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Strategic Reorganization of COFCO and Chinatex Kicks off the Pilot Reform of State-owned Capital Investment Companies Release Time : 2016-07-22

On July 18, COFCO and Chinatex launched strategic reorganization and COFCO released its plan for the pilot reform of state-owned capital investment companies.
In order to grow stronger, better and bigger, push forward transformation and upgrade, and enhance core competitiveness, COFCO will carry out in-depth reform of key links such as enterprise’s strategic positioning, system and mechanism innovation, specialized corporate development, professional manager system, getting slim and shaping up, and improving quality and enhancing efficiency.
Make another step toward becoming a major international grain trader by growing stronger, better and bigger
On the same day, COFCO and Chinatex held a meeting to kick off the reform and strategic reorganization in Beijing with the whole of Chinatex merged into COFCO as one of its wholly-owned subsidiaries.
This is another crucial move for COFCO to consolidate resources of China’s grains and oils industry. Both COFCO and Chinatex are in the agro-grain sector, with their grains and oils business ranking the first and the third respectively in terms of domestic market scale. Upon the completion of the reorganization, COFCO’s domestic oils processing capacity will reach 24 million tons, raising its overall market share up to 18%. As a result, COFCO will become a domestic leader and its capacity will rank among the best of global oils processing enterprises. The value chain of cotton business will account for nearly 10% of global market share upon the completion of the reorganization. The joining-up of two parties’ operation networks covering major production and sales regions in the world will further improve COFCO’s global footprint, boost its upstream control capability, logistic support capability, comprehensive processing capability and market coverage capability in the grains and oils sector, and contribute to the national grain security through full utilization of “two markets and two resources”.
State-owned Assets Supervision and Administration Commission of State Council (SASAC), which has lent active support to the reorganization of COFCO and Chinatex, believes that the reorganization will be conducive to resources consolidation, specialized and intensified operation, acceleration of building China’s own major international grain trader, and enhancement of COFCO’s ability to safeguard China’s grain security. This reorganization is a major move not only to implement the mandate of the Party Central Committee and the State Council to effectively guarantee China’s grain security but also to optimize the layout of state-owned economy and develop and strengthen the strategic plan of state-owned economy. Meanwhile, it is also a practical step to steadfastly deepen the reform of state-owned enterprises and make state-owned enterprises directly administered by the central government stronger, better and bigger. 
The reorganization of Chinatex is an important task for COFCO as a pilot enterprise in the reform of state-owned capital investment companies. Over the past year, COFCO has systematically completed the formulation of major auxiliary policies such as “The Plan for the Reform of State-owned Capital Investment Companies”, which will enable COFCO to highlight its major business of grains, oils and foods, consolidate assets, and build itself into a major entity that guarantees China’s grain security and food security as well as China’s state-owned capital investment platform, resources consolidation platform and overseas investment platform in the agro-grains and food sector so as to promote the structural adjustment of state-owned capital layout and the supply-side structural reform.
Zhao Shuanglian, Secretary of the Leading Party Members’ Group & Chairman of COFCO Corporation, said, “COFCO shall resolutely carry out Secretary General Xi Jinping’s important instructions and undertake to ensure China’s grain security and food security so as to gain control over grain resources on behalf of the country and develop international industry competitiveness.”
Facilitate China’s macro-economic control by focusing on the main business and seeking optimization and reorganization
At present, COFCO has grown into a global leading grains, oils and foods enterprise with fully-integrated value chain and developed its business framework with grains and oils as its core main businesses and food, finance and property as its main businesses. In recent years, COFCO has reorganized China Grains and Oils Group Corporation, China Grain & Logistics Corporation and Huafu Group and taken over Nidera and Noble Agri, expanding its business footprint to a global scale and laying a solid foundation for it to accomplish its mission of ensuring national grain security and serving the needs of macro-economic control.
In the future reform, the key words will be to strengthen the main businesses of grains, oils and foods and to promote transformation and upgrade. COFCO will expand its main businesses through a series of assets consolidation and integration of internal resources, grow to be a major international grain trader with its global ranking among the top three and the world’s leading general food enterprise, become a major entity to carry out China’s grain security strategy and food security strategy, and give full play to its leading role in building modern agriculture, its supportive role in maintaining market stability, its exemplary role in ensuring food quality and safety as well as its pioneering role in agriculture’s “going abroad”.
Build a specialized company and platform through division of power, getting slim and shaping up
With the system and mechanism innovation as the reform’s original motive power, COFCO plans to orient its reform toward reorganizing the Corporation into a state-owned capital investment company.
According to Mr. Zhao Shuanglian, capital operation and capital management will be separated under the principle of “small headquarters and big industry”. The level of management will be reduced to three tiers so as to set up a clearly-defined three-tier management hierarchy of “capital level of corporate headquarters – assets level of specialized company – execution level of production units” with specific responsibilities; COFCO will also get slim and shape up by optimizing and streamlining the headquarters of the corporation and strengthen specialized companies (platforms) with the headquarters delegating its power of operating and controlling assets and directly managing specialized companies (platforms) so as to achieve the corporate headquarters’ transition toward capital management.
According to the principle of simplicity and high efficiency, COFCO will cut down functional departments of the headquarters from thirteen to seven while downsizing the number of staff from 610 to 240 so as to beef up the assets level and production level. Meanwhile, five major crucial powers including the power to promote/demote staff, assets allocation power, production and R&D innovation power, assessment and evaluation power and remuneration distribution power will be delegated to specialized companies (platforms). The headquarters will exercise its shareholder rights mainly through the dispatch of full-time directors and supervisors instead of being directly involved in enterprise management decision-making and business operation.
According to the principle of focusing on business, COFCO has set up eighteen specialized companies (platforms) whose goal is to solve the issues of specialized operation in the development of the industry. With the specialization of assets, operation and management as its core, this reform concerns the assets operation level and management system and has nothing to do with the adjustment of listed companies’ capital structure.
As core entities in charge of assets operation, specialized companies (platforms) are responsible for the profits and returns of assets operation. COFCO has instructed specialized companies (platforms) to accelerate consolidation with core products as its central theme, comprehensively establish modern enterprise system, strive to diversify equities, and truly become law-abiding market entities with core competitiveness that operate independently and assume full responsibility for any risk.
During the 13th Five-Year Plan period, COFCO will strive to develop two to three specialized companies (platforms) whose revenues exceed 100 billion Yuan and four to five specialized companies (platforms) whose revenues exceed 50 billion Yuan.
Ensure the value maintenance and appreciation of state-owned capital by strengthening supervision and activating operation without becoming chaotic
In order to ensure the activation of operation without becoming chaotic, COFCO insists on the combination of relaxation and control, making big stride in delegating power to its subsidiaries while strengthening the oversight and management of state-owned assets through various measures. An internal and external supervision system has been established and improved to ensure “visibility, manageability, and auditability” and prevent the loss of state-owned assets.
Specialized companies (platforms) have the power to plan and operate projects. Corporate headquarters, which controls and approves major issues, major matters and major links, conducts rigid assessment of annual budgets while managing source of investment, boundary of business and bottom line of investment.  
The Corporation has set up an integrated risk control management department under the direct leadership of the board of directors to exercise comprehensive supervisory functions including audit, legal affairs, quality and safety, and risk control; it has established a vertical audit management system and dispatched full-time directors and supervisors to keep watch on state-owned assets, issue early warning and track risks, and conduct scientific evaluation.
The budget targets of each specialized companies (platforms) is determined mainly on the basis of the industry’s third quartile (75%) and rigid evaluation will be conducted. Active efforts will be made to boost the supervision of overseas operation, increase the frequency of overseas audit and prevent overseas investment and operation risks.   
The unified leadership in the improvement of the Party’s work style, establishment of clean government and anti-corruption drive shall be enhanced. The discipline inspection commission of the leading Party members’ group exercises direct leadership over the discipline inspection and supervision of specialized companies (platforms), provides instructions to their work, and nominates, observes and studies and assesses discipline inspection commissions secretaries of its subsidiaries.
Pursue professional manager system and conduct scientific evaluation to offer rigid incentive
COFCO’s reform touches upon the profound issues of SOE reform – the reform of the system of personnel selection and placement.
COFCO will adopt measures such as professional manager system and market-based selection and appointment of personnel to institute reasonable flow mechanism in each level of units where staff can be promoted or demoted, appointed or dismissed. Market-based selection and appointment of personnel will be applied to the positions of general managers and management teams who will be administered according to the professional manager system at functional departments of corporate headquarters and all levels of subsidiary enterprises. Professional managers shall be recruited from the society or selected from the Corporation through the mechanism of “through train”. Managers in the Corporation are encouraged to terminate the labor contract with their respective units before signing new employment agreements and labor contracts so as to become professional managers. 
Professional managers sign employment agreements and performance contracts with enterprises to define both parties’ rights and responsibilities and stipulate agreed period of employment, performance assessment standard, remuneration, and terms of terminating contracts and investigating accountability. Professional managers who no longer renew their employment contracts or are dismissed will not be offered any other positions in the Corporation. Professional managers have a tenure of three years and their level of remuneration and incentive is determined by the market-oriented principle. A rigid restraint mechanism should be established to ensure the promotion or demotion of business heads and their accountability. These innovations of system and mechanism can give full play to the enthusiasm, initiative and creativity of various talents so as to stimulate various key elements and vital forces.
Optimize capital and push forward mixed-ownership reform to win the battle of improving quality and enhancing efficiency
COFCO is exploring an approach to optimize capital distribution with both entries and exits. While focusing on its core main businesses, COFCO pushes forward the mixed ownership reform of its non-core businesses, eliminates and divests itself of non-core and non-performing assets, and achieves securitization of capital so as to win the battle of improving quality and enhancing efficiency.
Based on the levels of management and different business conditions, COFCO will push forward the mixed ownership and equity diversification in a classified and hierarchical manner: as for agro-grain business, COFCO will maintain its dominant shareholding position, actively introduce various capital from home and abroad on the basis of existing shareholders, and give full play to the functions of state-owned capital through the form of multi-player share controlling structure; as for food business, COFCO will maintain its position of relative controlling shareholder or only remain the biggest shareholder and actively introduce various capital; COFCO’s financial business will enhance its ability to serve the main businesses by integrating industry with finance; and its property business will optimize capital structure, raise profitability and contribute to the development of main businesses through the mixed ownership reform.
COFCO has carefully analyzed the development situation, identified goals and missions, and formulated a three-year plan to improve quality and enhance efficiency in a bid to reorganize, consolidate and exit from non-strategic and inefficient assets. By working around the improvement of quality and enhancement of efficiency, COFCO will increase its investment effectiveness and level of precision management, speed up the cultivation of new growth momentum, transform and enhance traditional comparative advantages, strengthen the power for sustained growth, and raise the comprehensive competitiveness of the enterprise.
In accordance with SASAC’s general requirement regarding “four batches” (elimination of a batch of shell enterprises, sale of a batch of inefficient enterprises, mixed ownership reform of a batch of enterprises with potential, and IPO of a batch of dominant enterprises), COFCO will spend three years to reorganize, consolidate, eliminate and divest over 100 enterprises so as to reduce the number of legal entities by 20%.
Strengthen and improve the Party leadership and enhance the improvement of Party work style and establishment of clean government
In the process of furthering the reform, COFCO insists on the Party’s supervision of its own conduct and enforcement of strict discipline, gives full play to the political core role of leading Party members’ group, organically combines the reinforcement and improvement of the Party’s leadership with the perfection of corporate governance structure, and stipulates the legal position of the Communist Party organization in the corporate governance structure.
Major decisions concerning the Corporation’s operation and management including issues related to internal organization setup, responsibilities, size of the personnel force, remuneration management system, important income distribution plan, important decisions, important appointment and removals, major project plans, and the use of large amount of funds as well as fundamental operation and management systems shall be discussed and approved by the leading Party members’ group before being submitted to the board of directors for research and deliberation.
In order to strengthen the Party’s effective leadership in overseas enterprises, COFCO will gradually select and dispatch managers who are members of the Communist Party with up to par political caliber and accurate mastery of policies to overseas enterprises’ board of directors and management and crucial positions such as HR and finance so as to give full play to the important role of these personnel in the corporate management.
COFCO shall further reinforce the unified leadership in the improvement of the Party’s work style, establishment of clean government and anti-corruption drive. The CP organization of each specialized company (platform) shall fulfill the main entity responsibility of comprehensively strengthening Party discipline in earnest and the discipline inspection commission shall carry out its supervisory responsibility so as to ensure the complete coverage by discipline inspection and supervisory organizations and installation of corresponding designated organs or full-time cadres of discipline and supervision department.
As the first year of the 13th Five-Year Plan, 2016 also witnesses the central authorities’ effort to push forward supply-side structural reform and carry out the reform of state-owned capital.
Zhao Shuanglian noted that this reform is a strategic choice and critical move for the enterprise. COFCO will strive to grow its international footprints, modernize its governance structure, build professional teams, provide market-oriented remuneration and conduct market-oriented assessment so as to truly transform itself into a responsible and capable state-owned capital investment company which can better assume the responsibility of guaranteeing the national grain security and food security.
SASAC Vice Chairman Zhang Xiwu acknowledged the considerable progress made by COFCO in its reform efforts. According to him, COFCO’s reform plan, which has many praiseworthy points regarding strategic positioning, development direction and management model while insisting on the combination of the Party assuming the responsibility for cadres' affairs with market-based selection and placement of personnel so as to optimize capital structure and promote the development of mixed ownership, is a beneficial attempt to reform and innovate existing management system and operation mechanism. He expressed the hope that COFCO will try to act as a vanguard of reform and development and become a pacesetter in improving quality and enhancing efficiency, resolutely pursue “getting slim and shaping up”, and serve as an example of building the world’s first-class company so as to cultivate the capability of consolidating global resources, international industry competitiveness, world-renowned brand influence, and the power to spur industrial growth. He required COFCO Corporation to elevate itself to a higher position, achieve faster transformation and upgrade, carry out reform in a more solid manner, and build a stronger Party after reorganization and reform so as to march toward its goal of becoming a first-class international grain trader and make greater contributions to safeguarding national grain security and promoting the development of economic order.
Over 160 people including SASAC Deputy Secretary General Peng Huagang, leaders of SASAC divisions and bureaus, Luo Han, who is dispatched by the State Council to serve as the chairman of COFCO Corporation’s board of supervisors, COFCO Corporation’s external directors Hao Yinfei and Ouyang Qian, leaders of COFCO Corporation, Chinatex chairman Zhao Boya, president Luan Richeng, and persons in charge of COFCO and Chinatex operation units and functional departments attended the meeting.

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