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China: Law on Enterprise State-Owned Assets Passed

(Nov. 25, 2008) On October 28, 2008, after years of debate and repeated revisions, the Law on Enterprise State-Owned Assets of the People's Republic of China was approved by the Standing Committee of the 11th National People's Congress (NPC). Effective from May 1, 2009, the Law is designed to strengthen protection and management of the state-owned assets.

The 77-article Law will oversee wholly state-owned enterprises and companies, state holding companies, and companies in which the state holds shares (collectively defined in the new Law as State-Invested Enterprises (SIEs)) (art. 5). (Text in Chinese, XINHUANET, Oct. 29, 2008, available at The Law excludes assets owned by government agencies and state-owned natural resources such as land, forest, mines, and water.

State-owned financial assets, which were not clearly regulated under previous drafts of the Law and existing financial regulations, were covered in the Law's final draft, even though they may also be subject to other specific regulations (art. 76). The Law provides that the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) is authorized to represent the government in performing investor functions in SIEs; other departments or agencies may also be authorized to do so. These commissions, departments, and agencies are collectively referred to as “agencies performing investor functions” (art. 11). Currently, the SASAC oversees about 150 central-level, non-financial state-owned business giants; state-owned financial institutions, however, are supervised by the Ministry of Finance and the central bank. Up to the end of 2007, central-level financial enterprises were estimated to hold state-owned assets valued at RMB1.2 trillion (about US$176 billion). (Li Shuguang, Innovation and Breakthrough of the Law on Enterprise State-Owned Assets [in Chinese], LEGAL DAILY, Nov. 2, 2008, available at

Specific provisions of the Law are designed to reduce administrative interference in SIEs and require the government to perform its investor function according to law. Still, the State Council may decide on the “important” wholly state-owned enterprises and companies and state-holding companies whose merger, separation, dissolution, bankruptcy, and other important matters need to be approved by the government (art. 34). Agencies performing investor functions are also entitled to appoint and remove an SIE's management or make suggestions on such appointments and removals (art. 22).

The Law defines an SIE's directors, supervisors, senior executives and their close relatives, and enterprises owned or controlled by these people as its affiliates (art. 43). Wholly state-owned enterprises and companies' transactions with their affiliates will be subject to approval of the agency performing the investor's function (art. 45). If “malicious collusion” is found to have taken place in transactions with affiliates or in transactions involving the transfer of state-owned assets, leading to a loss of the state assets, the transaction will be deemed invalid (art. 72). The Law also stipulates that transferring state-owned assets to foreign investors is subject to relevant regulations and may not harm national security or the public interest (art. 57).