China by the numbers: data to suit a political agenda
Outsiders are fond of studying the mainland by the numbers. Every day tonnes of data are churned out for you to understand this country.
So how good are you with numbers from the mainland? Take a test.
The country's top state asset manager, Li Rongrong, recently commented on the performance of the 135 central state-owned enterprises (SOEs) in the first half this year. Here are two excerpts from the speech.
'The profit-to-cost ratio continues to rise. Between January and June, the cost increase is 2.1 percentage points below the rise in revenue ... The average profit-to-cost ratio is 7.2 per cent or 1 percentage point above last year's comparable level.'
'Between January and June, central SOEs have seen their business cost increase by 45.7 per cent. That is 1.4 percentage points above the growth in revenue. Due to the cost rise, their gross margin dropped to 17.6 per cent, or 0.8 of a percentage point below the first half of 2009. It is also 0.9 of a percentage point below the 2009 level.'
How do you reconcile the two paragraphs? Is the SOE corporate sector doing better or worse?
Don't feel bad if you are clueless. I have put the challenge to six investment bankers and only one came back with an answer.
The majority said: 'What the hell is that?' (Mind you, they have all spent more than a decade working with mainland businesses and I sent them the Chinese version of the excerpts.)
Well, Li is just playing with different accounting concepts to fit a political agenda. You have to understand that central SOEs are seeing mounting public discontent over their privileges - their protected market access, cheap loans and high pay.
The State-owned Assets Supervision and Administration Commission (Sasac), whose job is to maximise their value, must protect their turf. As the Sasac head, Li has to beat the drum for them.
And he was emphasising efficiency. So he began the speech with the improvement in the 'profit-to-cost ratio' - a mainland term for total profit as a ratio to total cost. That is what the first excerpt is all about.
What he did not say is that this ratio can be 'manipulated' by various 'non-operating factors'.
SOEs have unrivalled privileges, such as lower finance costs, government subsidies or handsome gains from equity or property investment.
A more telling ratio is the 'gross margin' drop that is hidden somewhere at the end of his speech - the second excerpt - to remind the companies of the challenges ahead.
That figure counts only the material and staff costs directly involved in the business and the operating profit that resulted.
In short, the central SOEs have failed to absorb the rise in material and staff costs. But thanks to other 'special' factors they maintain decent profit and efficiency figures.
Confusing? But at least Li's not hiding anything.
Here's a second question that is more straightforward.
In its newly-released 2009 report, Sasac says: 'To make income distribution more reasonable, we implemented a new pay adjustment system in 2008. The average pay rise among central SOEs in the metallurgy, electricity, petrochemical and aviation sectors was 6.9 per cent. That is 3.1 percentage points below the average pay rise among all the central SOEs.
'Among them, those in the petrochemical and electricity sectors had a pay rise of 1.52 and 7.04 per cent, respectively. The national pay rise was 15.71 and 10.19 percentage points' above those industries.
Did the SOEs mentioned above have a lower than average pay rise last year?
(C) None of the above
If, like me, you chose (A), you and I are both wrong. Read it again. The figures talks about 2008, not 2009.
Well, the central SOEs have been trying to justify their high pay with a profit-linked pay structure. It did not help to quiet the public anger given their monopolistic status.
In fact, the central government is working on a new set of income distribution rules to narrow the wealth gap and to encourage spending.
The heat on state corporates is mounting and the commission has to answer that. So the report spends pages talking about the increasing market shares of the private sectors and singling out the pay rise of four monopoly sectors. But for a good reason, no 2009 comparison can be done.
In a different chapter, the report reveals that those working in central SOEs got on average an 8.8 per cent pay rise last year. (That is in the chapter on the great productivity of central SOE staff.)
This raise compares with the 6.6 per cent that their peers in the private sector got, as a survey by the National Bureau of Statistics reveals. The 2009 comparison would be too 'inconvenient' to use.
It would be even more inconvenient to mention that the survey found those in the state sector earned 35,053 yuan (HK$40,128) a year while others were getting 18,199 yuan.
So how good are you with numbers from the mainland?