practical issues. no official view has been clearly expressed regarding the oecd principles of corporate governance ( both the 1999 version and the 2004 revised version ). therefore, the reform of corporate governance is likely to be a reform without clear definitions. i ’ m going to give several examples in this regard. first, preserving shareholders ’ rights is one of the core elements of corporate governance. nevertheless, violating the rights of the shareholders is not a rare phenomenon in china, and there is explicit solution to this problem. for instance, in the debt - equity - swaps, no effective measures are in place to safeguard the rights and interests of the shareholders, and in many cases, the assets they were holding turned out to be neither a loan nor an equity. second, the oecd principles of corporate governance emphasizes the role of stakeholders. so far, there has not been an accurate and widely accepted translation in chinese for the word “ stakeholder ”, nor do we have principles or guidelines concerning the role of stakeholders in corporate governance. third, the respective roles of the party organizations and of the board of directors and the management need to be clarified. this is an issue unique in china. in most cases, the party organizations play a positive role in supporting the operation of the board of directors and the management. however, there are some occasions where the party organizations and the board of directors or management hold different opinions on certain issues, calling for principles and guidelines to resolve such issues. fourth, the relationship between corporate governance and the authority ’ s regulation and supervision need to be properly handled. in the planned economy and during the early transition period, government acted as both the owner and the supervisory authority of the enterprises. despite the fact that enterprise management and government supervision have been basically separated, there are often cases where these two become mixed together. clear principles and guidelines are needed in this area. improving corporate governance is a reform on which the public has placed great hopes. we must not let the public disappointed because of unclear principles and guidelines in pursuing the reform. the government should play an important role in setting up clear principles and guidelines on corporate governance by drawing upon the international and historical experiences as well as taking into account china ’ s current specific situation. third, the operations and policies of asset management companies need to be improved. during the several years of development since they were established in 1999, some problems have emerged, which are reflected in the prices at which the non - performing assets are disposed, the abuse of power for

assets. international comparison shows that china needs to make improvement in this area. second, apart from the four state - owned asset management companies, private and foreign participants should be encouraged to enter this market to promote competition. third, internal reforms should be carried out in the four state - owned asset management companies to enable them to operate on real commercial basis with hard budget constraints. fourth, when the market has not been fully developed, it is desirable to let the institutions with rich market experiences to make price evaluation so as to avoid soft constraints and set up internal incentives. fifth, efforts should be made to establish proper incentives. without incentives or with very weak incentives, it is not possible to preserve and enhance the value of the assets and make maximum recovery. without effective incentives, people may also tend to seek personal gains from the disposal of assets. sixth, it is important to have appropriate procedures and prevent any improper practices so that the assets are disposed through market competition. however, if the market is not strong enough – for example, market participants are under soft constraints or there are adverse internal incentives, improper behaviors may arise even with sound procedures, and the procedures themselves may become a shelter disguising those improper activities. seventh, it is crucial to develop market intermediaries, since the disposal of assets relies importantly on the integrity and services of the intermediaries. eighth, the objectives of setting up asset management companies are not only to dispose the nonperforming assets in a professional way, but also to make the commercial banks stronger so that they will be able to provide better financial services. so the government needs to consider how to handle the relationship between the asset management companies and the commercial banks. the asset management companies will not operate satisfactorily and there will be much criticism from the public if the above are not handled properly. the state council attaches great importance to the issues concerning the asset management companies. premier wen jiabao has said that “ the asset management companies have had five years ’ experiences in disposing the non - performing assets, and it is time for them to carefully review the experiences and lessons and try to resolve the long - term problems ”. apart from promoting more effective internal management of the asset management companies and strengthening external regulation and supervision on them, the government has much more to do. from the longer - term point of view, china will need a well - functioning capital market to enable its economy to develop soundly.