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Policies Applying to State-Owned Enterprises

China’s state-owned enterprises (SOEs) play a major role in overseas investment and project contracting, and they are often involved in many of the largest overseas projects. It can be challenging to obtain information from Chinese SOEs or to receive responses to requests for meetings. SOEs tend to engage directly with host-country governments and local business partners, and they often do not engage effectively with local communities and civil society groups.

SOEs often come under more scrutiny overseas than private enterprises due to their connections to the Chinese state. If an SOE is connected to problems overseas, this can reflect badly on the Chinese government. This has led the government to pay increasing attention to the way SOEs operate overseas.

Pressure is growing on SOEs to improve their efficiency, increase profits and operate in a more transparent way. In recent years, the Chinese state has also encouraged SOEs to improve performance in overseas projects and strengthen corporate social responsibility practices. You may be able to reference these policies in your advocacy if you are looking at the operations of an SOE.

Practical Advice: Finding out if a company is state-owned or not

It is important to know whether the company you are looking at is state-owned or not.

Just because a company is very large or investing a lot of money in a project, it does not necessarily mean that it is state-owned. SOEs receive strong support from the Chinese state in facilitating overseas investments, but private enterprises are also en couraged by the state to expand overseas. In some cases, Chinese investment and trade delegations may be accompanied by government officials along with executives of both state-owned and private enterprises. This sometimes leads to private enterprises being misidentified as SOEs.

On the other hand, some smaller SOEs (especially those that are not directly owned by central or provincial governments, but instead are subsidiaries of those SOEs) may not be that different from private enterprises in their pursuit of commercial interests. These companies do not necessarily have special access to state support. Nevertheless, their identity as state-owned companies means that they are subject to regulations targeting SOEs.

Doing an online search is usually the best way to find out a company’s background. If the company has a website, look for annual reports or the “About Us” page, which will usually indicate if the company is state-owned. If you cannot find a company website, searching other online resources may be useful.

The inclusion of “China,” “National” or “State” in the company name can be a good indicator that the company is state-owned, such as China National Petroleum Corporation. If a company name includes the name of a province, it may be a provincial SOE, such as Wuhan Iron and Steel Group. However, this should be verified with other sources.

A list of central non-financial SOEs can be found here and central financial SOEs here. These are the group companies, and they typically each have tens of second-tier subsidiaries and through those subsidiaries may have hundreds of third-tier subsidiaries. It is important to find out which parent group a SOE ultimately belongs to, as it may be easier to contact their group headquarters, which may be more concerned about the group’s reputation than the individual subsidiaries. The website of the group parent company usually lists all the subsidiaries the group controls.

Central SOEs are under the oversight of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council. The commission audits SOEs and has the power to inspect overseas projects. If you are concerned about the conduct of an SOE, it may be useful to share these concerns with SASAC and request intervention. SASAC is a high-level body and generally not responsive to community engagement. However, raising concerns to its attention may prompt it to monitor the project more closely, or even to take action in case of non-compliance.

In 2017, SASAC released its Measures for the Supervision and Administration of Overseas Investment by Central Enterprises (SASAC [2017] #35) , which is a binding document . Under these measures, overseas investments by central SOEs are subject to additional approval procedures by SASAC, before submitting applications to the National Development and Reform Commission and the Ministry of Commerce. SASAC screens the projects based on a “negative list” that is not public. Investments falling under a “prohibited” category are not allowed, and for those under the “special supervision” category, the feasibility study, due diligence and risk management report will be examined.

Among other things, the measures state that central SOEs should comply with the laws and regulations, business rules and cultural practices of the countries in which they invest and operate (Article 6). Under the measures, SASAC has the power to conduct random supervision and inspections of central SOEs (Article 16). It also requires central SOEs to “strengthen public relations-building with the government, media, companies, and communities in the host country or region, actively implement corporate social responsibility, pay attention to cross-cultural integration, and construct a benign external environment” (Article 28). The measures have a strong focus on risk prevention and mitigation, and companies will receive warnings if non -compliance leads to “negative impacts,” or receive punishment if loss of national assets occurs. If you feel that a project implemented by a central SOE has created environmental and social risks, it may be useful to document the potential impacts and how they create legal, operational, financial or reputational risk to the project.

Some policies on SOE risk management and compliance also cover overseas operations. SASAC issued its Guidance on Strengthening the Legal Risk Prevention in Central Enterprises’ International Operations in 2013. It requires Central SOEs to ensure their overseas subsidiaries comply with the laws and regulations in the host countries, including proper information disclosure, ensuring the rights of the employees, avoiding labor disputes and environmental protection (Article 7 – 9). In its 2018 (Interim) Guideline on Central Enterprises’ Compliance Management, SASAC requires central SOEs to regularly monitor their overse as subsidiaries’ compliance with host country and international laws and regulations (Article 16).

Practical Advice: Communicating with the State-owned Assets Supervision and Administration Commission (SASAC)

Central SOEs are under the supervision of the central SASAC in Beijing. There are just under 100 central SOEs. If you wish to raise concerns about a project owned by or contracted to one of these enterprises, you may consider writing to SASAC in Beijing and requesting intervention.

SOEs from the provincial level and below are supervised by SASAC of the corresponding provincial or municipal governments. If the company you are looking at is a sub-national state-owned enterprise, you can write to SASAC or its corresponding sub-national office directly.

The documents discussed above relate to central SOEs. The provincial SASACs will usually follow the central SASAC and issue guidelines for their provincial SOEs. However, you may still reference the central rules in communication with provincial SOEs and provincial SASACs, as the rules will likely be similar. You may also be able to find the specific provincial guidelines by visiting the provincial SASAC websites, although these sites will be in Chinese only. For a list of websites of the various subnational SASAC offices see here.

It is unlikely that you will receive any response from SASAC. However, by communicating with this institution, your concerns will hopefully be recorded and this could lead to additional scrutiny by the commission that may trigger punishment, depending on the nature and impacts of the non-compliance.