After a 15-year lawmaking process, the Enterprise State-owned Assets Law (Law) was promulgated on October 28 2008 to strengthen the supervision and administration of operational state-owned assets (equities arising from capital investment by the state in enterprises, SOEs), while other types of state-owned assets such as the assets of governmental and administrative agencies and the nation's resources are regulated by other rules. The Law will come into effect on May 1 2009.
The Law prohibits the SOEs' related parties from entering into dealings with the SOEs to seek unjust interests with prejudice to the interests of the SOEs. Among other things, SOEs that are wholly owned or controlled by the state will not provide funds, commodities, services or other assets without compensation, nor shall they enter into transactions with their related parties at an unfair price. The Law defines related parties as directors, supervisors, senior management personnel and their close relatives and enterprises owned or controlled by such parties.
The new law reaffirms that, apart from transfer by agreement permitted by law, transfer of state-owned assets should be publicly conducted at the title exchange, with the transfer of the tradable share listed on the stock market handled in accordance with the Securities Law of China.
Under the Law, if a malicious collusion is found to have taken place in the related party dealings or transfer of state-owned assets to cause a loss of state-owned assets, such dealings or transactions will become void.
The Law also sets forth the general provisions on SOE restructurings, asset appraisal and the selection and evaluation of the managers of the SOEs, as well as the legal liabilities for violators.
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