Shipping chief locks eyes on the top - not on bottom line

Politics, not profit margins, is the overriding concern for China Cosco's chairman as he stays afloat despite the company's sea of losses

PUBLISHED : Saturday, 13 April, 2013, 12:00am
UPDATED : Saturday, 13 April, 2013, 4:51am

"As long as China Cosco is fully understood by party central and the State Council, it's enough for me" - Wei Jiafu, chairman, China Cosco, April 8

Finally, someone has spoken the truth. There can be no better person than Wei to uncover the lie of so-called state enterprise reform.

China Cosco, the world's second-largest shipping firm, made a 9.5 billion yuan (HK$11.8 billion) loss last year. That's after losing 10.6 billion yuan in 2011, making it the worst-performing state enterprise.

The mainland media called it "the king of loss-making". Angry shareholders demanded Wei's removal, comparing him to Larry Yung Chi-kin, who lost his Citic Pacific leadership after burning HK$7.5 billion in a currency bet.

Any management would have made a deep bow and come up with a concrete loss-cutting plan. Not Wei.

He made it clear that all he cares about are the state leaders, not the board or the shareholders. "If I am as bad as suggested by some people on the internet, could I have accompanied the state leader at the BRICS summit?" Wei said.

The state leader is President Xi Jinping. Wei was among the five corporate leaders with Xi. Wei signed a BRICS business coalition agreement on behalf of China. Wei was standing right behind Xi in the group picture with all the BRICS leaders. No wonder Wei can be arrogant.

No state-owned enterprise (SOE) chairman gets the job simply on business performance. What counts are political performance and friends at the top. Let's not forget these chairmen are very often party heads of the company.

The State-owned Assets Supervision and Administration Commission (Sasac) makes the recommendation, the party's Organisation Department makes the decision, and the board makes the announcement.

Wei is good at this game.

In 2010, the party pledged to cool the property market and ordered all the central SOEs to quit the market. Within days, Wei promised in public to sell the firm's control in Cosco Property. Within nine months, the stake was sold.

Late last year, Sasac made 2013 a year of corporate culture. In the Cosco Group, training was organised and billboards were made to boost corporate culture. Last month, it became a model praised by Sasac.

Wei even managed to get himself honoured by the US House of Representatives in 2009 for being the largest Chinese employer in America.

As for business foes, a veteran like Wei would have no problem coming up with excuses. Yes, I have lost billions of yuan. Yet, the global shipping industry is bad and I can't do much about it. Maersk Line made a US$461 million profit but it's not an enterprise with "Chinese characteristics".

Yes, I am not good at cost control. China Cosco's staff size has trebled and staff expense per TEU shot up by half since its 2005 listing. (See the table).

Yet, I am providing jobs for 46,221 people. In this bad time, not only did I not chop any heads and pass the buck to the government, I've managed to hire 6,000 more and cut operating costs by 16 per cent last year.

Yes, I made a wrong bet by locking in a lot of vessels for five years at a high price during the 2008 peak. Yet, who could have foreseen the financial chaos created by the Americans?

Yes, the government has to pay seven billion yuan to buy my logistic operations to save China Cosco from a third year of losses and a delisting. Yet, I have turned a pile of lousy state assets into 54 billion yuan in cash in the past years via listing and asset injection.

Wei is not only safe, he may even manage to use the mega loss to get some favourable policies. How about a mega capital injection to pay up its 14 billion yuan short-term loan that is costing it a fortune? Just like the airlines.

Yes, just like the airlines, where billions of yuan were lost, billions of yuan were injected and no one has been fired. Just as party central wished.