ANALYSTS are anxiously awaiting the H share reporting season, which will be kicked off by Yizheng Chemical tomorrow. As in 1993, analysts should not expect many pleasant surprises in the year-end figures, given the difficulties experienced last year by enterprises under the regime of a mainland credit squeeze. While percentage increases or decreases in profits could be a disguise for falling margins and rising inventory, analysts will tend to look deeper into the below-the-line picture. However, this task is made difficult by the differences between Hong Kong (or international) and Chinese accounting standards, and by China's particular economic and financial systems. Concern about results continue to focus on triangular debt, accounts receivable and foreign exchange fluctuations. To make everybody's lives easier, it would be preferable for Chinese companies to provide more detail on those factors. We praised the efforts of mainland companies in financial information disclosure in their first set of annual reports, especially given the fact that 1993 was their first year of exposure to international practices. They were described as having a higher standard of information disclosure than their Hong Kong counterparts. In a bid to improve disclosure, the Hong Kong Society of Accountants last week issued technical guidelines on methods used by the companies to report results. With Chinese accounting standards becoming more international, there should not be much difference between the two set of financial statements. Apart from the technical stuff, however, there are still some areas requiring improvement that will make disclosure better. If the companies could hold presentations in Hong Kong, say once a year, it would give analysts a chance to ask questions, and management a channel through which to answer. It also would help spread information in a fairer way. It might be costly in the short term, but the long-term benefits of winning analysts' appreciation for good transparency would more than cover the cost.
