Finance Departments (Bureaus) of Provinces, Autonomous Regions, Directly-Administered Municipalities, and Cities under Separate Planning:

In order to earnestly implement the spirit of the 17th National Congress of the Communist Party of China regarding “standardizing the development of industry associations and market intermediary organizations” and the requirements set forth in the “Several Opinions of the State Council on Accelerating the Development of the Service Sector” (Guofa [2007] No. 7), and to accelerate the cultivation of a group of appraisal institutions that are commensurate with China’s economic development level, possess substantial scale, strong capabilities, and high standards, thereby promoting the scientific development of the appraisal industry, we hereby put forward the following recommendations:

I. The Necessity of Promoting Assessment Agencies to Grow Stronger, Bigger, and Better

(1) It is an objective necessity for the development of a market economy that assessment agencies grow stronger, bigger, and better.

Asset valuation is a product of the development of the market economy. Over the past two decades, it has played a critically important role in promoting state-owned enterprise reform, standardizing capital market operations, and fostering economic and social development. The valuation industry has become an indispensable professional intermediary service sector in the market economy. However, due to its late start and weak foundations, valuation firms generally remain small in scale and have insufficient coverage of valuation services—factors that are inconsistent with China’s current level and scale of economic development, as well as with the pace of economic globalization and China’s growing international economic standing. As China’s market economy continues to improve, corporate scales keep expanding, and the scope and fields of various economic activities keep broadening, there is an urgent need for a group of valuation firms that are larger in scale, stronger in capability, and higher in professional standards—firms capable of meeting domestic economic development needs and participating effectively in international competition.

(2) Strengthening, expanding, and optimizing the capabilities of assessment institutions is a major safeguard for maintaining national economic security and the public interest.

The appraisal industry not only shoulders the mission of promoting economic development but also bears the heavy responsibility of safeguarding national economic security and the public interest. At present, as China’s reform and opening-up efforts continue to deepen, major reforms are being comprehensively launched in areas such as the strategic adjustment of the layout and structure of the state-owned economy, the implementation of an intellectual property strategy, and the restructuring of monopolistic industries, financial systems, and capital markets. Meanwhile, China’s opening-up is advancing into broader fields, at a larger scale, and at a higher level. As a result, the task of safeguarding national economic security and the public interest has become exceptionally challenging. To ensure the security of national economic information and the protection of public interests, it is essential that large-scale, highly capable, and high-level appraisal institutions independently undertake the appraisal services for key domestic projects.

(3) For the appraisal industry itself, it is an intrinsic requirement to grow stronger, bigger, and better.

The development of the market economy has provided ample room for assessing industry growth, while also posing new demands on the appraisal industry itself. As China’s market economy continues to develop and mature, the scope of appraisal services is expanding, appraisal techniques are becoming increasingly sophisticated, and competition in the appraisal market is intensifying. These trends present new challenges to the appraisal industry and place higher demands on appraisal institutions in terms of talent, technology, quality, and management. Therefore, appraisal institutions urgently need to attract and cultivate high-quality talent by scaling up, strengthening their capabilities, and enhancing their performance; to intensify research into appraisal theory and technological innovation; to implement rigorous quality control measures; and to strengthen internal institutional management—thus building their core competitiveness and further elevating their professional standards and social credibility.

  II. Guiding Principles, Basic Principles, and Development Goals for Promoting the Growth, Strength, and Excellence of Assessment Institutions

(1) Guiding Ideology

Guided by Deng Xiaoping Theory and the Important Thought of the “Three Represents,” we will fully implement the Scientific Outlook on Development, combine it with the actual conditions of the appraisal industry’s development, carry out structural adjustments within the appraisal sector, transform the mode of development for the appraisal industry, further improve the management system that integrates administrative supervision with industry self-regulation, intensify policy support, guide appraisal institutions to grow stronger, bigger, and better, enhance the industry’s social credibility, and promote the sustainable and healthy development of the appraisal sector.

(2) Basic Principles

First, we must liberate our minds and innovate our thinking. In accordance with the requirements of promoting the market economy and fostering the development of the appraisal industry, we should draw on the experiences of other intermediary sectors and overseas appraisal industries to innovate our systems, mechanisms, and institutions, thereby addressing the prominent issues that have been hindering the development of the appraisal industry.

Second, policy guidance and market-driven selection. We need to study and formulate relevant support policies and measures, leverage the guiding role of these policies, and encourage and support assessment agencies in autonomously choosing development models that suit their own characteristics in a market-oriented manner.

Third, we must actively explore and steadily advance. We should proactively explore models, approaches, and methods for helping assessment agencies grow stronger, bigger, and better. We should encourage practices such as mergers, alliances, and restructuring, while providing robust guidance, coordinated oversight, timely summarization, and orderly advancement.

(3) Development Goals

To promote the growth and enhancement of assessment institutions, we must focus on further strengthening their comprehensive service capabilities, boosting the industry’s social credibility, and better aligning with the demands of socio-economic development. “Growing in scale” means that assessment institutions achieve a larger size in terms of business revenue and staff numbers; “strengthening core competencies” refers to assessment institutions possessing robust professional service capabilities and strong core competitiveness; and “improving quality” signifies that assessment institutions deliver high-quality services and demonstrate excellent professional standards.

Over the next three to five years, we aim to cultivate 3 to 5 “flagship” appraisal firms with annual business revenues exceeding 200 million yuan, a staff of 200 appraisers, strong comprehensive service capabilities, and the ability to compete internationally. Additionally, we seek to develop around 30 appraisal firms with annual revenues exceeding 30 million yuan, a staff of 50 appraisers, robust core competitiveness, and the capacity to handle appraisal assignments for large domestic enterprises and listed companies. Furthermore, we hope to foster approximately 100 appraisal firms with annual revenues exceeding 5 million yuan, which are well-suited to regional economic development needs and possess strong regional competitiveness.

Over the next three to five years, we aim to cultivate 10 “assessment masters”—individuals who embody advanced industry cultural values, lead in assessment theory research and technological innovation, excel at nurturing assessment talent, and enjoy widespread social respect. We also seek to develop 100 “renowned assessment experts”—professionals with strong professional ethics, a high level of assessment theory expertise, solid technical skills, and an outstanding reputation for integrity. Together, we will build a team of outstanding appraisers who are dedicated to the appraisal profession, uphold professional ethics, and possess the competence required to excel in their field.

III. Approaches and Requirements for Assessment Agencies to Grow Stronger, Bigger, and Better

(1) Actively explore ways to grow bigger, stronger, and better, and achieve leapfrog development.

Assessment agencies should, based on their own specific circumstances and guided by the principles of equality and voluntariness, actively explore ways to grow stronger, bigger, and better. Assessment agencies are encouraged to pursue strategic alliances between strong players and between strong and weak players, and to achieve scaled, branded, and cross-regional development through mergers, joint ventures, and restructuring. During the process of mergers, joint ventures, and restructuring, it is essential to properly address issues such as changes in equity ownership, personnel arrangements, business continuity, archival management, and legal responsibilities. Moreover, agencies must effectively integrate practice resources, professional standards, and management systems to achieve complementary advantages.

(2) Persist in evaluating technological innovation and actively expand the scope of evaluation services.

Assessment agencies must attach great importance to technological innovation, enhance their R&D capabilities, establish dedicated R&D departments, and actively engage in research on new assessment methods and technologies. Large assessment agencies should allocate no less than 3% of their annual business revenue to R&D expenses. They should also build information databases and actively participate in industry research projects.

Evaluation agencies should pay close attention to market demands, closely monitor policy developments, and strive to explore new business areas. First, they should diversify their service clientele—from focusing solely on state-owned enterprises to providing services to enterprises of all ownership types, government departments, public institutions, and individuals with substantial assets. Second, they should diversify their evaluation services—from traditional statutory appraisal services to other types of appraisals, such as corporate valuation and intellectual property valuation, as well as related consulting services. Third, they should diversify their service regions—from regionally focused services to cross-regional services, and seize opportunities to venture abroad and engage in international appraisal business.

(3) Improve the internal governance structure and strengthen quality control over professional practice.

The assessment agency shall establish and refine scientific mechanisms for the entry and exit of shareholders and partners, incentive and constraint mechanisms, internal decision-making mechanisms, and profit-sharing mechanisms, continuously improving and enhancing its internal governance.

Assessment agencies should strengthen their internal institutional development by standardizing practice standards, refining their internal training systems, regulating business acquisition methods, enhancing quality control measures, and streamlining practice procedures. They should also reinforce internal financial management, establish a practice risk protection system in accordance with regulations to mitigate financial risks, improve their accounting and bookkeeping systems, and strictly report business revenues.

Assessment agencies should improve their quality management mechanisms and establish a chief appraiser system. The chief appraiser, who is either an equity partner or shareholder of the assessment agency by default, shall be solely responsible for reviewing appraisal reports and overseeing internal quality control.

(4) Establish a talent development mechanism and emphasize institutional culture building.

Assessment institutions should place great importance on attracting and cultivating talent, laying a solid talent foundation for growing stronger, bigger, and better. They should develop talent-development plans that align with their own growth strategies, allocating 2.5% of their total payroll from operational costs to employee education funds, thereby nurturing various types of talent that meet the demands of industry development and internationalization. Institutions must establish effective incentive and constraint mechanisms to provide platforms for talent growth and create favorable conditions for talents to fully demonstrate their capabilities. Furthermore, they should strengthen human resource management and set up a robust talent assessment and evaluation system.

Assessment institutions must always place great emphasis on cultural development, strengthen professional ethics education, uphold the principle of integrity in practice, enhance cohesion and solidarity, and foster core values that promote the healthy development of the institution. They should build harmonious assessment institutions that prioritize integrity, demonstrate professional excellence, and take social responsibility seriously.

IV. Improve policy measures to help assessment agencies grow stronger, bigger, and better.

(1) Reform the market access system.

Revise in a timely manner the Administrative Measures for the Approval of Asset Valuation Agencies. Standardize the organizational forms of valuation agencies, allowing them to adopt organizational structures such as limited liability companies, joint-stock companies, general partnerships, and special general partnerships. Standardize the naming conventions for valuation agencies, breaking down restrictions on agency names imposed by various professional qualifications. Standardize the requirements for investors in valuation agencies and broaden the scope of eligible investors. Reform the management of branch offices, improve their operational mechanisms, and select qualified valuation agencies to pilot a group-based model following a parent-subsidiary structure. Clearly define the legal responsibilities of valuation agencies, implement dynamic management of these agencies, and refine the mechanisms for their exit from the market.

(2) Strengthen policy support.

Implement proactive fiscal policies to support the development of the appraisal industry. Provide necessary support for appraisal associations’ overseas training programs for appraisers and for higher education institutions establishing appraisal discipline bases. Appraisal agencies that set up overseas branches, develop overseas appraisal markets, and undertake offshore outsourcing appraisal services may, in accordance with relevant regulations, apply for financial support. We should also strive to secure policy support in areas such as international exchanges and talent settlement.

We must closely align with the needs of socio-economic development and vigorously expand the scope of valuation services. We encourage large-scale, strong, and competitively advantaged valuation firms to provide more specialized services to emerging markets—including administration and public asset management, financial asset management, valuations for corporate financial reporting, intellectual property valuation, tax base assessment, performance evaluation of fiscal funds, and government procurement evaluation. We also encourage these firms to offer more professional services to Chinese enterprises investing overseas and to foreign institutions investing in China. Moreover, we will focus on promoting dynamic valuation of assets and equity values of listed companies. In line with the need to transform government functions, we encourage government departments to procure professional valuation services.

(3) Create a favorable practice environment.

It is essential to effectively break down administrative barriers, industry restrictions, and local protectionism that hinder the development of assessment agencies. We must strengthen communication and coordination with relevant departments and institutions, including those responsible for development and reform, auditing, industrial and commercial administration, housing and urban-rural construction, land and resources, financial regulation, state-owned asset supervision, and securities regulation, to effectively address practices such as administrative interference, commercial bribery, and disguised implementation of secondary market access requirements. We should also standardize the management of bidding and tendering for assessment projects. Furthermore, we need to deepen reforms of the assessment fee system, intensify oversight and inspection of assessment fees, and create a fair and competitive environment for assessment practitioners.

(4) Strengthen industry service efforts.

Industry associations should continue to uphold the principle of “serving their members,” strengthen market analysis and research on emerging markets, accelerate the development of foundational data and information systems, refine the institutional framework for cultivating industry talent, improve mechanisms for rewarding and recognizing members, and enhance the promotion of new assessment outcomes as well as publicity efforts related to industry management and development. It is essential to intensify international exchanges and cooperation, actively promote mutual recognition of membership among international assessment organizations, introduce relevant foreign assessment qualifications, and cultivate and select a group of high-level professionals capable of engaging in international business, thereby creating favorable conditions for assessment institutions to go global. Furthermore, we must make full use of communication platforms with regulatory authorities, clients, and industry supervisory bodies to promptly convey the industry’s demands and effectively address common challenges faced by assessment institutions.

V. Improve and Strengthen the Regulation of Assessment Agencies

(1) Standardize administrative licensing and improve administrative oversight.

In accordance with laws, regulations, and rules, we will strictly review and approve the establishment and changes of appraisal institutions, strengthen subsequent supervision of these institutions, and prevent the phenomenon of "emphasizing approval while neglecting supervision." We will establish and improve communication and coordination mechanisms between the finance department and other relevant departments as well as industry associations, thereby fostering collaborative regulatory efforts. We will refine the system for examining professional practice quality and the annual reporting system for appraisal institutions, severely punish violations, promptly revoke administrative licenses from appraisal institutions that fail to meet the establishment requirements, legally revoke the qualifications of appraisal institutions found to have committed serious violations, and refer suspected illegal appraisal institutions and individuals to judicial authorities for prosecution in accordance with the law.

(2) Leverage the role of the association and strengthen self-regulatory management.

Strengthen the self-regulatory management functions of associations at all levels and implement a tiered management system for group members. The China Association of Asset Appraisers directly assumes the self-regulatory management of appraisal institutions in the securities industry, while local associations focus their self-regulatory efforts on small- and medium-sized appraisal institutions and branch offices that serve the local economy.

Industry associations should further enhance their capacity and level of self-regulatory management, refine the assessment criteria system, improve the quality inspection system for practice, perfect the reporting system for major projects, and refine the registration system for appraisers and the membership management system. They should establish and improve a comprehensive integrity archive system for members, set up a public disclosure system for member integrity, and implement a dynamic update mechanism for integrity archives. They should conduct comprehensive evaluations of appraisal institutions and strengthen guidelines for internal governance within these institutions. Moreover, they should establish an accountability system for violations of professional ethics by appraisal institutions and appraisers, as well as for low-bid competition, and intensify self-regulatory disciplinary measures.

(3) Strengthen Party building within the industry and provide political safeguards.

Industry associations should earnestly implement the spirit of the 17th National Congress of the Communist Party of China and the Fourth Plenary Session of the 17th Central Committee, and strengthen Party building within the appraisal industry. We must intensify efforts to build Party organizations in appraisal institutions; all appraisal institutions that meet the conditions should establish Party organizations. We should enhance the education and management of Party members and establish a comprehensive system for assessing and evaluating Party members. We should innovate the ways in which Party organizations in appraisal institutions carry out their activities, organically integrating Party building with the development of appraisal institutions, thereby enhancing the relevance and effectiveness of Party building work. We should give full play to the role of grassroots Party organizations as fighting fortresses and to the exemplary and leading role of Party members.

VI. Organizational Leadership to Promote the Growth, Strength, and Excellence of Assessment Institutions

The China Association of Asset Appraisers should strengthen coordination, actively implement policies, and take concrete steps to ensure that appraisal institutions grow stronger, bigger, and better, achieving tangible results. The financial departments and local associations in all provinces, autonomous regions, and municipalities directly under the central government must fully recognize the significant importance of helping appraisal institutions grow stronger, bigger, and better. They should earnestly implement all policy measures aimed at enhancing the strength, size, and quality of appraisal institutions, and, based on the specific conditions of their respective regions, proactively develop and formulate targeted measures and approaches to promote the growth and improvement of appraisal institutions in their areas and foster the scientific development of the appraisal industry.

Ministry of Finance
December 29, 2009

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