China’s State-owned Enterprises Contract Legal Risk Management

As of November2011, the Chinese government in conjunction withstate-controlled SASAC supervision management programs, controls over120of thelargest corporate enterprises in China. These enterprises are an important pillar ofChina’s national economy, including: communications, petroleum, and transportation.In recent years, the effectiveness of state-owned economic structure and strategyadjustment is enormous. In2011, there were38Chinese central enterprises finalists inthe World’s Top500companies. With the development and expansion ofstate-owned enterprises, the legal risks involved would ultimately intensify.Enterprise legal risk management groups would play a crucial role, as they would beemployed to explore the production and operation of the contract legal riskmanagement, standardize enterprise behavior, formulate scientific legal riskmanagement system processes, all in an attempt to avoid legal risks to the largestate-owned enterprises.On June5,2008, the State-owned Assets Supervision and AdministrationCommission (SASAC) issued a notice on "the three-year implementation of thecentral corporate legal work for these state-controlled enterprises." This noticerequired the audit checks of the central economic contracts, institutional regulations,with100%effort put in to end major legal disputes, and establish and improve thegeneral counsel system. The notice in the state for the central enterprise contract legalrisk, legal risk management and corporate work of the new requirements. Largestate-owned companies should remain focus-minded, in accordance to the mode ofproduction and operations, establish a sound contract management system, be up tostrategic legal management standards, all in order to ensure that enterprises bestronger, with focus on corporate excellence, as well as the opportunity to give backadditional resources toward the corporate legal risk management tilt. The author talks about three important points in his study. First, the riskmanagement groups of large state-owned enterprise must analyze the legal risksassociated with decomposition as a violation of national laws, regulations relevantprovisions and enterprise in violation of the other parties. The contract agreed in forcemust hold to accountable and negative impacts. In turn, this supports the enterprisecontract and legal importance of risk management, and the principles of state-ownedenterprise contract law.Secondly, the management of the state-owned enterprise risk managementdivided the internal structure of the enterprises into the legal department, financedepartment, purchasing department, and the audit department. The General Counselof the state-owned enterprises on major contract for final audit checks, the legalrepresentative or authorized representative of the enterprise for decision-makers ofthe contract on behalf of enterprises to take decision-making risk. The contract legalrisk management division of the internal management structure clears responsibilitiesand risk control points of the relevant departments of the contract, contractnegotiations, vendor selection, contract drafting, contract review and then to theperformance of the contract. Finally the whole process of performance of the contractis completed in regards to legal risks, prevention and control measures andresponsibilities of relevant departments of the enterprise. Each department contractrequires them to conduct a comprehensive analysis, trying to use the mode of contractmanagement, system design, the division of responsibilities to promote thestate-owned enterprises contract legal risk has been effectively controlled.Thirdly, the state-owned enterprises of China’s General Counsel System brieflydiscusses the duties of the General Counsel in contractual legal risk management.Finally, the state-owned enterprises in the contract management of legal riskprevention/control points to five summaries:1. Strictly control the occurrence of thecontractual facts, to avoid complement contract situation;2. select signed a contractwith the parties with the relevant qualifications,3. performance ability andperformance of the contract should be comprehensive4. lead to contract with theintention to avoid being inadvertently a direct result of corporate defaults. The author of these four risk summaries points out a detailed analysis, and the form of caseillustrates the need for prevention and control of legal risk.