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It is also leading to opportunistic collusion between local governments and SOE managers regarding tax revenues and other resources. Asset stripping is indeed widely reported, with insiders (managers and workers) taking SOEs' good assets and leaving debt−ridden shells. " SOEs' explicit and implicit liabilities are left with the state banking system and government. The authorities recognize the growing importance of the asset−stripping problem, and in early 1997 the State Council formed the Leading Group to Stop the Drain of State Assets, headed by Vice Premier Zhu Rongji.

The SOE Law (1988) supersedes the Factory Director Regulations and introduces SOEs as legal persons. One of its stated objectives is to define the rights and obligations of SOEs and safeguard their legitimate rights. SOEs enjoy autonomy in accordance with the law with respect to their business operations and are granted the right to possess, use and dispose of the property given to them by the State to operate and manage. The law also introduced a set of 14 rights (precursors to the Autonomous Management Rights Regulations —see below) to the enterprise legal person (represented by the manager) to define the SOE's sphere of autonomy.

Because assignment of the liabilities is difficult to implement, they are "socialized" (further discussed in Chapter 4). With respect to the State as owner , it is widely understood that the State Council is the unambiguous representative of the State as the "ultimate owner" of the state assets embodied in SOEs, with the State Council's overall policy framework for management of state assets administered through guidelines and regulations issued by NABSOP. Still, efforts are being made to clarify who concretely represents the "acting owner" of such assets.

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