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News, Page 5, Issue 465, April 26, 2010 Translated by Tang Xiangyang Original article: [ Chinese ] Starting 2011, centrally-owned enterprises working in the defenseindustry will once again have to start submitting a percentage oftheir profits to the State-owned Assets Supervision andAdministration Commission (SASAC), after an exemption granted in2007 comes to an end. Other state-owned enterprises will also be required to starthanding over a greater proportion of their profits to thecommission than in the past, a source from the SASAC revealed. Most of the country's 126 centrally-controlled state-ownedenterprises or centrally-owned enterprises (COE) are alreadyrequired to pass on between 5 and 10 percent of their profits tothe SASAC every year. Counting Down to the End of the Exemption Several heads of companies that produce military equipment saidthat although they still had not received any news from SASAC, theywere already mentally prepared for the news that they might berequired to hand over a percentage of their 2010 profits to thecentral government in 2011. In 2007 China's Ministry of Finance and SASAC announced a set of regulations in relation to the transfer of profits from COE. As part of thenew rules, defense companies were classed in a third category ofenterprises that would be exempt from requirements to pass onprofits to SASAC for three years. Now that three years has passed, an official at SASAC confirmedthat "starting from next year, we will once again start collectingthe profits of defense companies." Other state-owned enterprises were divided into two categories.Resource-oriented enterprises, such as Sinopec and PetroChina, werein the first category and required to transfer 10 percent of theirprofits to SASAC. A second category was comprised of ordinarycompetitive enterprises was required to submit 5 percent of theirprofits to SASAC. The past few years the profits of defense industry enterprises havebeen increasing. A head of one of the enterprises said, "all 11 ofthe defense industry enterprises under SASAC's control have gonefrom being loss-makers to being profitable, things are looking evenbetter this year." "China's defense industry achieved profits of over 50 billion yuanin 2009, and the value of total output increased by 28 percent",Cao Zhiheng, vice director of a department of the Ministry ofIndustry and Information Technology (MIIT) said earlier this monthin Chongqing. The profits of China's centrally-owned defense industry have alsobeen said to have been growing at a much higher rate than theaverage rate of profit growth across all centrally-ownedenterprises. It still hasn't been determined what proportion of these defensecompanies' profits will be transferred to SASAC. Enterprises working in the defense industry gained a profit of over50 billion yuan in 2009, which means, they would have had to giveat least 2.5 billion yuan to the SASAC if the required ratio wasset at 5 percent. According to statistics from a budget document published by the Ministry of Finance , 42.1 billion yuan in profits were transferred to both central andlocal governments from centrally-owned enterprises in 2009. However, the head of an enterprise targeted by this policy shiftsaid the ratio imposed on defense industry enterprises should bedifferent from that of the other state-owned enterprises. "I prefer[the ratio] to be somewhere between 1 and 2 percent," he said. Asdefense industry enterprises bear the responsibility ofsafeguarding national security, he thought the ratio should not betoo high. "The profit of doing defense-related business is limited to onlyaround 5 percent. If the SASAC requires us to hand in 5 percent,there will be no profit left for us," he said. However, according to a defense industry expert, most of profits inthe sector are gained from goods for civilian use such as airplanesand boats. "Currently, products for civilian use account for nearly 90 percentof the profits made by defense industry enterprises," he said. He suggested separating the profits gained by manufacturingproducts for civilian use and that by manufacturing defensiveproducts; while the latter will be exempted from passing profits toSASAC, the former should be imposed with the ratio similar to thatof the other state-owned enterprises. Other COEs to Pay Higher Dividends Other centrally-owned enterprises will be required to pay a greaterproportion of their profits to SASAC. Back in 2007, all COE were divided into three categories:Resource-oriented enterprises, such as Sinopec and PetroChina, madeup the first category which are all required to pay 10 percent oftheir profits to SASAC, the second category was made up of ordinarycompetitive enterprises and are required to transfer 5 percent oftheir profits to SASAC and companies in the third category areexempt from submitting a percentage of their profits to the centralgovernment. So far, it is not settled how much of the profits of companies inthe first two categories will be required to transferred to SASACin the future. An official with the Ministry of Finance said, theministry would work with the SASAC on this issue. "As for the details of the policy, it is the operating conditionsof enterprises that will matter. Mature enterprises will have topay more but struggling companies will still offered the support ofpreferential policies," an official with the SASAC said. In the past, Zhang Wenkui, vice-director of the DevelopmentResearch Center of the State Council, suggested that "For privateenterprises at home or abroad, those in growth industries normallypay out about 10 to 20 percent of their profits in dividends,while mature companies pay out 50 percent of their profit individends. State-owned enterprises are some where in the middle andshould pay a percentage that is about half way between the two." As we understand it, currently local-level State-owned AssetsSupervision and Administration Commissions take a greaterproportion of the profits of companies under their supervision thanthat of the central commission, it's estimated that they require 20percent of profits. However, according to an official with the SASAC, the ratio may bemoderately raised, but not to an "extreme" level. He went on to explain his comments by saying the COE are currentlyat a stage where they need to strengthen their research anddevelopment and production capacity. This requires the investmentof a large amount of capital. "Though it may seem that COEs have gained a good amount of profit,their capability to develop sustainably is inadequate because theylack the advanced technology and products required. Currently, notone COE owns the technology and products needed to survive for thenext 15 to 20 years. I think, that's dangerous," he said. This article was edited by Rose Scobie Links and Sources SASAC: 2007 Announcement of Exemption for Centrally-owned DefenseIndusrty ( Chinese ) Gov.cn: Budget outlining the amount of dividends to be paid by COE in 2010( Chinese ) Boston.com - The Big Picture Blog: Image. The e-commerce company in China offers quality products such as China Electromagnetic Induction Coil , Air Flow Control Valves Manufacturer, and more. 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