Standing Committee of the National People's Congress:

On behalf of the State Council, I now submit the following report on the management of state-owned assets and the reform of the institutional system for your consideration.

     I. General Overview of State-owned Asset Management and Institutional Reform

     State-owned enterprises are a vital force in advancing national modernization and safeguarding the common interests of the people. They serve as an important material and political foundation for the development of our Party and country. The Party Central Committee and the State Council attach great importance to the reform and development of state-owned enterprises and state-owned assets. Since the start of the reform and opening-up policy, the reform of state-owned enterprises has consistently been the central link in economic system reform, undergoing continuous and deepened advancement. The management system for state-owned assets has been steadily improved, and oversight over state-owned assets has been continuously strengthened. At the Third Plenary Session of the 18th CPC Central Committee, a decision was adopted on several major issues concerning comprehensively deepening reform, providing clear direction and fundamental guidelines for the reform of state-owned enterprises and state-owned assets. General Secretary Xi Jinping has repeatedly emphasized that we must unswervingly uphold the important role of state-owned enterprises in national development, firmly commit to running state-owned enterprises well and making them stronger, better, and bigger. The reform of state-owned enterprises should be conducive to preserving and enhancing the value of state-owned capital, improving the competitiveness of the state-owned economy, and maximizing the functions of state-owned capital. Premier Li Keqiang has repeatedly pointed out that the reform and development of state-owned enterprises must adhere to the direction of socialist market economy reform, further improve the management system for state-owned assets, the modern enterprise system, and market-oriented operating mechanisms, and take liberating and developing social productive forces as the benchmark to enhance the quality and efficiency of development. The State Council has established a Leading Group for the Reform of State-Owned Enterprises, co-chaired by Comrades Ma Kai and Wang Yong, to strengthen organizational leadership, provide guidance and oversight, and coordinate the study and resolution of key and difficult issues arising from the reform. Currently, the top-level design for the reform has basically been completed, supporting policies continue to be refined, and major reform initiatives have taken substantive steps forward. Meaningful explorations have been conducted into key and difficult issues, yielding positive progress.

     (1) The basic framework of the reform has been largely established.

    2015 Year 8 Moon 24 On [date], the Party Central Committee and the State Council issued the “Guiding Opinions on Deepening the Reform of State-Owned Enterprises” (hereinafter referred to as the “Guiding Opinions”), which clearly defines the guiding ideology, basic principles, objectives, and key measures for deepening the reform of state-owned enterprises. This document serves as a programmatic guideline for the reform of state-owned enterprises and carries significant milestone importance. At the same time, it establishes a framework led by the “Guiding Opinions” and supported by a number of complementary documents. 1+N Policy system. Currently, a series of policies have been formulated and issued one after another. 13 The specific reform proposals or plans fall into three categories: The first category focuses on reforming and improving the state-owned asset management system, strengthening and enhancing oversight of state-owned assets in enterprises to prevent their loss, and upholding Party leadership and strengthening Party building in the deepening reform of state-owned enterprises. 5 a special opinion; the second category involves deepening reforms of the salary system for executives of centrally-administered enterprises, and other related aspects. 5 a special thematic program; the third category involves implementing the tasks and division of responsibilities outlined in the “Guiding Opinions,” among other aspects. 3 a work plan. In addition, there is also 9 The relevant procedures for this document are underway, and all associated supporting documents will soon be fully finalized.

     (2) The institutional framework for state-owned asset supervision continues to be improved.

     First, we must accelerate the transformation of functions within state-owned asset regulatory agencies. In accordance with laws and regulations such as the Law on State-Owned Assets of Enterprises and the Company Law, the State-owned Assets Supervision and Administration Commission of the State Council, guided by the requirement of strengthening state-owned asset supervision primarily through capital management, will firmly uphold its role as an investor, further clarify the boundaries of state-owned asset supervision, vigorously promote administrative streamlining and decentralization, comprehensively review and revise rules and normative documents, and cancel or delegate authority where appropriate. 21 The regulatory matter is hereby announced as abolished and invalidated. 33 a normative document. Second, we are exploring a reform of the state-owned capital authorization and management system, with a focus on managing capital as the primary approach. The relationships among state asset supervision and administration agencies, state-owned capital investment and operation companies, and these companies and their invested enterprises have been clarified—at COFCO Group Ltd. and China National Development & Investment Corporation. 2 Central state-owned enterprises are piloting the establishment of state-owned capital investment and operation companies. 24 A provincial SASAC has been reorganized and established. 50 First, we will establish state-owned capital investment and operation companies. Second, we will continuously strengthen supervision over state-owned assets. We will improve systems related to strategic planning and investment, financial auditing, property rights management, and revenue management; enhance investor oversight; and actively promote pilot programs for appointing chief accountants by central enterprises. We will also strengthen and refine the oversight provided by dispatched supervisory boards, deepening and solidifying both ongoing and in-process supervision, promptly identifying, exposing, and reporting any issues that arise. Third, we will step up guidance, review, and reminders. We will closely monitor the progress of local reforms, promptly coordinate to resolve major issues encountered during the reform process, and provide enhanced guidance and review for reform documents issued by local authorities, ensuring that the reforms consistently advance along the established course.

     (3) The modern enterprise system continues to improve and become more robust.

     First, we have advanced the definition and classification of functions for state-owned enterprises. We have clarified the fundamental principles guiding the reform, development, regulation, and performance evaluation of state-owned enterprises, completed the functional classification of central enterprises, and simultaneously introduced supporting measures such as classified performance evaluations and differentiated salary distribution systems. We have also selected certain central enterprises to launch pilot programs for total wage management under a filing system and cyclical budgeting. Localities have been carrying out the work of defining the functions of state-owned enterprises in an orderly manner, and issues such as diversified objectives, unclear positioning, and insufficient targeted regulation of state-owned enterprises have been preliminarily addressed. Second, we have promoted corporate and shareholding system reforms. State-owned enterprises have actively pushed ahead with corporate-level reforms at the group level, attracting various types of investors to achieve equity diversification and vigorously advancing restructuring and IPOs. Currently, the proportion of nationwide state-owned and state-controlled enterprises (excluding financial enterprises; hereinafter referred to as “national SOEs”) that have undergone restructuring has exceeded— 80% The reform coverage of central enterprises (hereinafter referred to as “central enterprises”) and their subsidiaries under the supervision of the State-owned Assets Supervision and Administration Commission of the State Council exceeds... 90% As of 2015 At the end of the year, listed companies controlled by central enterprises. 388 Household, Central Enterprises 61.3% of assets, 62.8% revenue from operations, 76.1% Profits are concentrated in listed companies. Third, we will steadily develop the mixed-ownership economy. We have issued guidelines on the development of the mixed-ownership economy in state-owned enterprises, launched pilot programs for mixed-ownership reform in an orderly manner, and encouraged and regulated the introduction of non-state-owned capital into investment projects of state-owned enterprises. As of... 2015 By year-end, the proportion of mixed-ownership enterprises among central enterprises reached... 67.7% Fourth, we will strengthen board of directors’ development. We have carried out efforts to standardize the establishment of boards of directors, thereby enhancing enterprises’ capacity for scientific decision-making and risk prevention. 85 At the level of central enterprise groups, standardized boards of directors have been established. These include Baosteel Group Co., Ltd., China Energy Conservation and Environmental Protection Group Co., Ltd., Xinxing Jihua Group Co., Ltd., China National Pharmaceutical Group Corporation, and China National Building Materials Group Co., Ltd., among others. 5 Central state-owned enterprises have launched pilot programs to implement the board of directors’ authority over the selection of senior management personnel, performance evaluation, and compensation management.

     (4) The allocation of state-owned capital continues to be optimized.

     First, promote corporate restructuring and integration. Central enterprises from... 2012 At the end of the year 115 Home adjusted to the current 106 First, it has enhanced industrial concentration, reduced homogeneous competition, raised the level of specialization, and strengthened industrial synergy effects. Second, it has optimized the structural layout. State-owned capital is increasingly concentrated in industries and sectors that are critical to national security and the lifeline of the national economy; the share of state-owned assets in key sectors such as military industry, telecommunications, civil aviation, and energy has reached— 90% The above—continuously promoting international operations, actively participating in the Belt and Road Initiative and international capacity cooperation, steadily expanding the scale of overseas operations, and continuously broadening the scope of business. 2012 — 2015 In the year, the proportion of assets, operating revenue, and profits of overseas business units of central enterprises accounted for the total amount averaged: 11.9% 、 17.3% 、 8.3% Third, we must accelerate industrial upgrading. State-owned enterprises are vigorously implementing an innovation-driven development strategy, increasing R&D investment, strengthening independent innovation and collaborative innovation, promoting mass entrepreneurship and innovation, transforming and upgrading traditional industries, and actively developing strategic emerging industries. As a result, they are gradually building competitive advantages in areas such as new energy, new materials, and high-end equipment manufacturing. Currently, central enterprises have taken the lead in establishing... 141 An industrial technology innovation strategic alliance, which initiated and participated in... 179 Established an innovation and development fund, and built... 247 An innovation and entrepreneurship platform. Fourth, we will dispose of inefficient and ineffective assets. Through methods such as on-market transactions and mergers and reorganizations, we will ensure a steady and orderly exit of these inefficient and ineffective assets, accelerate the divestment of assets that have been consistently loss-making, have unclear industry prospects, or lack effective control, and advance efforts to reduce overcapacity and address “zombie enterprises.” Since... 2012 Since the year, central enterprises have disposed of inefficient and ineffective assets through the property rights market. 1080 100 million yuan. Fifth, accelerate the separation of social functions previously handled by state-owned enterprises and resolve longstanding historical issues. The handover of schools and public security, prosecution, and judicial institutions run by state-owned enterprises to local authorities is basically complete; some enterprise-run hospitals have been transferred to local governments or restructured. The pilot program for separating and transferring the “three supplies and one service” from central enterprises stationed in Heilongjiang Province is essentially completed. Pilot programs in Henan, Hunan, and Chongqing are now fully underway, and pilot programs in Liaoning, Jilin, Guangdong, Hainan, Sichuan, and Guizhou have officially been launched.

     (5) Party building work in state-owned enterprises continues to be strengthened.

     We will resolutely implement the requirements of the CPC Central Committee, take strong measures to address issues identified during inspections, and intensify efforts to carry out rectifications, ensuring that Party building work in central enterprises becomes stricter, more practical, and stronger. First, we will strictly enforce the principal responsibility for governing and managing the Party. We will earnestly organize and carry out activities such as the educational practice on the Party’s mass line, the special education campaign on “Three Stricts and Three Honests,” and the study-and-practice campaign of “Two Studies and One Action,” focusing on identifying and resolving prominent problems. We will also study and formulate implementation guidelines and assessment and evaluation methods for the Party-building responsibility system in central enterprises, incorporating Party-building work into the comprehensive performance assessments of leading teams. We will conduct inspections rigorously, strengthen strict supervision and management of enterprise leaders, and take decisive action against those whose leadership teams lack unity, whose work is not up to par, or who have made serious mistakes in decision-making. 9 Central enterprises, 11 First, organizational adjustments have been made among senior leaders holding official positions. Second, we are exploring effective approaches to integrating the Party’s leadership with the improvement of the corporate governance structure. We will further clarify the statutory status of enterprise Party organizations within the corporate governance framework, and uphold and improve the leadership system featuring two-way entry and cross-appointment. We will promote the simultaneous planning of Party building, the simultaneous establishment of Party organizations and working bodies, the simultaneous staffing of Party organization leaders and Party affairs personnel, and the simultaneous implementation of Party work. We will strengthen grassroots Party organizations, enhance education and management of Party members, and effectively leverage the role of Party organizations. Third, we will persistently focus on building a clean and honest government and combating corruption. We will rigorously implement the “two responsibilities,” place discipline and rules at the forefront, thoroughly carry out the spirit of the Central Committee’s Eight-Point Regulation, resolutely oppose the “Four Winds,” maintain a high-pressure stance against corruption, and create a clean and upright environment conducive to reform and development.

     By continuously deepening reform and transforming mechanisms, state-owned enterprises have steadily improved their quality of development and operational efficiency, making significant contributions to promoting economic and social development. First, their scale and strength have markedly increased. As of... 2015 At the end of the year, the total assets of state-owned enterprises nationwide 119.2 Trillion yuan, owner's equity 40.1 Trillion yuan, respectively 2012 of the year 1.5 Double and 1.4 Twice; among them, the total assets of central enterprises 47.6 Trillion yuan, owner's equity 15.9 Trillion yuan, all of which are 2012 of the year 1.3 Twice; 2012 — 2015 The average annual rate of preservation and appreciation of state-owned assets in central enterprises is... 106% Second, significant achievements have been made in scientific and technological innovation. 2012 — 2015 Year, 32.1% National Science and Technology Awards, 46.1% First Prize for Scientific and Technological Progress, 40% The first prize for National Technological Invention was awarded to a central enterprise, among which... 12 The nation’s Special Award for Scientific and Technological Progress was awarded to central enterprises. 10 Item: Achievements in manned spaceflight, the lunar exploration program, deep-sea exploration, high-speed railways, ultra-high-voltage power transmission and transformation, and fourth-generation mobile communications. (4G) A batch of major scientific and technological innovations, including those in the internet sector, which have reached world-class advanced levels and were independently developed. C919 The final assembly of the large passenger aircraft has been completed, and the demonstration project for "Hualong One" has entered the stage of full-scale construction. Third, the pace of “going global” is accelerating. State-owned enterprises—especially central enterprises—have become a key force in China’s participation in international competition. Currently, the overseas investment by central enterprises accounts for approximately [a certain percentage] of China’s total non-financial outbound direct investment. 60% The turnover from foreign contracted projects accounts for approximately [a certain percentage] of China's total foreign contracted project turnover. 60% Second, overseas operations have gradually expanded from energy and mineral resource development to areas such as high-speed rail, nuclear power, and ultra-high-voltage grid construction and operation. Fourth, the supporting role has been significantly enhanced. 2012 — 2015 Year, the total tax payments made by state-owned enterprises nationwide 15.4 Trillions of yuan: Central enterprises have cumulatively turned over proceeds from state-owned capital. 3386 100 million yuan; as of 2015 By year-end, the cumulative amount of state-owned shares from state-owned enterprises nationwide that have been reduced and transferred to replenish the social security fund has reached... 2563.2 100 million yuan, accounting for the net fiscal allocation. 35.3% State-owned enterprises actively participate in targeted poverty alleviation as well as assistance to Xinjiang, Tibet, and Qinghai; central enterprises provide targeted support. 246 A key county for poverty alleviation work in the country, accounting for [a percentage] of the nation. 42%。

In addition, state-owned enterprises have also played a leading and exemplary role in implementing macro-control policies, carrying out major national strategies, supporting the modernization of national defense, serving the overall diplomatic agenda of the country, undertaking major engineering projects, ensuring energy and resource security, as well as responding to emergencies, promoting energy conservation and emission reduction, and engaging in social welfare activities.  

     II. Major Existing Issues

     (1) The targeted effectiveness of state-owned asset supervision still needs further enhancement.

     First, the issue of blurring the lines between government and enterprises, as well as between government and assets, still persists. Operational state-owned assets have yet to achieve centralized and unified supervision, and problems such as multiple management bodies and unclear responsibilities remain. The rights of state-owned asset investors have not been fully implemented. Second, the shift from primarily managing enterprises to primarily managing capital has not been fully realized. State-owned asset regulatory agencies at all levels still tend to over-regulate and micromanage; there are varying degrees of issues such as imprecise positioning of investor oversight and an excessive number of approval and filing procedures. Third, the supervisory mechanisms are still imperfect. The loss of state-owned assets and violations of discipline and law remain relatively prominent in some sectors and enterprises. Various supervisory approaches suffer from issues such as lack of resource sharing and insufficient coordination.

     (2) The enterprise’s operational management system and mechanisms still need further improvement.

     First, there is still room for improvement in standardizing board of directors’ development. The powers and responsibilities of the board have not yet been fully implemented; the sources of external directors remain limited and their overall number is insufficient. Moreover, the relationship among state-owned asset regulatory agencies, the board of directors, and the management team needs further clarification. Second, the boundaries of authority and responsibility between enterprise Party organizations and other governance entities remain unclear. In some enterprises, the general requirements for Party building have not been incorporated into the articles of association, and the methods and procedures for Party organizations to participate in major decision-making and implement the principle of Party leadership over cadres still need to be refined. Third, the reform of the three internal systems within enterprises remains incomplete. Issues such as managerial personnel being able to rise but not fall, employees being able to join but not leave, and incomes being able to increase but not decrease persist. The problems of excessive redundant staff and “people over tasks” remain particularly prominent. Fourth, the control model and operational efficiency still need to be enhanced. The phenomena of centralized yet fragmented management and supervisory yet uncontrolled operations continue to exist. Some enterprises have multiple management levels, long corporate chains, and low management efficiency. Additionally, some holding companies are small, scattered, and poorly managed, with prominent issues of duplicated investment and intra-industry competition.

     (3) The development model still needs further transformation.

     First, structural contradictions are particularly prominent. State-owned enterprises as a whole tend to have a “heavy” industrial structure, with most operating in traditional heavy industries. Their business sectors are overly broad and dispersed, resulting in low industry concentration and a lack of specialization in their core businesses—a persistent issue of being “large but not specialized.”