State-owned Assets Control: A First Step For Reform

Fangda Partners

The PRC Ministry of Finance (MOF) issued an opinion on December 28 2001 (关于改革国有资产评估行政管理方式加强资产评估监督管理工作的意见, Reform of the Executive Administration on State-owned Asset Valuation and Strengthening the Regulatory Work on Asset Valuation Opinion, the Opinion) that has greatly impacted China's present system of state-owned assets valuation and control. Though somewhat overlooked, this important MOF legislation is possibly a precursor to further change in the government's position on assets valuation.

The present system is based on the Administration of State Asset Valuation Procedures (国有资产评估管理办法, the Procedures) adopted by the State Council in November 1991, and implementing rules issued by the state-owned Assets Administrative Bureau (the State Bureau)¹ in July 1992. These two administrative documents require all Chinese entities possessing state-owned assets (not just state-owned enterprises, but also all companies and entities with state-owned enterprises/companies as shareholders) to go through the assets valuation and confirmation process sanctioned therein. As the first step of the process, the relevant entity should apply to the State Bureau or its competent local counterpart for the approval of the "valuation" project. After such approval is granted, the entity must retain a qualified valuer to make the valuation. Before the entity enters into the underlying transaction involving the said assets, it should submit the valuation report to the same authority for its review and confirmation, and according to the implementing rules of the Procedures, the appraisal result as confirmed by the authority should be the bottom line of the transaction price.²