The State asset management body said yesterday it would try to establish a capital budgetary system for enterprises directly controlled by the government this year.

"We have had numerous negotiations with the Ministry of Finance (MOF) and have been actively preparing for (the system)," said Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC).

He made the comments during yesterday's national work conference on State-owned assets management. The conference closes today.

The State Council has already given its approval to SASAC to set up a new company to manage State-owned assets, according to a report by the China Securities Journal.

The new budgetary regime for State capital is expected to require State-owned enterprises to hand over some of their profits.

The commission may use some of that money to help replenish the capital of under-funded State enterprises or finance the exit of State companies from competitive sectors, Shao Ning, SASAC's deputy director, said in December.

The funds can also be used for investment to appreciate the value of State assets.

The move is in line with the national strategy since 1997, when the Party held its 15th National Congress and decided to adjust the layout of its State enterprises.

SASAC has been experimenting with the budgetary system in certain localities in recent years. Local bodies have been organized to manage investment using capital pooled from State enterprises.

Li said such investment had "improved the efficiency of (State) capital and strengthened the power of those enterprises."

The practise will become part of the national State capital budgetary regime, which is under discussion.

Since the early 1990s, when they performed poorly, most State enterprises have been allowed to retain their profits for re-investment to help them develop faster. But as the coffers of State enterprises have filled, the public has grown increasingly dissatisfied, demanding that they share their profits with the State.

The MOF reportedly drafted a rule in June for the establishment of a national budgetary system for State assets. If it is approved, the 120,000-plus State enterprises nationwide, including the 159 central firms, will start paying dividends to the State.

The MOF will be responsible for making the national budget while the SASAC will have the power to decide on the budgets of the central enterprises, according to media reports.

Li also said SASAC would press on with the share-holding reform of State enterprises and improve their corporate governance.

"The listing of eligible large- and medium-sized State enterprises overseas will be actively pushed ... to make them stronger."

China's State enterprises earned 965 billion yuan ($123.7 billion) in profit last year.

The 159 central State enterprises earned profits of 754.7 billion yuan ($96.8 billion) during the same period, up 18 percent over 2005.

The amount accounted for 78 percent of the overall profits of all State enterprises.

(China Daily 01/26/2007 page3)