Audit exposes problems at 17 key state firms
The National Audit Office has exposed extensive financial irregularities and corporate governance problems at 17 major state-owned enterprises, underscoring the lack of market oversight and discipline.
The office yesterday posted on its website audit results of the unlisted firms, which are mainly in the energy, heavy manufacturing and construction sectors. Most have units listed on the mainland or in Hong Kong.
The problems include accounting errors, embezzlement, improper lending and investment, unauthorised project construction, wastage, transfer of financial benefits to select employees and lack of open bidding for contracts.
'These problems are typical of state-owned companies. They are unavoidable due to unclear assets ownership, a lack of delineation between politics and business functions and weak corporate governance structure,' said Beijing Institute of Technology economics professor Hu Xingdou.
He said it appeared more firms were reviewed this year but did not see this as a crackdown on particular segments of the economy.
Profit discrepancies due to accounting errors at most of the 17 firms were less than 5 per cent of their profit, with a few exceptions.
China Southern Power Grid, the smaller of the nation's two regional power distribution monopolies, was found to have overstated profit in 2009 by 910 million yuan (HK$1.09 billion), or 25 per cent. This was largely because of manipulation of power purchase and sales volumes, the audit office said.
China National Nuclear Corp, the larger of the nation's two nuclear power plant developers, inflated profits by 1.11 billion yuan in 2009, or 19.5 per cent, as it failed to account for unrealised long-term debt foreign exchange loss.
Raymond So Wai-man, dean of the school of business at Hang Seng Management College, said publishing the results would help push state firms to improve corporate governance, but the lack of market discipline was the biggest problem.