appointment and dismissal of important cadres, the decision-making on investment in major projects, and the use of large amounts of funds, must be studied and discussed by the party committee (party group) before the board of directors or managers make a decision. At the same time, the traditional method of "two-way entry and cross-posting" is retained, allowing party committee members to serve as directors and supervisors of the company, so as to implement the decision-making opinions of the party organization in the board of directors and board of supervisors.
The main evidence for the U.S. determination of China's deviation from "competitive neutrality" in the Chinese market includes the leadership of the Party committee, the belief that the Chinese government exercises "meaningful control" over SOEs, and then the determination that Chinese SOEs assum, exercise, or are entrusted with government functions, and finally conclude that Chinese SOEs are overwhelmingly recognized as public institutions in the absolute majority of cases. Therefore, we should adopt different forms according to local conditions to realize the party's leadership according to the proportion of state shares in state-owned enterprises, the fields in which state-owned enterprises are located, and other factors.
First, the way in which the party's leadership is realized should be combined with the reform of the classification system. For state-owned enterprises with different objectives, it is inappropriate to require a one-size-fits-all party organization to have direct leadership over all state-owned enterprises. Public welfare state-owned enterprises are different from ordinary commercial enterprises in that they do not pursue or do not fully pursue economic goals, but take the provision of social services as their own responsibility. The party's direct leadership over state-owned enterprises should be mainly embodied in the leadership of state-owned enterprises in the public welfare category, and the leadership of commercial state-owned enterprises, especially in areas where competition is relatively sufficient, should be mainly indirect.
Second, different ways of realizing the party's leadership should be allowed to be adopted at different levels and in proportion to shareholdings. For the group company level in a state-owned enterprise group, the form of a wholly state-owned company can be used to perform the capital operation function, while the wholly state-owned company can adopt a special governance mechanism different from that of other companies in accordance with the law, and the leadership system of the party committee can be established entirely in the form of a statutory body. For state-owned companies operating at the lower levels, the party's leadership can be realized in accordance with the above-mentioned classification reform plan, and the proportion of state-owned equity should also be considered. For state-owned enterprises, we should try to adopt a general governance model to indirectly realize the party's leadership. The new Company Law provides us with strong evidence. The Act adds special provisions on the organization of state-funded companies in Chapter VII. From the point of view of expression, only state-funded companies need to comply with the special provisions of the relevant organizational structures, while non-state-funded companies only need to comply with the general content of the organization of the Company Law. State-funded companies refer to wholly state-owned companies and state-owned capital holding companies funded by the state, including state-funded limited liability companies and joint stock limited companies. Therefore, we have clarified that the subject to which the special provisions on the organization of state-owned enterprises apply refer to wholly state-owned companies and state-owned capital holding companies at the level of the Company Law, and do not include state-owned capital shareholding companies. The core of the enterprise system is the organizational structure, and all corporate actions are based on the behavior of the organizational structure, so we can conclude that the special provisions on corporate state-owned enterprises are limited to wholly state-owned companies and state-owned capital holding companies.
2. Actively participate in the formulation of international rules and strive for fair treatment of mainland state-owned enterprises
At present, the phenomenon that certain international rules are unfavorable to state-owned enterprises is partly due to the fact that the mainland has not participated in the formulation of international rules. Taking the OECD's Competitive Neutrality Guidelines as an example, because China is not a member of the OECD and did not participate in the formulation of the OECD Guidelines in an official capacity, its content does not fully take into account China's national conditions. The competition between China and the United States and Europe has gone beyond the scope of economic competition or enterprise competition in the general sense, but is a competition between two economic development models, that is, the competition between the state-led economic development model represented by China and the liberal economic development model represented by the United States and Europe. The promotion of the "competitive neutrality" system in the United States is in essence a process of collision and coordination between the two different economic system concepts of a free market economy and a state-led economy. Against this background, the mainland should actively participate in the formulation of international rules and strive to create an international environment conducive to the state-led economic model.
Therefore, we should adhere to the principle of requiring ownership neutrality, resolutely resist the establishment of international rules that have a tendency to discriminate against ownership, and adhere to the rule that whoever asserts it should bear the burden of proof from the perspective of ownership neutrality. At the same time, exchanges and cooperation should be strengthened with countries that have similar positions on the rules governing international investment in state-owned enterprises, and strive for synergy in international negotiations. In international economic and trade negotiations, we will explore and promote the implementation of definitions, legislative frameworks, adjustment paths, core obligations, dispute settlement, and lists of conventional and emergency exceptions suitable for mainland state-owned enterprises, so as to enhance the initiative and voice in international negotiations.
3. Balance the conflict between internationalization and localization of the legal system
After China accedes to international conventions, it needs to fulfill its obligations in accordance with the content of the conventions, that is, to transform international law obligations into domestic law obligations. An important issue that arises is the conflict between the distinctiveness and convergence of the law. From a domestic point of view, how China carries out the reform of its own state-owned enterprises and how to formulate laws for state-owned enterprises is a purely domestic law issue, which is the embodiment of a country's sovereignty, and other countries cannot dictate. However, from an international perspective, this again involves issues of international investment and international trade, which, to a considerable extent, require convergence of rules.
If China's state-owned enterprises do not go abroad, the above problems will not occur, and at most disputes will arise in China due to foreign investment, import of products or services. Even when it comes to the fulfillment of international treaty obligations, because it is within the scope of China's sovereignty, there will be no discrimination against state-owned enterprises. The reality is that state-owned enterprises (SOEs) are an important subject of the mainland's strategy of going global, so when China's state-owned enterprise laws are inconsistent with international rules, it is easy to lead to the problem of ownership discrimination. At present, many of the claims of the United States and Europe on the issue of competitive neutrality and subsidies are discriminatory, that is, the foothold is based on the perspective of "state-owned enterprises are not justifiable", and state-owned enterprises are required to provide evidence to prove that they have not violated the neutrality of competition and the legitimacy of subsidies. Although, fundamentally speaking, this is the inevitable result of trade competition between countries, there are also formal incomprehensions and concerns caused by inconsistent rules, such as the issue of the leadership system of party organizations, and the question of whether state-owned enterprises constitute public institutions in implementing national strategies. Therefore, the reform of state-owned enterprises in the mainland also needs to balance the conflict between the internationalization and localization of the legal system, and the content of the international general rules cannot be ignored. In particular, because state-owned enterprises on the mainland were established under the Company Law with the goal of reforming the company system. However, China's Company Law is essentially a commercial company law, and most of its rules are international and convergent. In this context, the adoption of a special governance mechanism for state-owned companies is prone to misunderstanding and resistance.
Fourth, accurately translate the expression of intra-Party regulations into legal terms
There are many inconsistencies between the internal party regulations and the law, so how to accurately understand the meaning of the internal party regulations and effectively implement them at the legal level is a very important issue. For example, the concept of state-owned enterprises is a commonly used expression in internal party regulations, but it has no clear meaning in law.
First, the only law on the supervision of state-owned enterprises is the Law of the People's Republic of China on State-owned Assets of Enterprises. The law only mentions state-owned enterprises in Article 7, but there is no definition, and its connotation and extension are not clear. According to Article 5, state-funded enterprises refer to wholly state-owned enterprises and wholly state-owned companies, as well as state-owned capital holding companies and state-owned capital shareholding companies.
Second, at the level of administrative regulations, some norms seem to equate state-owned enterprises with state-funded enterprises. For example, the Opinions of the General Office of the State Council on Establishing a System for Pursuing the Responsibility of State-Owned Enterprises for Illegal Operation and Investment (Guo Ban Fa [2016] No. 63) juxtaposes institutions performing the duties of investors and state-owned enterprises, which seems to indicate that state-owned enterprises are equivalent to state-funded enterprises. For example, the Opinions stipulate that institutions and state-owned enterprises that perform the duties of investors shall separately organize and carry out accountability work in accordance with the requirements for the hierarchical management of state-owned assets and the authority of cadre management. Violations of discipline and law are to be dealt with in strict accordance with discipline and law.
Third, the departmental regulations of the Ministry of Finance limit state-owned enterprises to wholly state-owned and holding enterprises, which is smaller than that of state-funded enterprises.
At present, the definition of state-owned enterprises in all normative documents on the mainland can only be found in the departmental regulations of the Ministry of Finance. Article 2 of the Measures for the Financial Administration of Overseas Investment by State-Owned Enterprises (Cai Zi [2017] No. 24) promulgated by the Ministry of Finance stipulates that the term "state-owned enterprises" in these Measures refers to wholly state-owned enterprises, wholly state-owned companies and state-owned capital holding companies that perform the duties of investors on behalf of the state by the State Council and local people's governments, including enterprises supervised by the central and local state-owned assets supervision and administration institutions and other departments. State-owned enterprises, joint ventures and state-owned capital shareholding companies may refer to the implementation of these measures. According to this concept, state-owned enterprises only refer to wholly-owned and holding enterprises, including wholly state-owned enterprises, wholly state-owned companies and state-owned capital holding companies, but do not include state-owned enterprises and state-owned capital shareholding companies.
To sum up, the current clear legal definition of state-owned enterprises can only be found in the departmental regulations of the Ministry of Finance, which has relatively low legal effect, and cannot represent the opinion of the State-owned Assets Supervision and Administration Commission (SASAC), a specialized state-owned assets regulator, let alone the legal attitude at the national level, and seems to conflict with other provisions, and the legal definition of state-owned enterprises is still pending. If the Ministry of Finance's relatively narrow definition of state-owned enterprises is adopted, the party's leadership over state-owned enterprises is mainly the leadership of wholly state-owned companies and state-controlled enterprises. If the concept of state-owned enterprises is taken in a broader sense, the leadership of the party should include leadership over the enterprises in which the state has a stake. In the context of the deepening of the mainland's international opening-up, it is obvious that a narrow definition is more appropriate. The new Companies Act also apparently adopts a narrow concept.
Fifth, steadily promote the reform of the classification system
At present, the problems existing in the reform of the classification system mainly lie in the inconsistency between the central and local classification standards, and there are doubts about whether it should be classified as a whole or hierarchically classified by enterprise groups. The general idea of the reform of the classification system is good, but the problem is that the mainland's state-owned enterprises are basically diversified, and within the same enterprise group, there are both commercial state-owned enterprises and state-owned enterprises with a strong public welfare interest. From a domestic perspective, no matter how we classify it, there is no problem, this is just a means for the mainland to strengthen the supervision of state-owned enterprises. However, from an international perspective, the reform of the classification system will have some negative effects. For example, for public welfare state-owned enterprises, on the one hand, they are more likely to be recognized as non-commercial organizations in foreign trade, so as to restrict their transactions through countervailing rules; On the other hand, it is easier for foreign investment to be restricted on the grounds of endangering national security. In this regard, it is necessary to strengthen the independence and autonomy of state-owned enterprises, and ensure the commerciality of their foreign investment by isolating the government's undue influence on state-owned enterprises.
The premise of the implementation of the classification reform is to clarify the classification standards, which can refer to the detailed industrial division standards formed by the National Development and Reform Commission in the formulation and implementation of industrial policies, and can also draw on the industrial subdivision principles of foreign countries in industrial regulation, and scientifically subdivide those public goods, public welfare products and important industries and key areas involving national security and the lifeline of the national economy, and publish them to the public as a "negative list of industry segments". Whether each state-owned enterprise is more suitable for solving market failures, realizing the country's industrial policy, pursuing social interests, or going to the market when choosing a specific reform model is no longer up to the owner of the enterprise, but to decide whether the government is "controlling" or "decentralizing" according to this objective classification standard.
6. Strengthen the independence of state-owned enterprises
The 1999 "Hengyu" incident in South Africa attempted to identify Chinese state-owned enterprises as affiliated enterprises, and the European Union also tried to treat all Chinese state-owned enterprises in the same industry as a "single economy" in its anti-monopoly review. These practices are extremely detrimental to the independent economic activities of SOEs, so in reality, we should minimize such behaviors that have a negative impact on the independence of SOEs. For example, the current practice in appointing leading cadres of state-owned enterprises on the mainland is basically the same as that of the civil service system, and the same person can serve in different state-owned enterprises in the same industry continuously. From a legal point of view, unless it is an affiliated enterprise, this practice violates the legal non-compete obligation. In addition, the mainland implements centralized and unified management of funds for state-owned enterprise groups. Although this is conducive to strengthening the management of state-owned enterprises, it is easy to be identified as a mixture of funds between parent and subsidiary, thus negating the independent status of the subsidiary. The legal personality denial system is applied, requiring the parent company to bear legal responsibility for the debts of the subsidiary. Our state-owned enterprise group has a large number of wholly owned subsidiaries, which constitutes a legal one-person company. Paragraph 3 of Article 23 of the Company Law stipulates that if a company with only one shareholder cannot prove that the company's property is independent of the shareholder's own property, the shareholder shall be jointly and severally liable for the company's debts. In reality, because state-owned enterprise groups implement centralized and unified management of funds, many local courts have directly held that shareholders cannot prove that the company's property is independent of the shareholder's own property, and thus applied the denial of legal personality and directly required the parent company to bear responsibility for the debts of the subsidiary. Therefore, a balance should be struck in strengthening the management of state-owned assets and ensuring the independence of members within state-owned enterprise groups.
7. Expand the enterprise form of state-owned enterprises
At present, the goal of the reform of state-owned enterprises on the mainland is to reform the standardized company system, that is, to transform all state-owned enterprises into standardized company enterprises. Compared with traditional enterprises owned by the whole people, corporate enterprises have the advantages of a more complete governance mechanism and are more easily accepted by the international community. However, other business forms also have their own advantages. For example, although the credit cooperatives and supply and marketing cooperative systems that have continued to exist in the mainland need to be reformed due to certain problems, the advantages of cooperatives as an enterprise form of distribution according to work can fully motivate laborers and reduce or eliminate capital exploitation, and can completely become an option for the reform of mixed ownership. The same is true for limited partnerships, which allow state-owned investors in commercial state-owned enterprises to become limited partners, so as to bear limited liability on the one hand; At the same time, by allowing the private entity to serve as the general partner, it can assume unlimited liability and play a better incentive and restraint effect. Even for commercial SOEs that are related to the national economy and people's livelihood, they can be achieved by agreeing on public interest objectives, and the state-owned investors can ensure their realization by relying on the supervisory power of limited partners. Therefore, there is absolutely no need to limit the form of state-owned enterprises to corporations and restrict further development.
8. Explore the system of state-owned preferred shares and state-owned special management shares
Article 144 of the new Company Law stipulates class shares, clarifying that class shareholders may have different interests from ordinary shares in the following ways: preferential or inferior distribution of profits or surplus property; the number of voting rights of each share is greater or less than that of ordinary shares; The transfer is subject to the consent of the company, etc., and the transfer is restricted. Based on this, we suggest that SOEs can adopt the preferred share and special state management share regimes, while following the following solutions:
First, for state-owned enterprises in the field of full competition, if the state-owned assets are not withdrawn, the state-owned shareholders can be converted into preferred shares, and the state shareholders do not participate in the day-to-day management of the state-owned companies, and mainly protect their own interests by exercising the right of supervision and the right of preferential distribution of earnings. Of course, the ultimate goal of reform should be to withdraw state-owned assets from these areas entirely, or to hold gold shares, retaining only the right of veto on issues of national interest.
Second, for state-owned companies in important industries and key areas, gold shares can be used. However, the state may still have a controlling or even sole proprietorship in the sector for a long period of time.
Third, for economic fields that need to strengthen the daily decision-making of state-owned shareholders, such as public welfare industries, if the form of sole state-owned and state-owned holding is not adopted, the state can adopt a differentiated voting method with multiple rights in order to control the daily decision-making of the enterprise, with the state enjoying the majority of voting shares, and other shareholders having only one vote per share.
The author is an associate professor at the Institute of Economic Law, School of Civil, Commercial and Economic Law, China University of Political Science and Law. Vice President of Beijing Legal Negotiation Research Association. Source: University of Economics Law