China's state-owned enterprises (SOEs) are urged to upgrade their legal risk management to prevent economic losses and enhance business reputation globally. 

As more SOEs are doing business or investing in overseas markets, it is urgent that they get a better understanding of the legal environment of the invested countries and strengthen legal management of their overseas branches and subsidiaries, said Huang Shuhe, vice minister of the State-owned Assets Supervision and Administration Commission (SASAC), which supervises the 177 central and biggest SOEs in China.

They have to learn from the established multinationals to deal with legal risks to become more competitive and take a more advantageous position in legal disputes overseas, Huang said at an international forum on legal risk management that was jointly held by SASAC and the Association of Corporate Counsel (ACC) on Friday in Beijing.

He said presently there are 693 overseas-registered central SOEs and overseas direct subsidiaries of the central SOEs, which involve 629.9 billion yuan (US$76.1 billion) of overseas assets and a workforce of around 210,000.

The number will continue to increase, Huang said.

With the continuing development of the Chinese market economy legal system, enterprises will face increasing legal risks, both domestically and internationally, said Frederick J. Krebs, president of ACC, an association of in-house lawyers from the leading companies around the world.

"The best companies have the strongest legal department," Krebs said at the forum. "An effective law department and modern enterprise legal governance system bring long-term value to the enterprise."

Effective management of legal risks will prevent or reduce economic losses and at the same time enhance the business reputation of the enterprise and improve its overall economic performance.

It will also contribute to the improvement of the overall legal environment and development of the rule of law in China, he said.

ACC will be working with SASAC to develop a corporate counsel association in China and help Chinese enterprises build modern legal governance systems, he said.

So far, around 60 percent of the central SOEs have set up specialized legal affairs departments, but there is still a lot of catch-up work to do and a number of the enterprises do not have even one in-house lawyer, SASAC statistics showed.

It is required that all the central SOEs and key local SOEs recruit in-house corporate counsels and establish relevant legal affairs departments within three years.

(China Daily March 19, 2005)