Establishing a system of corporate governance is at the heart of the reform of China's state-owned enterprises (SOEs), an economist from the Development Research Center (DRC) of the State Council said in Beijing on January 19.

Wu Jinglian made the remark during the Senior Experts Meeting on Corporate Governance of State-Owned Enterprises in China which closed here today.

Wu pointed out that the establishment of a corporate governance system for Chinese SOEs requires resolution of two major issues.

The first is to set up a complete ownership system which would resolve the problems previously faced when the control of enterprise management is divided among various government departments.

The second is to develop a supervision and incentive system for SOE management which would wipe out the phenomenon of internal control.

Charles Pigott, principal administrator of the Non-Member Economies Division of the Economics Department of the Organization for Economic Cooperation and Development (OECD), said that China has taken many powerful measures to reform the SOEs, including both short-term and long-term policies. He noted that China is looking for answers to some problems that go hand-in-hand with the process of restructuring the economy according to the practical conditions of the country.

Lu Weichuan, president and general manager of one of the top 500 enterprises in China, the North China Pharmacy Group (NCPC), said that the state-owned company has shifted to a system of multiple ownership through privatization and absorbing foreign investment. It has set up a corporate governance system in line with international practice in order to guarantee effective control by and maximum returns for investors.

Corporate governance has attracted great attention around the world since the outbreak of the Asian financial crisis.

Some 100 personages from the DRC, the OECD, the ADB (Asian Development Bank) and nearly 20 countries in the world attended the two-day meeting, which was co-sponsored by the DRC, the OECD and the ADB.