Establishing an ancient enterprise system is the inevitable requirement for the development of China's market economy. However, while Chinese enterprises are steadily advancing towards the establishment of a modern enterprise system, they face a serious challenge: the severe lag in enterprise financial management. Most Chinese enterprises still replace financial management with accounting calculations. Some enterprise decision-makers do not even understand basic financial concepts such as time value, risk value, cost of capital, and financial leverage. This does not meet the basic requirements of modern enterprise management or comply with the national Accounting Law that requires unit leaders to sign and seal financial reports, taking responsibility for them. The lack of modern financial management not only severely restricts the asset operation, scale expansion, management objectives achievement, and improvement of economic benefits of enterprises but also becomes a heavy shackle on the path of enterprise system innovation, seriously hindering the deepening of enterprise reform. This article will discuss the establishment of state-owned capital financial management compatible with the modern enterprise system.
1. Analysis of the current situation of state-owned enterprise financial management
With continuous reforms, there has been a clash between traditional patterns and modern new models, causing disorder in state-owned enterprise financial management, manifested in the following aspects:
1) Enterprises focus on restructuring and neglect financial management. To adapt to the development of the modern market economy, restructuring is necessary. However, enterprises and relevant departments place too much energy and attention on property rights reform while ignoring another equally important issue: establishing a modern financial management model simultaneously with restructuring. Regardless of how the property rights system is reformed, management remains the top priority. For modern enterprises, the efficiency of corporate finance not only affects the company's performance but may also relate to its survival. Therefore, neglecting the construction of a modern financial management system can also hinder the establishment of a modern enterprise system.
2) Enterprise managers lack modern financial concepts and awareness. Currently, many state-owned enterprises in the process of restructuring have obtained independent financial rights, often leading to conceptual and awareness misunderstandings, including:
- Believing more funds are always better, and fundraising is more important than utilizing funds.
- Thinking the best method of fundraising is issuing stocks without considering debt financing.
- Believing capital expansion is always better, focusing on acquisitions and mergers as shortcuts to capital appreciation.
- Thinking holding physical assets is more important than holding cash assets, ignoring the need for liquidity management.
3) Unclear financial objectives. With economic system reforms, the state gradually uses profit as the main criterion for evaluating enterprises, making profit maximization the financial management objective. Profit maximization has the following disadvantages:
- It does not consider the timing of profit realization.
- It fails to effectively consider risk issues, leading to seeking maximum profits regardless of risk size.
- It often causes short-term behavior in enterprise financial decisions.
4) Lagging establishment of financial supervision and constraint mechanisms. Through restructuring, many enterprises gain vitality due to their acquired operational autonomy. However, due to the lack of supervision and constraint mechanisms, the phenomenon of "insider control" becomes increasingly serious. Enterprise operators use their "insider" status to obtain a significant portion of enterprise control rights through collusion with employees, eroding the legitimate rights of shareholders as "outsiders." Without establishing a financial agency relationship, it is impossible to achieve separation among owners, decision-makers, operators, and supervisors, nor form a mechanism that is both mutually coordinated and cooperative and mutually balanced and supervisory.
In summary, the goal of establishing a modern enterprise system is to cultivate and grow diversified investment entities through standardized corporate restructuring, promote separation of government and enterprises, and convert enterprise operating mechanisms, making enterprises legal entities adaptable to the market and establishing a good institutional support system for enterprise development. Restructuring clarifies enterprise property rights and changes organizational forms, but if old management methods are still followed, growth will not happen. The fundamental reason lies in the fact that many restructured enterprises have yet to establish a financial management model compatible with the modern enterprise system. Enterprise financial management has not fully returned to the enterprise, the legal person governance structure is very imperfect, and the enterprise financial supervision and constraint mechanism still needs to be established.
2. Building a financial management system compatible with the modern enterprise system
As the situation of enterprise reform and development changes, supporting state-owned enterprise reform and institutional innovation is an objective requirement for developing and advancing productivity. By adjusting state-owned enterprises and financial management methods, it is beneficial to form a new framework centered on investor management for enterprise asset and financial management. In this new framework, the government gradually forms an investor financial system, standardizing corporate financial behavior. Doing so is conducive to establishing a modern enterprise system and forming a restraint mechanism for the government as an investor over enterprises.
1) Establishing a financial management system centered on investors and linked by state-owned capital. Establishing a new system for enterprise asset and financial management centered on investor governance mainly includes the following parts:
- Management of state-owned capital investment, including the structure, rules, allocation, increase, and decrease of state-owned capital, as well as the principles of preserving and increasing the value of state-owned capital.
- Management of state-owned capital operations, including mergers, splits, external investments, transfers, pledges, guarantees, reductions in state-owned shares, closures, bankruptcies, and other changes in state-owned capital, emphasizing optimal allocation of state-owned capital, amplifying the functions of arranging and mobilizing state-owned capital, and establishing a withdrawal mechanism for state-owned capital.
- Supervision of major financial matters affecting the rights of state-owned capital and implementation of standardized management methods.
- Management of state-owned asset returns, including the collection of post-tax distributable profits, proceeds from property rights transfers, principles and methods for income distribution and application, as well as risks and responsibilities of state-owned capital operations.
- Evaluation of the preservation and increase in value of state-owned capital, incentive mechanisms for operators, risk responsibilities, financial analysis, and early warning systems.
- Responsibilities, powers, and supervision of state-owned capital operating entities, legal liabilities, etc.
2) Implementing the unification of financial and financial management. With the establishment of modern enterprise systems, changes in the development of the market economy, and the establishment of public finance frameworks, separating financial and fiscal management of enterprise assets no longer meets the needs of economic development and reform.