Foreword
One of the important links in strengthening and perfecting modern financial supervision and control is to promote the reform of state-owned financial enterprises. Recently, at the ninth meeting of the Standing Committee of the 14th National People's Congress, Vice Minister of Finance Liao Min conducted the "Report of the State Council on the Research and Handling of the Special Report on the Management of State-owned Assets of Financial Enterprises and the Report on the Accountability of Rectification and Accountability" (hereinafter referred to as the "Report"), which clarified the future focus of state-owned financial enterprises and indicated that the reform of financial state-owned enterprises is about to start. Based on the content of the Report and the tracking of key policies in recent years, this paper analyzes the reform trend of state-owned financial enterprises.
1. The current situation and existing problems in the reform of state-owned financial enterprises
According to the relevant state documents, a state-owned financial enterprise refers to an enterprise in which the state can actually control finance through capital contribution or investment relations, agreements and other arrangements, including wholly-owned, wholly-owned, absolute controlling and actual control. State-owned financial enterprises mainly include all kinds of financial enterprises established in accordance with the law and have obtained financial business licenses, sovereign wealth funds, financial holding companies, financial investment and operation companies, and other enterprises or institutions that substantively carry out financial business such as financial infrastructure.
From the perspective of investor supervision, state-owned financial enterprises are mainly divided into two categories. The first type is the state-owned financial enterprises that belong to the state-owned assets system, that is, the state-owned financial enterprises that perform the duties of investors or shareholders by the state-owned assets regulatory agency and the enterprises supervised by them, and such enterprises belong to the category of state-owned enterprises that we usually mention; The other category refers to state-owned financial institutions that are performed by other government departments (usually financial departments) as investors or shareholders, and such enterprises usually do not belong to the category of state-owned enterprises that we usually mention, and the relevant documents of the central and local governments on the reform of state-owned assets and state-owned enterprises will make special explanations for such enterprises and cultural enterprises.
Taking central enterprises as an example, the first category of state-owned financial enterprises corresponds to the financial enterprises controlled by the 97 central enterprises supervised by the State-owned Assets Supervision and Administration Commission of the State Council, and the second category of state-owned financial enterprises corresponds to the financial enterprises managed by the Ministry of Finance, including the four major state-owned insurance companies and the five major state-owned commercial banks.
▲Figure 1: The regulatory structure of investors of central enterprises
For example, in 1995, the mainland successively promulgated a series of laws, such as the People's Bank of China Law, the Commercial Bank Law, the Insurance Law, and the Securities Law, separating the banking, securities regulators, and insurance regulatory departments from the People's Bank of China, forming separate supervision and control over financial institutions. In 2018, the state integrated the China Banking Regulatory Commission and the China Insurance Regulatory Commission to establish the China Banking and Insurance Regulatory Commission to form a mixed industry supervision of banking and insurance.
Since state-owned financial enterprises are subject to industry supervision, their reform is included in the reform of the mainland's financial system, but not in the scope of state-owned assets and state-owned enterprises. Therefore, since the 18th National Congress of the Communist Party of China, this round of deepening reform of state-owned assets and state-owned enterprises has mainly been carried out in state-owned enterprises in the state-owned assets system, and has not covered state-owned financial enterprises, resulting in the reform of state-owned financial enterprises lagging behind the reform process of state-owned enterprises in the state-owned assets system. In particular, there are gaps in the relevant institutional mechanisms of the investor line in key areas such as the state-owned assets supervision system for state-owned financial assets, the corporate governance structure of enterprises, the wage determination mechanism, and the strengthening of the party's leadership.
State-owned financial enterprises are the main body of financial institutions in the mainland, and financial risks are contagious, and the sound operation of financial enterprises at the micro level will affect the stability of the overall financial environment in the mainland, and deepening the reform of state-owned financial enterprises is an important link in deepening the reform of the mainland's financial system, which is of great significance to the mainland's economic development and financial stability.
Second, the main direction of the reform of state-owned financial enterprises
After the 19th National Congress of the Communist Party of China, the central government successively issued a number of policy documents related to the reform of state-owned financial enterprises, including the Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Improving the Management of State-owned Financial Capital, the Notice of the General Office of the State Council on Printing and Distributing the Interim Provisions on the Duties of State-owned Financial Capital Contributors, and the Notice of the Ministry of Finance on Matters Concerning the Regulation of Asset Transfer of State-owned Financial Institutions, etc., to continue to promote the reform of state-owned financial enterprises. Based on the spirit of the report of the 20th National Congress of the Communist Party of China, according to the content of relevant documents, combined with the content of the report, and with reference to the reform ideas of state-owned enterprises, we believe that the main directions of the reform of state-owned financial enterprises are:
●The state-owned assets supervision system is perfect
Improving the supervision system and mechanism of state-owned assets is the top-level link to strengthen the supervision of investors or shareholders of state-owned financial enterprises. Since mainland financial enterprises mainly adopt industry supervision, the supervision of investors in state-owned financial institutions is relatively weak compared with the state-owned assets system. In response to this problem, in 2019, the General Office of the State Council issued the Interim Provisions on the Responsibilities of Investors of State-owned Financial Capital (the "Provisions"), which clarified that the Ministry of Finance and local finance departments shall perform the duties of investors of state-owned financial enterprises on behalf of the State Council and local governments, respectively.
Judging from the requirements of the document, the authorized operation mechanism of state-owned financial enterprises (including decision-making on major matters), the performance appraisal of state-owned financial capital, the selection, appointment, dismissal, assessment and management of management personnel of important enterprises, the equity changes and asset transfer of financial state-owned assets, the construction of internal and external supervision systems of state-owned financial enterprises, and the investigation of responsibility for illegal operation and investment will be the key links in improving the state-owned assets supervision system and mechanism of state-owned financial enterprises.
The report focuses on improving the management system and mechanism of state-owned financial capital from the direction of adhering to and strengthening the party's leadership, strengthening system construction, straightening out the relationship between the performance of investor responsibilities and trustee management institutions, and doing a good job in the transfer of market operation institutions. Among them, the implementation of the pre-study of the party organization on major issues, the acceleration of the introduction of regulations on the management of state-owned financial capital, the study and drafting of local state-owned financial capital management performance evaluation measures and other reform requirements have a greater impact on the operation and development of state-owned financial enterprises.
●Construction and improvement of corporate governance structure
In 2021, the China Banking and Insurance Regulatory Commission (CBIRC) issued the Code of Corporate Governance for Banking and Insurance Institutions (hereinafter referred to as the "Guidelines"), which clearly stipulates the corporate governance structure of financial enterprises from the perspective of industry lines, focusing on the requirements for the construction and improvement of the corporate governance structure of financial institutions from the perspective of equity structure, organizational structure, responsibility boundary, development strategy, professional ethics, risk management and internal control, information disclosure mechanism, incentive and restraint mechanism, stakeholder protection mechanism, and social responsibility awareness. Starting from the investor line, that is, the attributes of state-owned enterprises, in addition to the above-mentioned industry requirements, the focus of its reform includes:
Strengthen the party's leadership. The report of the 20th National Congress of the Communist Party of China clearly proposes to promote the strengthening of the party's leadership in improving corporate governance of financial enterprises, and the report proposes to implement the legal status of the party committees of state-owned financial enterprises in the corporate governance structure. Implement the requirements for two-way entry and cross-appointment of the leadership group of the Party committee, the board of directors and the management, and ensure that the decision-making and deployment of the Party Central Committee are implemented in place through the corporate governance mechanism.
Implement the functions and powers of the Board of Directors. The fictitious establishment of the board of directors is a common problem in state-owned enterprises, and the implementation of the functions and powers of the board of directors is a key link in improving the corporate governance structure of state-owned enterprises. The "Provisions" put forward that state-owned investors should supervise state-owned financial institutions through the corporate governance mechanism, and implement and safeguard the rights of the board of directors to exercise major decisions, selection and employment, and salary distribution in accordance with the law. At the same time, in conjunction with the 2023 Company Law (Amendment), the reform of the board of directors and directors' tenure system will also be the focus of improving the corporate governance structure.
Tenure system and contract management of managers, as well as professional manager system. At present, the degree of marketization in the selection and employment of personnel in most state-owned financial institutions is not high, and in fact, the "Guidelines" also clearly put forward that banking and insurance institutions are encouraged to adopt a market-oriented selection and employment mechanism to select and hire senior management personnel in an open and transparent manner. The implementation of the contractual management of managerial tenure and the system of professional managers is an important means for state-owned enterprises to improve the market-oriented selection and employment of personnel and optimize the corporate governance structure, which will be the key direction for state-owned financial enterprises to improve the corporate governance structure.
●Reform and standardization of the salary system
For general state-owned enterprises, the key direction of the reform of the salary and wage system is to improve the marketization of the salary and wage mechanism, strengthen the incentive role of salary for employees, break the big pot of enterprises, appropriately distance themselves, achieve more work and more rewards, and further promote the distribution of wage income to further increase the tilt to scientific research personnel, front-line employees, and grassroots employees. From the "Notice on Further Strengthening the Financial Management of State-owned Financial Enterprises" (hereinafter referred to as the "Notice") issued by the Ministry of Finance in 2022, it is the key content of the salary reform of state-owned financial institutions to reasonably control the difference in job allocation, scientifically adjust the excessive distribution, establish and improve the mechanism of deferred payment of salary distribution and accountability and salary recovery, and improve the transparency and standardization of internal salary distribution. Its reform orientation is different from that of ordinary state-owned enterprises.
In addition, with reference to the reform model of the total wage determination mechanism of state-owned enterprises, the total wage determination mechanism of financial state-owned enterprises will also be the focus of reform. In fact, in recent years, the Ministry of Finance has successively promulgated the Implementation Measures for the Reform of the Wage Determination Mechanism of State-owned Financial Enterprises (Cai Jin [2019] No. 121), the Implementation Rules for the Wage Determination Mechanism of State-owned Financial Enterprises (Cai Jin Han [2020] No. 4), and the Supplementary Notice on Further Improving the Management of Total Wages of State-owned Financial Enterprises (Cai Jin Han [2020] No. 22) to promote the reform of the total wage determination mechanism of state-owned financial enterprises. In 2020, the Henan Provincial Department of Finance promulgated the Measures for the Management of the Total Wages of Local State-owned Financial Enterprises in Henan Province, and in 2022, the Gansu Provincial Department of Finance issued the Implementation Measures for the Management of the Total Wages of State-owned Financial Enterprises in Gansu Province (for Trial Implementation), which are both local documents for the management of the total wages of state-owned financial enterprises, reflecting this reform trend.
●Improve the risk management and control mechanism
Strengthening the risk management and control capabilities of state-owned enterprises has always been the key direction of state-owned enterprise reform and management improvement. For financial state-owned enterprises, due to the strong contagion of financial risks, they put forward higher requirements for risk management and control. The report also takes the improvement of the prevention and control mechanism of major risks as an important content. In fact, the state's risk management and control of financial state-owned enterprises is also aimed at the contagion of financial risks, which is mainly manifested in two aspects:
The first is to promote the inclusion of state-owned financial enterprises in the supervision of the financial system. This reform direction is mentioned in the state-owned assets supervision system mentioned above, and its purpose is mainly to realize the classification of finance and industry from the perspective of capital contribution supervision, and avoid the spread of financial risks to the industrial field.
The second is to strengthen the management and control of financial holding enterprises. A financial holding enterprise (hereinafter referred to as a financial holding enterprise) refers to an enterprise that controls two or more financial institutions. Financial holding enterprises are the main form of state-owned enterprise development and holding financial business in the state-owned assets system, because it is an industrial enterprise holding financial enterprise, it is very easy to lead to the spread of financial risks to the industrial field, and the financial holding enterprise is an industrial enterprise into the state-owned assets supervision system, and the industry supervision is relatively weak. To this end, in 2020, the People's Bank of China (PBoC) issued the Trial Measures for the Supervision and Administration of Financial Holding Companies, which requires large financial holding enterprises to be included in the scope of PBoC's supervision to strengthen industry supervision. In February 2023, the People's Bank of China issued the Measures for the Administration of Related Party Transactions of Financial Holding Companies to strengthen the supervision of related party transactions of financial enterprises.
epilogue
Although state-owned financial enterprises have their own particularities, they essentially belong to the category of state-owned enterprises, and from the perspective of the relevant reform arrangements of state-owned financial enterprises in recent years, the relevant reform measures have many similarities with the reform of state-owned enterprises, and it can be expected that the relevant reform actions for state-owned enterprises are expected to be gradually promoted in the reform of state-owned financial enterprises.
Author: CUHK Consulting Research Institute
Source: CUHK Consulting