Viewpoint... Analysis of the new breakthrough in the circulation of state-owned assets-from the State-owned Assets Supervision and Administration Commission No. 39.

Document No. 39 further clarifies two directions for the circulation of state-owned assets transactions, in short, strict adherence to the "red line" and reasonable "decentralization". First, strictly observe the red line: strictly prevent the loss of state-owned assets and continue to increase supervision, especially to maintain the control position of state-owned assets in important industries and key areas; second, reasonable decentralization: encourage the transfer of state-owned assets transactions, which is reflected in two aspects: On the one hand, through the sinking of approval authority and further expanding the scope of application of relevant rules of Order 32, the system is more suitable for business practice and helps to play the role of capital leverage, maintain the preservation and appreciation of state-owned assets to further meet the needs of the system for the transfer of state-owned assets (refer to the figure below). On the other hand, Circular 39 has created new provisions to supplement the unspecified parts of the "Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises" (hereinafter referred to as "Order 32"). Some scholars believe that Act 39 is the first amendment to Order 32 and can be regarded as the first amendment to Order 32. The author believes that from the perspective of effectiveness, Circular 39, as a normative document of ministries and commissions, cannot surpass Decree 32 as a ministerial regulation. Circular 39 is to implement the basic principles and spirit of Decree 32. The extension and expansion of its content aims to further improve the layout of state-owned enterprises, increase the integration rate of resources, and face the actual problems of state-owned assets to give enterprises greater decision-making initiative.

As shown in the figure above, No. 39 expands the scope of application of the non-public agreement transfer method. Decree No. 32 first established the principle that state-owned assets transactions are mainly public listing and transfer, supplemented by non-public agreement transfer, and provided for the application of public listing and non-public agreement transfer, approval agencies, pricing methods and other matters. As an exception to the principle of public listing transfer, the path of non-public agreement transfer is necessary for some state-owned property rights transactions that are not aimed at obtaining the highest income. As expanded by No. 39, the applicable circumstances for the transfer of non-public agreements in the circulation of state-owned transactions can be divided into the following three categories:

(1) Transfer path of non-public agreements under Decree 32: Restructuring of state-owned enterprises in major areas

Article 31, paragraph 1, of Decree No. 32 "involves the reorganization and integration of enterprises in important industries and key fields that are related to national security and the lifeline of the national economy. There are special requirements for the transferee, and the property rights of the enterprise need to be transferred between state-owned and state-owned holding enterprises. With the approval of the state-owned assets regulatory agency, the transfer method can be adopted by non-public agreement". Regarding what are "important industries" and "key areas", the Q & A selection on the SASAC website on August 28, 2018 clarified 9 industries and 9 areas: lifeline industries, including military and national defense technology, power grid power, petroleum and petrochemical, 9 industries including telecommunications, coal, civil aviation, shipping, finance, and culture; key areas, including major equipment manufacturing, automobiles, electronic information, construction, steel, non-ferrous metals, chemical industry, survey and design, science and technology 9 fields.

The above is intended to provide a channel for directional transactions for the reorganization and integration of property rights of state-owned enterprises in key industries and fields. However, since this situation requires special approval by the SASAC, the scope of the project to which it is applicable is relatively small.

(2) Non-public agreement transfer path II under Decree 32: reorganization and integration within the same group.

Article 31, paragraph 2, of Decree No. 32, "Where property rights are transferred between the same state-funded enterprise and its holding enterprises at all levels or enterprises under actual control as a result of the implementation of internal reorganization and integration, the state-funded enterprise may adopt a non-public agreement transfer after deliberation and decision-making." That is, the reorganization of property rights within the group. Because the approval authority is a state-funded enterprise rather than a state-owned regulatory authority, and allows the audited net assets as the basis for valuation (Article 32 of Decree 32), the difficulty of approval is greatly reduced, which is more common in the case of non-public agreement transfer.

From the provisions of Order 32, the scope of application of non-public agreement transfer is very limited. With the deepening of the reform of state-owned enterprises, the reorganization and integration between state-owned enterprises led by the government or SASAC is becoming more and more frequent, for the transfer of property rights of such enterprises, Order 32 does not provide for the application of non-public agreement transfer, No. 39 has been supplemented and clarified, as described below.

(3) No. 39 new non-public agreement transfer path: cross-group corporate restructuring and integration.

Article 1 of document No. 39. That is, "involving major matters such as the optimization and structural adjustment of state-owned capital led by the government or state-owned assets supervision and management institutions, as well as professional reorganization, the transfer of enterprise property rights between different state-funded enterprises and their holding enterprises, and the transferee If there are special requirements, it can be carried out by agreement".

The applicable conditions are: the optimized layout and structural adjustment of state-owned assets led by the government, and the professional reorganization, and both parties to the transaction are state-funded enterprises or their holding enterprises, which have special requirements for the transferee. This is a new non-public agreement transfer, reflecting the response of the state-owned regulatory authorities to the real needs of state-owned capital layout and cross-group restructuring.

With the change of state-owned assets supervision from state-owned assets transaction management to state-owned capital management, state-owned property rights need to flow at the level of enterprises funded by the same state, that is, "the layout optimization and structural adjustment of state-owned capital". To this end, No. 39 stipulates that such matters are transferable by non-public agreement, which provides a policy basis for the relevant transfer activities and dispels the policy doubts about the application of non-public agreement at the implementation level, thus speeding up the efficiency of the transfer of state capital in the whole field and industry and reducing the cost of the transfer of state capital.

The pricing principle of Order 32 for non-public agreement transfers is that, in general, it is not lower than the approved or filed assessment results, and for internal restructuring, it may be not lower than the assessed or audited net assets. Article 32 of Decree No. 32 stipulates that the transfer of enterprise property rights by non-public agreement shall not be lower than the approved or recorded assessment results. After performing the decision-making procedures in accordance with the the People's Republic of China Company Law and the articles of association, the transfer price can be determined on the basis of the net asset value confirmed in the asset evaluation report or the latest audit report, and shall not be lower than the assessed or audited net asset value: (1) The same state-funded enterprise implements internal reorganization and integration, and the transferor and transferee are the state-funded enterprise and its directly or indirectly wholly-owned subsidiaries; (II) the same state-owned holding enterprise or state-owned actual control enterprise internal reorganization and integration, the transferor and the transferee are the state-owned holding enterprise or state-owned actual control enterprise and its directly or indirectly wholly-owned subsidiaries.

Article 4 of document No. 39 stipulates that if the property rights of an enterprise are transferred by means of a non-public agreement, and the transferor and transferee are wholly state-owned or wholly-owned enterprises, after performing the decision-making procedures in accordance with the the People's Republic of China Company Law and the articles of association of the enterprise, the transfer price may be determined on the basis of the net asset value confirmed in the asset appraisal report or the latest audit report. Document No. 39 breaks through the original pricing restrictions from two levels: First, it breaks through the shackles of the same state-funded enterprise. As long as the transferor and the transferee are both wholly state-owned or wholly-owned enterprises, even if they belong to different state-funded enterprises, The transfer price of a non-public agreement can be determined based on the net asset value confirmed in the latest audit report in accordance with Order No. 32, reduce the cost of cross-group, cross-provincial, cross-level state-owned property rights transaction activities. Second, compared with Article 32 of Decree No. 32, No. 39 only retains that "the transfer price can be determined on the basis of the net asset value confirmed in the asset appraisal report or the latest audit report", which means that the transfer of property rights between pure state-owned enterprises will no longer be subject to compulsory pricing. In this regard, the new rules are a major breakthrough in the way non-public agreement transfer pricing. The State-owned Assets Supervision and Administration Commission of the State Council directly faces the reality of changes in the price of property rights, giving enterprises greater decision-making initiative.

Article 7 of Decree No. 32 stipulates that the state-owned regulatory agency shall be responsible for examining the transfer of property rights of state-funded enterprises. Among them, if the state no longer owns the controlling interest in the invested enterprise due to the transfer of property rights, it must be reported by the state-owned regulatory agency to the people's government at the same level for approval. It can be seen that Decree No. 32 does not explicitly limit the transfer of property rights of such enterprises leading to the transfer of real control of state-owned assets, but only sets restrictions on the approval procedures, stipulating that such cases should be reported to the people's government at the same level for approval by the state-owned regulatory agency. Document No. 39 has clear prohibitive requirements for the transfer of control rights of enterprises in important industries and key fields. The first half of Article 2 of Document No. 39 stipulates that the main business is in important industries and key fields that are related to national security and the lifeline of the national economy. Sub-enterprises that mainly undertake major special tasks shall not lose their state-owned capital holding status due to the transfer of property rights and capital increase of enterprises.

Article 9 of document No. 39 stipulates that if the transfer of property rights and the capital increase of the enterprise cause the state-funded enterprise and its subsidiaries to lose the actual control right of the target enterprise, the target enterprise shall not continue to use the intangible assets such as the name, business qualification and franchise right of the state-funded enterprise and its subsidiaries after the transaction is completed, and shall not continue to carry out business activities in the name of the subsidiary enterprise of the state-funded enterprise. The above-mentioned requirements shall be clarified as trading conditions in the information disclosure, and corresponding agreements shall be made in the transaction contract for industrial and commercial changes, name changes and other arrangements.

Decree No. 32 did not clarify whether intangible assets such as the original enterprise name, qualification and franchise can continue to be used when the transfer of enterprise property rights and the capital increase of the enterprise cause the state-funded enterprise and its subsidiaries to lose the actual control of the target enterprise. Decree No. 39 made it clear that the enterprise shall not continue to carry out business activities in the name of the state-funded enterprise subsidiaries under such circumstances. Information disclosure shall be used as transaction conditions and corresponding arrangements for industrial and industrial and industrial and commercial changes.

According to Decree No. 32, the transfer of property rights in important industries and key areas must be submitted by state-funded enterprises to the state-owned regulatory authorities at the same level for approval, but there is no distinction between internal and external transfers. Article 8 of Decree No. 32 stipulates that a state-funded enterprise shall formulate a management system for the transfer of property rights of its subsidiaries and determine the administrative authority for examination and approval. Among them, the transfer of property rights of sub-enterprises whose main business is in important industries and key areas related to national security and the lifeline of the national economy, and which mainly undertake major special tasks, shall be submitted by state-funded enterprises to the state-owned assets regulatory authorities at the same level for approval.

No. 39 provides that the internal reorganization and integration of state-funded enterprises in important industries and key areas may be approved by state-funded enterprises. The second half of No. 39 stipulates that when such enterprises are involved in the internal reorganization and integration of state-funded enterprises, the following circumstances may be examined and approved by the state-funded enterprises:

The property rights of the (I) enterprise are transferred between the state-funded enterprise and its holding subsidiary.

(II) state-funded enterprises directly or designate their holding subsidiaries to participate in the capital increase.

The original shareholders of the (III) enterprise increase their capital in the same proportion.

Other cases shall be reported by the state-funded enterprise to the state-owned assets supervision and administration institution at the same level for approval.

In accordance with the first half of Article 2 of Article 39, it is clear that the transfer of enterprise assets shall not lead to the loss of control of state-owned capital in the circumstances stipulated in Article 8, paragraph 1, of Decree 32. On this basis, the second half of Article 2 of No. 39 devolves the approval authority for some transactions to state-funded enterprises, because none of these three transactions and capital increases will cause state-owned capital to lose its controlling position. This also reflects from the side that the government attaches great importance to the transaction and circulation of state-owned assets of enterprises. After preventing the risk of state-owned capital losing its controlling rights, it clearly lists the transactions and capital increase behaviors that are widespread in practice and will not lose the controlling status of state-owned capital, and further The decentralization of approval authority reflects the government's concept and determination of "streamlining administration and delegating power.

In short, the changes brought about by the above provisions of Article 39 can be understood at four levels:

1, strictly abide by the bottom line of order 32:The transfer or capital increase of the state's loss of the controlling interest in a state-funded enterprise (as defined by Decree No. 32, that is, a wholly state-owned or state-controlled enterprise entrusted by the government to the state-owned assets supervision and administration agency to perform the duties of the investor) must be reported by the state-owned assets supervision and administration agency to the people's government at the corresponding level for approval.

2. Ming "red line":State-funded enterprises shall not lose their controlling rights to subsidiaries whose main business is in the lifeblood industry and key areas as a result of transfer or capital increase, and No. 39 clearly defines the position and views on dealing with this issue and draws a "red line".

3. Reasonable decentralization:Breaking through Article 8 of Decree No. 32, reasonable decentralization, by the state-funded enterprises to approve the main business in the lifeline industry and key areas of the transfer of property rights within the enterprise group or capital increase, that is, the approval authority does not need to be raised by one level.

4. Other situations:If a state-funded enterprise loses its controlling rights to other sub-enterprises, and does not involve the transfer or capital increase of the controlling rights of sub-enterprises whose main business is in the lifeline industry and key areas, it is not prohibited across the board. For those who meet the conditions and policy guidance, can play the role of capital leverage, and are conducive to maintaining and increasing the value of state-owned capital, they can still be reported to the state-owned assets regulatory agency at the same level for approval.

Article 5 of document No. 39 stipulates: "the internal reorganization and integration of state-owned holding and actual control enterprises, with the approval of state-funded enterprises, between the state-owned holding or actual control enterprise and its direct or indirect wholly-owned subsidiary enterprises, or between its direct and indirect wholly-owned subsidiary enterprises, the property rights of the enterprise can be transferred according to the relevant provisions of the free transfer management of state-owned property rights." This article is intended to provide a new way for the internal reorganization and integration of state-owned holding and actual control enterprises-free transfer.

Compared to Order 32, it only provides a way to transfer a non-public agreement in this case. Because the free transfer of property rights of state-owned enterprises is a special form of the transfer of state-owned assets, which is different from the normal transaction behavior based on the payment of reasonable consideration, the free transfer does not fall within the scope of state-owned asset transactions regulated by the "Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises" (Order No. 32 of the State-owned Assets Supervision and Administration Commission of the State Council and the Ministry of Finance), and does not apply to Order No. 32. In 2005, the State-owned Assets Supervision and Administration Commission issued the "Interim Measures for the Administration of the Free Transfer of State-owned Property Rights of Enterprises" (Guo Zi Fa Property Rights [2005] No. 239), Article 2 stipulates:The gratuitous transfer of state-owned property rights of enterprises referred to in these Measures refers to the gratuitous transfer of state-owned property rights of enterprises between government agencies, institutions, wholly state-owned enterprises and wholly state-owned companies.

No. 39 expands the scope of free transfer of enterprise property rights, and the scope of application of free transferExpand to the internal reorganization and integration of state-owned holding and actual control enterprises in specific situations.There are two main breakthroughs in the new provisions on gratuitous transfers in the introduction of No. 39:

First, it greatly simplifies the process of property rights changes between state-controlled and actually controlled enterprises and their direct and indirect wholly-owned subsidiaries, improves the integration rate of state-owned resources, and effectively reduces the tax burden that may arise from such property rights changes. In the case of the transfer conditions, it has certain advantages compared with the transfer of state-owned assets on-the-spot transactions, non-public agreement transfer, such as no evaluation and payment of consideration, more simple.

Second, it grasps the "quality" attribute of state-owned capital, no longer rigidly adhere to the "quantity" attribute of 100% pure state-owned assets, and expands the scope of the main body of the transferring party and the transferring party from pure state-owned enterprises to state-owned holding enterprises. As long as the rights and interests of state-owned capital in the parent company are not affected, the parent company and its internal direct and indirect wholly-owned subsidiaries are allowed to freely transfer the property rights of the enterprise.

In summary, No. 39 is small, reform courage and determination is great, it directly faces the needs of state-owned enterprises resource integration practice, benefits a wide range of state-owned enterprises, will greatly facilitate the layout of state-owned enterprises and industrial agglomeration, and effectively improve the efficiency of resource integration. It is still expected that there will be more detailed operational guidelines or policies in specific areas such as the professional reorganization of state-owned enterprises under the leadership of the government.