The 161 state-owned enterprises (SOEs) controlled by the Chinese central government will lose the privilege of holding on to their profits, which totaled 75 billion U.S. dollars in 2005, when China changes accounting regulations for state-owned firms.

"Establishment of the new accounting system for state-owned enterprises should be sped up," said Chinese Premier Wen Jiabao when he presided over a regular meeting of the State Council.

Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), told a recent forum that the SASAC will compile the capital operation budget of central SOEs in 2006. The budgets of other SOEs will be compiled by the Ministry of Finance.

Originally, China's SOEs handed over all their profits to government financial departments, and in turn drew from them the funds they needed for investment.

After the taxation reform in 1994, SOEs were allowed to retain after-tax profits, but had to pay higher tax than private and foreign-funded companies. As a result, many SOEs have run at a loss for a long time.

"The significance of the new measure lies in the fact that it will force SOE managers to focus on protecting shareholders' interests and pay much more attention to investment returns," said Li.

SOEs supervised by state-owned assets administrations in Beijing, Shanghai and Shenzhen have already begun handing over some of their gains to the administration. The figure for Beijing and Shanghai is 20 percent of net profits.

But no decision has yet been made on whether central SOE profits will be handed over to the SASAC or entrusted to asset-management companies.

Source: Xinhua