China to enhance auditing of overseas investments to better protect assets

China is set to establish a more stringent auditing system for managing overseas State assets, which experts said could help protect SOE assets and curb corruption but may also restrain overseas investments.

China will strengthen its audit of SOE's overseas investments, cooperation with foreign enterprises, financial management system of overseas assets, their operating efficiency, and risk control, news portal Economic Information Daily under the Xinhua News Agency reported on Monday.

Specifically, the planning, discussion, contract and important changes in overseas investment projects will be the key areas for the audit. Moreover, inspection and analysis of relevant materials and interviews with responsible personnel will be undertaken by the audit authorities in the host country. And on-spot inspection and evidence collection will also be carried out overseas if necessary in accordance with the international conventions and laws of the foreign countries or regions, said the report.

According to the report, the SOEs are becoming more competitive in the global market, with their operations covering more than 150 countries and regions around the world and their overseas assets exceeding 5 trillion yuan ($0.72 trillion).

Zhu Shanbo, general manager of Tacter, a Shanghai-based management and consulting firm focusing on SOE reforms, told the Global Times on Monday that tightening the audit system will protect State assets and improve accountability of the SOEs to avoid corruption.

China has thousands of SOEs and more than 100 are directly administered by the central government. These enterprises are the backbone of the economy, but their monopoly in many areas, unchecked spending, inefficiency and corruption in management boards are often a source of public complaints.

However, Zhu noted that the strict auditing system may scare some SOEs from making investments for fear of getting in trouble as the standards of the audit system remain blurry and cannot be applied to every situation.

Zhou Fangsheng, an enterprise reform expert, also said a tightened supervision system may face challenges, such as inadequate professional training of the audit officials, the cost of overseas audit, and problems caused by local political, cultural and religious factors.