1,424 listed firms in China got RMB57bn in subsidies last year

April 20, 2013 Leave a comment

1,424 listed firms in China got RMB57bn in subsidies last year

Staff Reporter,  2013-04-20

The production line of Chongqing Iron & Steel, which got US$320 million in subsidies in 2012. (Photo/Xinhua)

The Chinese government last year provided 57 billion yuan (US$9.2 billion) in subsidies to 1,424 listed firms, with state enterprises receiving 70% of the funds.

BOE, a major flat panel display maker, took over 1.6 billion yuan (US$259 million) in government subsidy last year, when its accumulated net loss topped 8 billion yuan (US$1.3 billion), compared with total capital of 30 billion yuan (US$4.8 billion). China Ocean Service received 900 million yuan (US$145 million) last year, just a fraction of its staggering net loss of 9.6 billion yuan (US$1.55 billion).

Despite the rigorous financial screening for IPO plans, there are still over 700 firms lining up to list their shares on China’s stock market. “Share listing enables a company to raise funds by floating new shares and entitles it to various incentives from municipal governments, amounting to millions, tens of millions, or even one hundred millions of yuan,” said an executive with a listed securities firm.According to the Chinese-language Guangzhou Daily, as of April 15, 1,552 listed Chinese enterprises had released annual reports, which show that 1,424 of them, or 92%, received government subsidies, totaling 57 billion yuan in 2012, equivalent to 12.32% of their aggregate net profits. On average, each firm received 40 million yuan (US$6.3 million) of government money.

Six firms, including Chongqing Iron & Steel, China Eastern, SAIC Motor, TCL, Air China and Conch Cement, each took over 1 billion yuan (US$160 million) in subsidies. Chongqing Iron & Steel topped the list with 2 billion yuan (US$320 million), followed by China Eastern with 1.72 billion yuan (US$278 million), SAIC with 1.38 billion yuan (US$223 million), and TCL with 1.33 billion yuan (US$215 million). Eleven firms were granted subsidies ranging from 500 million-1 billion yuan (US$80 million-$160 million) and 112 firms received subsidies exceeding 100 million yuan (US$16 million) each.

The subsidies, however, could hardly fill the gaping deficits of listed firms, notably 53 central-level state enterprises. Three central-level state enterprises, China Ocean Service, Aluminum Corp of China, and China Metallurgical, received 2.2 billion yuan (US$355 million) of subsidies in total, which was dwarfed by their aggregate accumulated losses of 24.7 billion yuan (US$4 billion).

Of the 1,424 subsidized firms, 615, or 43.19%, are state or state-controlled enterprises and were granted total subsidies of 39.8 billion yuan (US$6.4 billion), 70% of the total amount. China Ocean Service took 904 million yuan (US$146 million) in subsidies last year, compared with its net loss of 9.56 billion yuan (US$1.55 billion), which boosted its accumulated loss in 2012 and 2012 to 21 billion yuan (US$3.4 billion). Despite the subsidy, Aluminum Corp of China incurred 8.2 billion yuan (US$1.33 billion) of net loss, a far cry from 238 million yuan (US$38.5 million) of profit in 2011.

The government offered subsidies in the forms of direct injection of funds, tax rebates and compensatory income, which enabled many small and medium enterprises to finish in the black. According to their annual reports, 97 listed firms managed to make a profit thanks to subsidies. TCL, for instance, managed to rake in 796 million yuan (US$128.7 million) of net profit on sales of 69.6 billion yuan (US$11.25 billion) in 2012, mainly due to 807 million yuan (US$130.4 million) in subsidies

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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