Audit report reveals China’s economic fault lines
Discovery that state-run firms were inflating their profits shows problems with reform drive, analyst says
Beijing’s push for structural reforms in the economy appears to have sparked a backlash in the form of companies inflating their profitability, according to an analyst.
An official audit report published on Friday said that 18 of the 20 state-owned firms that were audited have in recent years inflated their revenues by more than 200 billion yuan (US$29 billion) and boosted their profits by 20 billion yuan with faked business and manipulated books.
The companies audited include China National Petroleum Corporation, China State Shipbuilding Corporation and Sinochem Group.
Lu Zhengwei, chief economist from Industrial Bank, said that although the fake profits only accounted for a small proportion of total takings at the country’s state-owned entities – less than 2 per cent – it showed the problems they had deleveraging.
“It proves that China’s economy has plenty of difficulties to deal with,” Lu said.