Audit exposes central SOEs’ flaws, weaknesses

Many make poor investment decisions

“Central SOEs’ real shortcoming is that many do not have a long-term strategic plan.” Economics professor at the Tianjin University of Finance and Economics

A recent audit of central Stateowned enterprises (SOEs) has exposed problems such as declining asset values, excessive vehicle purchases and substandard assessment procedures for investments and mergers.

Experts told the Global Times on Thursday that the SOEs are being held back because of contradictions between government administration and corporate management.

According to an audit of 35 central SOEs’ expenditure and revenue in 2016, which was posted on the official website of the National Audit Office (NAO) on Wednesday, some enterprises carried out major projects and investments without proper approval, which caused assets to be lost or underutilized.

Some SOEs haven’t formulated reform plans in a timely manner, nor have they efficiently dealt with idle or inefficient assets. Others were slow in carrying out major scientific research or construction projects.

In terms of corruption, some central SOEs still had “gray zones” such as gift-giving, parttime remuneration, and subsidies and vehicle purchases that exceeded standards.

Cong Yi, an economics professor at the Tianjin University of Finance and Economics, told the Global Times on Thursday that such behavior as luxurious consumption has indeed declined a lot in recent years due to tighter government supervision.

“Central SOEs’ real shortcoming is that many do not have a long-term strategic plan,” Cong said.

Since the 1990s, the central government has sought to separate politics from business management, Cong said, but this effort has yet to succeed in many SOEs.

“One example is that many central SOEs’ leaders consider their posts at the SOEs a kind of springboard that leads to positions in other government agencies. So they may not pay much attention to the long-term performance of the companies,” Cong said.

Feng Liguo, deputy director of the China Center for Strategy and Policy Research under the Dongbei University of Finance and Economics, told the Global Times on Thursday that in central SOEs, non-commercial activities like social responsibilities often replace commercial activities, and the SOEs often prefer stability instead of risky market exploration.

“There’s too much focus on central SOEs’ book value instead of their real profitability, and on fixed assets instead of on core competence and talent,” Feng told the Global Times.

Some of the SOEs mentioned in the report have already commented on the problems. For example, China Huadian Corp said on Wednesday that some of its subsidiaries had restated their accounts.

CRRC Co on Wednesday also listed solutions to the company’s flaws in business management and accounting, like business reengineering and standardizing the company purchasing system.

Central SOEs’ profits rose 22.1 percent year-on-year in the first five months of this year, data from the State-owned Assets Supervision and Administration Commission showed on Tuesday.

The NAO audit also showed that most of the central enterprises made a profit in 2016.

Cong said that central SOEs’ operate in a more favorable environment than private enterprises, but in terms of making a contribution to the general economy, private companies surpass central SOEs.