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Former Auditing Official: Overseas Assets of State-Owned Enterprises Are Not Audited

Dong Dasheng, Former deputy auditor general of the National Audit Office, stated that China has not audited the overseas assets of the centrally administered State-owned enterprises (SOEs). Those assets amount to over 4 trillion yuan (US$639.6 billion). 

According to the State-owned Assets Supervision and Administration Commission, as of the end of 2013, the value of the assets that over 110 centrally administered SOEs owned totaled 35 trillion yuan (US$5.59 trillion), 12.5 percent (around 4.3 trillion yuan) of which was located overseas. 
According to Dong, "In the last years, the unwritten practice has been that the National Audit Office only audited 57 of the 118 central State-owned enterprises for the economic responsibility of leading cadres. It was left to other departments to organize or hire accounting firms to conduct audits of the rest of the SOEs. The National Audit Office has not audited the subsidiaries of the central SOEs. Basically there has been no audit of the increasingly large overseas investments of the central SOEs, leaving a large number of blank audit spots among the SOEs.” 
Dong recommended that auditors be co-located at these central SOEs. 
Source: China Economic Net, March 3, 2015 http://big5.ce.cn/gate/big5/wap.ce.cn/szsh/201503/03/t20150303_4706218.html

Briefings | | |   Economy/Resources

Chinese Official Acknowledges the Economic Data Fraud

At a session of the recent Chinese People Consultative Conference in Beijing, Dong Dasheng, former Deputy Auditor General of the National Audit Office, talked about serious economic data fraud. Dong quoted a local official who said, "In the past few years the numbers were made too high. If the number is lowered (to match the reality) at once, it will (look like) a fall off the cliff. We have to digest the numbers over the years."
The issue of Chinese economic data fraud has been a widespread concern. This is the first time a former Chinese official has publicly acknowledged the problem.
As economic growth has been the main measure of performance evaluation of local governments, the GDP growth rate fraud is a very common problem. According to the Anbang Insurance Group, local data fraud includes not only foreign investment, but many areas such as GDP data, tax revenue, and investment. For example, tax revenues in many local governments saw a serious decline in 2014 and some places even had negative growth. In order for the numbers to look good, (local officials) would make adjustments in statistical definitions and the basis of comparison. Some simply cooked the numbers.
Source: BBC Chinese, March 4, 2015
http://www.bbc.co.uk/zhongwen/simp/china/2015/03/150304_cn_economic_data 
Briefings | | |   Economy/Resources

China News: Fujian Pilot Free Trade Zone to be Established

China News recently reported that the end of the preparation work for the China (Fujian) Pilot Free Trade Zone is approaching. Operations for the new Free Trade Zone will soon start. The Fuzhou Region Administration Committee has also been established. In December 2014, the Chinese State Council decided to establish this new Free Trade Zone. The National People’s Congress Standing Committee approved the plan and the Zone will consist of the Fuzhou Region, the Xiamen Region, and the Pingtan Region. Fuzhou Customs has already deployed its working group in the Zone and started foundational operations. The Fujian Province government preparation group has skipped the Chinese New Year holidays in order to plan the tax rules for the new Zone. Fujian Province is a large trading province in Southern China. Taiwan is across the sea from it. Current Chinese President Xi Jinping used to be the head of Fujian Province. The new trade zone is the second after the China (Shanghai) Free Trade Zone.
Source: China News, February 24, 2015
http://www.chinanews.com/gn/2015/02-24/7075905.shtml
Briefings | | |   Economy/Resources

Global Times: Chinese Housing Market Saw Record Decline in January

Global Times recently reported that, according to the numbers that the National Bureau of Statistics released, in January, the price of new houses suffered a year-over-year decline of 5.1 percent. It was the worst decline since the Bureau started tracking this index. The statistical scope covered 70 cities. Of those, 64 saw a decline in January. In the past several months, the Chinese housing market has been consistently on the decline, including in many mid-sized cities. More and more investors are moving their money into the stock market. Real estate and its related industries hold a one-quarter share of the Chinese economy. Analysts expect a continued trend of decline in this sector, especially given the situation that the already huge real estate inventory is still seeing growth.
Source: Global Times, February 17, 2015
http://finance.huanqiu.com/view/2015-02/5713304.html
Briefings | | |   Economy/Resources

China Is Considering Merging PetroChina and Sinopec

Well-known Chinese News Site Sina recently reported that the Chinese government is considering a merger between the top two largest state-owned oil companies – PetroChina and Sinopec. The goal is to establish a “champion” oil company that can practically challenge ExxonMobil and increase oil production efficiency in an era that’s suffering low oil prices. Unnamed Chinese officials said there are multiple options and there is no final decision or timetable yet. As the Chinese economy is slowing down, the Chinese government is planning significant reforms to major state-owned companies in order to improve their global competitiveness. Although the government has been opening up more and more industries (such as infrastructure, natural resources and banking) to private investment, President Xi Jinping stated last year that the state-owned companies are still “an important pillar of the nation’s economy.” Heavy competition among similar state-owned companies is identified as one of the main problems in developing healthy overseas markets. PetroChina has 550,000 employees globally, which is seven times the employee count of ExxonMobil. However its 2013 revenue was US$361 billion, which was much lower than ExxonMobil’s US$420 billion. 
Source: Sina, February 17, 2015
http://finance.sina.com.cn/stock/usstock/c/20150217/204821572981.shtml
Briefings | | |   Economy/Resources

China’s Coal Industry Is Facing a Tough Time

China Economy reported that 2014 was a bad year for China’s coal companies. China’s Coal Industry Association issued a release stating that, in the first 11 months of 2014, profits fell by 44.4 percent and losses increased by 61.6 percent when compared to same period in 2013; 70 percent of coal companies were in the red. China completed 3.52 billion tons of coal production, which was a 2.1 percent reduction from a year ago. It was the first decline since the year 2000. On the one hand, coal consumption continues to decline. On the other, the companies have excess capacity and operational difficulties. According to China Economy, this will be the new norm for the future of the coal industry. 

Source: China Economy, February 21, 2015 http://www.ce.cn/cysc/ny/gdxw/201502/21/t20150221_4630603.shtml
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Qiushi: State Owned Enterprises Should Return More Profits to the State

Qiushi published an article advocating that State-owned enterprises should provide “social dividends” by returning more profits to the State and by increasing the amount of funds used for public benefits. 

According to the article, the economy has been experiencing downward pressure. To increase fiscal revenue, state-own enterprises must increase their “social dividends” in addition to their taxes. The article made the following observations.
First, the profits submitted to the central government have not been expended properly. For example, in 2014, only 18.4 billion yuan (US$2.94 billion) went to pay for social security expenses, while 120 billion yuan ($US 19.19 billion) went back to the State-owned enterprises. More profits should be paid into the State coffers. 
Second, currently the maximum amount that enterprises submit to the State coffers is about 15 to 25 percent of their profits. In the West, about 30 to 40 percent of the profits are for dividends to be distributed to shareholders. 
Third, of 5,000 State-owned enterprises, only 799 are included in the national budget and are required to submit their profits to the State. Particularly, the highly profitable State-owned enterprises in the financial sector are not required to submit their profits to the State coffers at all. 
Source: Qiushi, February 17, 2015 
http://www.qstheory.cn/economy/2015-02/17/c_1114398141.htm
Briefings | | |   Economy/Resources

The Need to Accelerate China’s “Innovation-Driven” Transformation

On February 13, Finance (jingrongjie) magazine published an article on the need to accelerate China’s “innovation driven” strategic transformation. The article stated that China’s economic growth can no longer be sustained by going along with the use of cheap labor and the damage to the environment and resources. Only innovation can accelerate the transformation and the upgrading of China’s economy. 

The article stated that China faces several challenges.  
 
China’s innovation and competitiveness remain low. According to the 2013 National Innovation Index Report that the Chinese Academy of Science and Technology for Development issued, China holds the position of No.19 in the ranking of innovative countries, while the U.S., Japan, and South Korea are Nos. 1, 2 and 4, respectively. The intensity of China’s innovation is also low. The intensity of U.S. innovation is 3.35 percent, while, in 2013 China’s innovation intensity was 0.88 percent. The “window” for China’s technological development to "catch-up" is closing. When compared to the United States and other developed countries, even China’s strategic emerging industries are showing gaps as wide as in traditional industries. Further, China has experienced a severe brain drain; it ranks No. 1 in brain drain in the world. After completing their studies overseas, about 87 percent of those who major in science and engineering fields do not return to China X. 
Source: Finance (Jingrongjie), February 13, 2015 
http://opinion.jrj.com.cn/2015/02/13040118859863.shtml
Briefings | | |   Economy/Resources