New regulation to enhance corporate transparency

Govt raises information disclosure requirements

The State Council, China's cabinet, said over the weekend that it has approved an interim regulation on disclosure of corporate information, an important step in improving the credibility of enterprises and social transparency, following the cancellation of annual checks on firms in March.

Companies will be obliged to deliver annual reports, including contracts, profits, tax payments, revenue, capital assets, as well as other business activities information such as details of new subsidiaries and stake purchases, to industrial and commercial authorities between January 1 and June 30 each year, according to a statement published Saturday on the central government's website.

In addition to delivering their annual reports to the government authorities, enterprises should also disclose the information publicly at the same time, except for some key management information such as business revenue and total sum of debts which the enterprises can choose whether or not to disclose, the statement said.

The regulation, which was endorsed by Chinese Premier Li Keqiang, will take effect on October 1.

To ensure that all enterprises disclose their corporate information accurately, both State and local industrial and commercial regulators will strictly monitor their disclosures, the statement said.

One highlight of the interim regulation is that companies which do not disclose corporate information in accordance with the requirements for three years will be blacklisted. And their directors or the legal person will be forbidden to become director or legal person of other companies within three years.

"The disclosure system is an important step in improving enterprises' credibility so as to protect the interest of all market players and investors," Zhou Dewen, president of the Wenzhou Small and Medium-sized Enterprises Development Association, told the Global Times Sunday.

Zhang Zhenjun, CEO of King Parallel Consulting Co, said "it is also a key step in improving enterprise transparency."

Since the new regulation also requires government authorities to disclose information related to their own work including penalties on the violators and modification of administrative licenses, "the regulators themselves will be under public scrutiny, which will be helpful for the development of a more transparent society," Zhang told the Global Times Sunday.

The regulation followed the cancellation of annual inspections on enterprises conducted by industrial and commercial authorities effective March 1 this year.

The State Administration for Industry and Commerce (SAIC) announced in February to stop annual inspections of several types of companies including limited liability companies, limited corporations, non-corporate legal representatives, partnerships, sole proprietorship enterprises and their branches, as well as overseas companies engaged in business in China.

Previously, the annual inspections on enterprises usually resulted in "some bribery and corruption between the enterprises and industrial and commercial authorities," Zhou noted.

"The cancellation of annual inspections was a big step in changing the role of the government in the market," Zhou said, noting that the government should facilitate the operation of the market rather than lead it.

Enterprises also welcomed the new interim regulation.

The information disclosure system "will enable our enterprises to learn more information about other firms in the same business area, which will be helpful," Wu Hai, CEO of Orange Hotel Management (China) Co, told the Global Times Sunday.