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Ministry of Finance: State-owned Enterprises Have Liabilities to Asset Ratio of 65 Percent

On September 22, 2014, China’s Ministry of Finance released the economic performance report on State-owned enterprises for the period of January through August. 

The report showed that, as of the end of August, the value of State-owned assets exceeded 99 trillion yuan, with total liabilities at nearly 65 trillion yuan; the ratio of liabilities to assets was 65 percent. The central government owned enterprises showed high financial expenditures. In the first eight months of the year, these grew by 22.4 percent. 
The report also showed that, compared to the same period last year, the rate of growth of both the revenues and profits in these State-owned enterprises continued to decline. Costs, however, continued to increase faster than revenue. 
 Source: China Business News, September 23, 2014 
http://www.yicai.com/news/2014/09/4021971.html
Briefings | | |   Economy/Resources

People’s Daily: Housing Prices Cooling Down

People’s Daily recently reported on the housing market data that the National Bureau of Statistics just released. According to the official statistics, out of seventy large and medium sized cities, sixty-eight saw a month-over-month housing price decline. One city broke even and another had an increase. The seventy-city average price for new real estate fell by 1.2 percent month-over-month, which is the biggest decline in ten years. Traditionally, September is the peak month of the year for the housing market. However there is no sign of recovery as of now. Market analysts thought that it was the high inventory level and a significantly lower demand that had caused the decline. Several provincial governments have come up with new local policies to “rescue” the housing market. It is widely expected that at least ten more provinces will follow suit. 
Sources: People’s Daily, September 19, 2014
http://finance.people.com.cn/n/2014/0919/c1004-25690606.html
National Bureau of Statistics, September 18, 2014
http://www.stats.gov.cn/Tjsj/zxfb/201409/t20140918_611639.html
Briefings | | |   Economy/Resources

Ministry of Commerce: Foreign Direct Investments Fell by Fourteen Percent

Well-known Chinese news site Sina recently reported that the Ministry of Commerce briefed the media in a press conference on the state of the economy as of August. According to the Ministry, the August number for Foreign Direct Investments (FDI) was US$7.2 billion, which represents a year-over-year decline of 14 percent. Another focal point was, for the first eight months of 2014, total actual foreign investments in the manufacturing industry declined by 15.7 percent year-over-year, down to US$27.5 billion. The top ten foreign investment sources were Hong Kong, Taiwan, Singapore, Korea, Japan, the U.S., Germany, the UK, France and the Netherlands. Noticeably, investments from Japan, the U.S. and the EU suffered declines of 43.3 percent, 16.9 percent and 17.9 percent, respectively. 
Source: Sina, September 16, 2014
http://finance.sina.com.cn/china/hgjj/20140916/100520304349.shtml
Briefings | | |   Economy/Resources

China National Coal Association Will Continue to Limit Production and Reduce Imports in Q4

China Financial and Economic News reported that, according to China National Coal Association, the coal industry in China continues to suffer hardship. Currently close to 70 percent of the coal enterprises have to make pay cuts and 30 percent of the coal companies are in arrears on paying wage. With 300 million tons of coal in their inventory on hand, the Association said it will continue to limit production in Q4 in order to bring the coal price back up, hopefully by 20 percent. The association also proposed to reduce coal imports by 20 million tons in the 4th quarter of 2014. According to the statistics, coal production in the first 8 months of 2014 was 2.5 billion tons, down 1.44 percent from the same period in 2013; sales were 2.4 billion tons, down 1.62 percent from the same period in 2013.

Source: China Financial and Economic News, September 22, 2014
http://economy.caijing.com.cn/20140922/3705114.shtml

Briefings | | |   Economy/Resources

Chinese Economists on Compensation Reform in State Owned Enterprises

China Economic Online published an article on the general concern that reform is needed in setting the annual compensation scale for the top managers in State Owned Enterprises (SOE). According to the article, those managers are paid, on average, five times more than their peers in private sectors. In addition, their compensation does not line up with their job performance. The SOE’s are also under the management of the State-Owned Assets Supervision and Administration Commission (SASAC). The article said that the commission’s effort to reshape the board of directors in SOE’s has been unsatisfactory so far. It quoted one Chinese economist who stated that the compensation adjustment effort will involve changes in other areas first: who should set the pay scale and who can make the final call – the board of directors or SASAC? According to the economist, it requires that the government function should be separated from the enterprise management. "The enterprise should be under the management of diversified equity and mixed ownership." He recommended that, "The board members in the SOE’s should be independent, professional, and have accountability."

According to the article, based on the list of compensation in 2013 for the board of directors of the SOE’s, as published by China Economic Research Institute, 259 SOE’s are publicly traded companies. The average annual compensation in 2013 for 83 of the chairmen of the board who received compensation was 840,630 yuan (US$136,894) while 19 of them had annual compensation of over one million yuan (US$162,853). The top management in the financial and banking industry had the highest pay with annual income averaging 940,000 yuan (US$153,077), while the chairmen of the board and bank CEOs were paid at 1.71 million (US$ 278,470) and 2.35 million (US$382,692) respectively.

Source: China Economic Online, September 21, 2014
http://www.ce.cn/cysc/newmain/yc/jsxw/201409/21/t20140921_3570080.shtml

Briefings | | |   Economy/Resources

Real Estate Companies Face Lower Profits and Higher Inventory

Huanqiu reported that, in the first six months of 2014, half of the real estate companies saw their profits decline. 

Among the real estate companies listed on the stock exchanges of Shanghai, Shenzhen, and Hong Kong, as of August 31, 156 of them had released their reports for the first half of 2014. Although 135 of them reported gains, half of the 156 companies reported that their profits had declined. 
As their sales decreased, their inventories have been on the rise. As reported on August 31, the inventory levels for Beijing, Shanghai, Guangzhou and Shenzhen had risen by 30 percent, 25 percent, 42 percent and 25 percent respectively for the first half of 2014. It will take 18, 11, 13 and 20 months to deplete these inventories. 
Cash flow has also suffered. Of the 146 real estate companies listed with the Shanghai Stock Exchange, 107 had a negative operational cash flow. Poly Real Estate Group Company Limited, a large state-owned real estate company funded by the People’s Liberation Army, reported a negative cash flow of 14.28 billion yuan (US$2.33 billion), a decline of 250 percent. 
Source: Huanqiu, September 10, 2014 
http://mt.huanqiu.com/Html/ahtml/china/2014-09-10/5133116.html
Briefings | | |   Economy/Resources

21 CN: Profitability of the Large Companies in China is Worrisome

The TenCent website carried an article that was originally published by China Telecom on 21CN. The article stated that Chinese companies have been unable to make it to the list of the top brands in the world. They lag behind in their profitability and in their investment in research and development. According to the article, among the Forbes’ top 100 world’s most valuable brands list and the Interbrand’s Best Global Brands 2013, no Chinese brand made it to the list. Meanwhile the net profit that Chinese companies make lags far behind compared to those large companies in the U.S. and England. According to the China Enterprise Confederation, the profitability of the large companies in China is worrisome. Among the world’s top 500 companies, the average net profit for U.S. companies was 9.33 percent while Chinese companies were at 5.1 percent. Among the world’s top 500, of the 49 companies that had financial losses in 2014, one-third were Chinese companies. The article said that large companies in China lack the capacity for innovation and rely heavily on imports for their core technology. In 2014, among China’s top 500 companies, the average ratio of research and development spending to income from sales was 1.25 percent. This figure had declined over the last three consecutive years. At the same time, the technology commercialization ratio in China is only at 10 percent which is far below the 40 percent ratio in developed countries.

Source: TenCent, September 5, 2014
http://finance.qq.com/a/20140905/058701.htm

Briefings | | |   Economy/Resources

Economist: The Real Reason behind China’s High Housing Prices – Printing Too Much Money

On August 31, 2014, China Gate reprinted an article from a newspaper from Mainland China, Yangcheng Evening News (ycwb.com). The article explained the real reason behind the high prices of China’s real estate. The same news was then published in several other Chinese newspapers. According to Wu Jinglian, an economist and a researcher at the Development Research Center of the Chinese State Council, these high prices are the consequence of the fact that the government has been printing too much money. The amount of money that China has issued is at 200 percent of China’s GDP. Therefore, the fundamental strategy to solve the problem of high housing prices in China is to stop releasing so much money.

Source: China Gate, August 31, 2014
http://www.wenxuecity.com/news/2014/08/31/3560834.html  
http://blog.ifeng.com/article/33939860.html
http://house.ifeng.com/news/view/detail_2014_08/31/38580591_0.shtml

Briefings | | |   Economy/Resources