1 Wenhui Daily: I’ve three questions. Could you tell us something about the plan for the listing of state-owned assets in Shanghai? A news report said 70 billion yuan worth of non-operational state-owned assets will be listed by 2010, could you confirm on that? As to the sale of non-tradable shares, what’s the plan of the Shanghai State-owned Assets Supervision and Administration Commission? Second question, the Guidelines specifies policies on supporting Shanghai enterprises getting listed, what are the detailed plans for that? Third, how is the program going to cancel the administrative ranks of enterprises and their leaders?

　　Yang Guoxiong (director of the Shanghai State-owned Assets Supervision and Administration Commission): About the first question, I’ve said that the city’s state-owned assets total 1.0222 trillion yuan, including 72 billion yuan worth of operational assets. I also read the news report saying 70 billion yuan worth of assets would be listed within three to five years. Shanghai has 72 listed companies, both state-owned and state-owned shareholding companies, with equities exceeding 100 billion yuan, accounting for 17-18 percent of the 700-plus billion yuan of operational assets of the city. I also noticed that the news report cited a figure I mentioned at a meeting at the beginning of this year. I believe a big part of the good-quality assets in the city’s state-owned assets, including district-level state-owned assets ,has yet to be listed, but only 18 percent of the assets are listed now, so there will be a lot of work to do. It’s our goal to get 30 percent of more of the assets listed within three to five years. The figure of 70 billion yuan must have been figured out by the journalists. It’s generally like this.

　　About the non-tradable shares, I must make it very clear that we encourage enterprises for group or core-business listing. This aims at two goals: one, to make the best use of the capital market, and two, to improve the institutional structure and transparency of supervision of the state-owned assets. I’ve read many newspaper reports on the non-tradable shares. The stock market’s up-and-downs have dealt a big blow to the non-tradable shares sale. I can tell you that the sale of non-tradable shares in Shanghai, especially the big non-tradable stocks, is carried out closely in line with the No. 108 and No. 109 files of the State-owned Assets Supervision and Administration Commission of the State Council and the No.19 circular issued by the State-owned Assets Supervision and Administration Commission of the State Council and the China Securities Regulatory Commission, which set rules on transference of the stock right owned by a state shareholder in a listed company. To ensure the city’s state-owned assets flow to key sectors and highly competitive businesses, we also set a minimum level for stock in a listed company. After the ban on non-tradable shares is lifted, the number of those shares in circulation will account for less than one-ninth of the 30 billion-plus shares, according to the average minimum level of 36 percent now. Given the current situation in the stock market, I suggest companies under the management of the city’s State-owned Assets Supervision and Administration Commission not circulate the non-tradable stocks, and this is also the idea of the administration.

　　As to the management of the big non-tradable shares, we have established a system of management based on the stock accounts, which will keep track of the changes in the shares held by a state shareholder in transferring the shares of a listed company. Please rest assured that the big non-tradable stocks of a state-owned shareholding company are put under a supervision system

　　The second question is about the scenario of open restructuring. City leaders have said at several meetings that we should not set quotas but should set goals. About the restructuring program, the State-owned Assets Supervision and Administration Commission of the State Council plans to expand it to 80 to 100 companies within three to five years. According to the Guidelines, some operational assets will be put under the management of the State-owned Assets Supervision and Administration Commission, though it is not clear now how many companies will be involved. Currently 43 companies are involved, but I’m sure that the number will drop to between 30 to 35 in three to five years. The detailed plan is that we encourage state-owned assets and enterprises to shift to key sectors and highly competitive businesses. The two principles that the State-owned Assets Supervision and Administration Commission should follow in the process of open restructuring, I think, is that, one, the businesses must be linked by a certain industrial chain. The cooperation between Shanghai Automotive and Nanjing Automotive and the diesel engine unit of the Electric Group joining the Automotive Group last year and the recently completed restructuring at the Industrial Burner Institute and Shanghai Electric Group are all completed as there were industrial chains involved, otherwise it would have been considered a result of pure administrative order. Two, I think we should pay attention to what people are thinking about. As to which groups will undergo enterprise restructuring, we haven’t yet set a quota for this year or next year. It is up to the State-owned Assets Supervision and Administration Commission to decide how to distribute the industries in Shanghai given the city’s per capita GDP of between US$8,000 and US$10,000. The interest in too many sectors will lead to a swamping effect, and this is also what we should focus on.

　　Feng Wei (secretary-general of the Organization Department of the CPC Shanghai Committee): To cancel the administrative ranks of enterprise leaders is mainly for the good of the growth of the enterprises. The management of the enterprise leaders will not follow the approach in managing Party and government officials. For example, their administrative ranks will be dropped, their administrative, social security, salary and organizational credentials will be transferred to the businesses, and they are managed as enterprise leaders and will retire from the business at a due age. In this way, enterprise leaders and Party and government officials will be managed in separate ways.

　　2. China Business News: My question is that, as mentioned just now, local protectionism is an obstacle in promoting the state-owned assets’“four-cross”movement, and how should the Shanghai State-owned Assets Supervision and Administration Commission coordinate in case it comes across such protectionism in other regions? Will you give priority to the structuring of the local state-owned enterprises at present? My second question: the non-core assets will be managed by capital management companies, and are there requirements on the qualifications of capital management companies? And will the policy favor medium and small enterprises, especially those privately run businesses?

　　Yang Guoxiong: The local protectionism should be abolished, however, it is sure to exist, I think, for quite a long period of time. About restructuring, it will be convenient within an industry or within the state-owned assets sector or within Shanghai, but local protectionism will arise if it involves other regions or other industries. As director of the Shanghai State-owned Assets Supervision and Administration Commission, I will be a pioneer in abolishing local protectionism during when the reshuffling of Shanghai’s state-owned enterprises involves businesses in other provinces or centrally administrated state-owned businesses and will solve the problems by following the market rules.

　　About the non-core assets, the Shanghai State-owned Assets Supervision and Administration Commission has published four batches of the names of the assets management enterprises for the state-owned assets sector, including their major business. The enterprises should have at most three major businesses. The major business and minor business complement each other, and they should co-exist for a period of time. But we think the enterprise should highlight their major business and give priority to it to give it full play, and this will ensure a good outcome. After separation from the major business, the minor business will not be put under complete control of the assets management company. Instead it will be handled in a professional way. If the assets were put under management by only one or two assets management companies within the state-owned assets sector, the returns wouldn’t be high. That’s why it’s clearly said in the Guidelines that the centrally administrated state-owned enterprises, locally administrated state-owned enterprises, foreign companies and privately run enterprises are all welcome to participate in the restructuring of the minor business and the part that needs to separated from the state-owned assets. Actually, we have already contacted the above-mentioned businesses, and the results of the restructuring program will unfold within this year.

　　3. Shanghai Television Station: Director Yang said the Guidelines highlights the combination of opening and market-oriented restructuring. Does your commission have detailed plans to implement the Guidelines and have a list of enterprise that will undergo restructuring? Many reports talked about the restructuring of state-owned enterprises in Shanghai, and some said your commission is behind the program, could you confirm on that? Another question is about the reform of the state-owned assets system. Many people believe the functions of the State-owned Assets Supervision and Administration Commission are not well defined. Does the Guidelines specify any measures to improve the supervision mechanism of the State-owned Assets Supervision and Administration Commission? Thank you!

　　Yang Guoxiong: Thank you. For the open and market-oriented restructuring program, we don’t set any quota, but we definitely have goals, as the program is quite complicated. The restructuring goes like this, first the enterprises will“date”each other, and then my commission will offer guidance and encouragement, and after that the city government will give the go-ahead. Release of the names at this conference might spell some unnecessary trouble, and I’m sorry to keep the name list back from you now. However we have set the direction of guidance, namely, the strategic investors must fit the city’s industry development direction and the enterprise’s major business growth, and contribute to the long-term development of an enterprise. During the restructuring process, my commission will not only offer service but exercise necessary supervision. Shanghai has been included in the pilot cities named by the Central Discipline Inspection Commission to try out the“three more emphases”program. As to our role, we will offer strict protection during the process to ensure smooth transfer, and our work has to stand test of time.

　　As to the report that says my commission is promoting the program, I must emphasize that the enterprises take the center stage, and the commission is only a guide and promoter. Some reports said the commission didn’t communicate with media outlets in a timely way, and we’ll improve on that. On the other hand, I also noticed that a small number of media outlets published reports commenting on the city’s business performance or predicting who will have this asset or that asset. I, as the commission director, don’t like these irresponsible reports. In the future, we’ll communicate with you in a timely manner, but we don’t like irresponsible reporting, which will only bring unfavorable influence on the adjustment of industrial structure and asset restructuring.

　　The positioning of the State-owned Assets Supervision and Administration Commission has been specified by the 16th CPC National Congress, namely,“three unifications, three combinations, three separations,”and separate the government from enterprise and owner from the operator. As required by that rule, the Shanghai State-owned Assets Supervision and Administration Commission was established in August 2003. The commission has done a lot of work. The Guidelines also covered the positioning of the State-owned Assets Supervision and Administration Commission. I think the positioning has four aspects:

　　One, to perform its duties according to the law and exercise its rights in strict accordance with the Company Law and the supervision regulations but avoid vacant post, bound overstepping and role muddling.

　　Two, to protect the owners’rights and exercise strict supervision over the state-owned assets put in its charge and ensure the state-owned assets stand against inflation and appreciate in value.

　　Three, to uphold the rights entitled to an enterprise as the market mainstay and separate the ownership right from management right. It will perfect the institutional management, outside director and board systems. It will transfer four kinds of rights to the board of directors, namely, recruitment of managers, assessment of managers, major business, and assets disposal. The State-owned Assets Supervision and Administration Commission is sorting out its scope of approval rights and we promise never to take over any extra right.

　　Four, to improve the open and transparent degree of the supervision over state-owned assets, report to society, the legislature and the political advisory body on a regular basis, and voluntarily put itself under supervision by people from all walks of life.

　　Last but never least, the State-owned Assets Supervision and Administration Commission can never be all-inclusive as its strong point lies in supervision of assets and ensure that state-owned assets stand against inflation and appreciate in value. The growth of an enterprise is also attributable to a lot of work by various government departments. So the State-owned Assets Supervision and Administration Commission has set its guideline as“Remembering Mission, Redefining Position, Joining Other Departments, Serving Enterprises”to render better services. I’m sure the positioning of the Commission will be more and more accurate as it keeps exploring and perfecting its services. After all, I think its positioning is basically correct. Thank you.

　　4. 21st Century Economic Herald: I’ve three questions. One, as we know, at a meeting in late August, the State-owned Assets Supervision and Administration Commission was seeking to draft strategic plans for 2008-2012 for the six industrial conglomerates, including Bailian, Shanghai Automotive and Shanghai Electric. I’d like to know what general rules you have set for the open and market-oriented restructuring of businesses like Bailian and Shanghai Electric. Bailian once set a three-step strategy, which has yet to be finished, and Shanghai Electric, as I know, had plans to team up with Siemens after the restructuring started. Will such plans be raised again for discussion during restructuring in the future?

　　The non-operational assets will be entrusted to trustworthy companies. Among the 42 companies named, only three will retain real estate as their major business. However, as we know, in the past few years, real estate has been the cash cow for many state-owned companies in Shanghai. Because of this historical reason, many state-owned industrial groups still have a large amount of land or land reserve. How shall these land assets be handled, will they be entrusted to capital management companies or transferred to the three companies that keep real estate as their major business or auctioned off? And what about the large amount of land Nonggongshang group has on Chongming Island? The last question is for you two. Will there be a recruitment competition procedure for the outside board director and other section of the institutional management structure? If so, what respective roles will the State-owned Assets Supervision and Administration Commission and the Organization Department play, or how shall the Commission, the Department and the enterprise coordinate? Thank you!

　　Yang Guoxiong: We’ll decide on a basic workflow for drafting the strategic plans for the six business conglomerates. In the past, it worked like this: The planning section of the State-owned Assets Supervision and Administration Commission and the enterprise would work out a draft plan to be discussed at a directors meeting. I joined a discussion once, and felt that it was impossible for the Commission to come up with such a plan if it was shut away from the enterprise. So the strategic plans are now entrusted to experts from the various government departments and society. Assets of the Commission, either industrial type or non-operational or research institute, are distributed in the agricultural, manufacturing and service sectors, so it’s very complicated and each person’s ability is limited. That’s why we have now opted to put the strategic plan to appraisal by an expert assessment committee, and we have published it online, which you may have read. About Bailian group, the group-level management after the restructuring has yet to improve its control and influential power. Siemens is still cooperating with Shanghai Electric, mainly in transformer station equipment. As to any plans for the Siemens and Shanghai Electric to cooperate at the group level, there is none so far. About the land reserve, the land owned by business groups has different types of purposes, and only the type six can be used for real estate development and most are for industrial use. The land of Nonggongshang is basically agricultural land, not for construction use. As for the minor business, it cannot be entrusted all to the assets management companies because it will be listed and traded at industrial exchanges through society, foreign fund and private business.

　　About the institutional management structure, the Organization Department manages the human resources on behalf of the CPC Shanghai Committee, and I, on behalf of the Commission and the Party’s branch committee at the Commission, manage the enterprises under the Commission. The general rule about the institutional management agency and outside director, I think, is that the outside director system is not a cure-all for the current personnel management problems inside the board of directors but it is at least a step forward. I don’t think any reform should only aim for the ultimate goals, it should aim at breakthroughs instead, and this is what we’re trying to do. The point I what to emphasize again is that the outside director system is not a cure-all for the current personnel management problems inside the current board of directors but it will be much better than the existent board of directors system for internal personnel management. The general rule for the recruitment of managers is that it should be geared toward the market regulations. We’ve already set a plan for hiring the outside talent, and next secretary-general Feng will give you more details.

　　Feng Wei: We’re still studying the plan. We’ve some outlines but the details have yet to be worked out. For the recommendation and recruitment of outside directors, we plan to borrow experiences in the construction of centrally administrated state-owned businesses. For those businesses with multiple sources of investment, we plan to try the outside director system in line with the style of assets management; for example, the chairman will be in charge of the long-term strategy. Director Yang just now mentioned the outside director system, and I think in the institutional management system, one of the most key issues is the recommendation of the outside directors. Our general plan is to choose some enterprises to pilot the outside director system and the state-owned investors will assign the outside directors. For now, our plan is that the number of outside directors should be bigger than the number of inside directors to solve the problem of internal personnel management. The majority of the board of directors comes from a company’s management now, which is in fact a serious personnel overlapping. This issue can be controlled by hiring the outside directors. To enhance the construction of the outside director system, we have started working on the measures of managing the outside directors, spelling out clear rules on the recruitment and salaries of outside directors. To standardize the recruitment of outside directors, we’re exploring the ways to establish a committee for assessing the qualifications of directors and put it in charge of hiring outside directors.

　　5. China Business Weekly: I’ve two questions. First, we feel that the approach you have established is open and market-oriented. As we know, the reform of state-owned assets in Shanghai in 2003 was considered to be loaded with administrative orders. I’d like to know what experiences and cases you have learned from before you decided on the approach for this round of reform. The second question is about the salary system. Director (of the State-owned Assets Supervision and Administration Commission of the State Council) Li Rongrong also talked about the salaries of workers at centrally administrated state-owned businesses. According to this round of reform, the administrative ranks (of business leaders) will be canceled, the board of directors system will be improved, and professional managers will be hired. Is it possible that the board meeting can decide that a business manager is paid tens of millions of yuan?

　　Yang Guoxiong: I’ll answer the question about salaries first. I hereby give you some information on the salaries. There are 47 businesses that are under the management of the city State-owned Assets Supervision and Administration Commission. Their leaders earned an average of 400,000 yuan (before tax) a year as of the end of 2006. For last year, we’ve just discussed it at a director meeting, the average was about 430,000 yuan (before tax), and it ranged from 700,000 yuan to 150,000 yuan. The salary gap has been decided following our strict assessment, and it indicates that is never a“big-pot”distribution system.

　　Second, salary has been a hot issue of public interest, especially the salary of the bosses of state-owned businesses. This is natural, I think. Given their efforts the bosses put into their work, the 300,000 yuan before tax cannot be considered a high salary. However, their jobs don’t subject them to enough risks, and the stability level is too high. That’s why we have emphasized in the Guidelines and the four documents of the Organization Department of the CPC Shanghai Committee that the managers must be recruited according to the market rules.

　　In fact the idea of market-oriented open restructuring was put forward in the Resolutions by the CPC Central Committee on Key Issues Concerning Reform and Development of the State-owned Enterprises issued by the fourth plenary session of the 15th CPC Central Committee. Maybe we’ve implemented the Resolutions not strictly enough, and so we have to take a further step and do a better job. Given the loose layout of the industrial sectors as I mentioned just now, the general plan for the next step in this round of restructuring is to concentrate further on the key sectors and advanced manufacturing businesses, on the modern service sector, modern manufacturing sector and leading industries.

　　6. China Business Weekly: About the salary, it will be much higher if a manager is hired from aboard. Have you thought about this?

　　Yang Guoxiong: Market rules must be taken into consideration, and if his or her salary is not geared to the market, it doesn’t work. Yesterday the city government called a special meeting on preferential policies to support the growth of enterprises, and the meeting answered questions about this issue.

　　It is possible that the salary of the general manager hired from the market is higher than that of the chairman. The three-year term has a clear-set goal, and if the goal is reached, the salary is paid according to the agreement and market rules; otherwise, the general manager should be sacked. Actually, we’ve started the practice. Take Philip Murtaugh, formerly the executive vice president of Shanghai Automotive Industry Corp. If he had been paid about half a million yuan a year, as paid to SAIC managers, it would have been far from enough and impractical as he had been the chairman of General Motors China. You don’t have to worry about this because we’ll handle it according to the market disciplines and rules.

　　7. Shanghai Businesses Daily: Director Yang just now said the restructuring of the state-owned assets is to a great extent related to the capital market. So is the current capital market favorable or unfavorable to the restructuring and reform of the state-owned assets in Shanghai? The other question is about the incentive of stock right. It is generally believed that Shanghai has said enough but done little. Do you have further plans for stock right motivation program?

　　Yang Guoxiong: Shanghai-listed companies have tried on stock right motivation program. I don’t know whether you have noticed that Jiahwa has piloted the program, and the approval procedure is quite complicated. I mentioned short-term incentive and long-term incentive as I briefed you on the Guidelines, and that’s what we’re going to do.

　　About the influence of the capital market on the state-owned enterprises, I think every coin has two sides, whether in bull market or bear market. Like the current market, it is, I think, a good chance for restructuring. So we haven’t dragged our steps this year, but have done a lot of assets restructuring in the first half year, as you have seen.

　　Chen Qiwei: Thank you all for today’s press conference.