Listed companies under fire over reception costs; China Railway Construction topped the list with a total spend of 837 million yuan, or 10% of the company’s profits

Listed companies under fire over reception costs

(Xinhua)

08:36, May 07, 2013

BEIJING, May 6 (Xinhua) — The exorbitant spending on receptions by some Chineselisted companies has came under fierce criticism from netizens in the midst of thecountry’s campaign against extravagance.

The Shanghai and Shenzhen stock exchanges required all listed companies to releaseannual reports for 2012 by the end of April.

These reports showed that the reception costs of nine companies exceeded 100 millionyuan (16.1 million U.S. dollars), according to statistics from Panorama Network Co., Ltd,a financial information provider.

The top 10 companies in terms of reception costs, including mostly state-ownedenterprises (SOEs), spent a total of 2.9 billion yuan on receptions last year.

China Railway Construction Corporation Limited topped the list with a total spend of837 million yuan, equivalent to about 10 percent of the company’s profit last year.

The figures came under fire in cyberspace, as a frugality campaign has been ongoingacross the country since December.

Hundreds of Chinese websites have so far run reports on the companies’ receptioncosts.

On Sina’s Weibo, China’s most popular microblogging service, more than 170 postingsfocused on this topic after the news came out Monday morning, gaining thousands ofreposts and comments in the same day.

A comment by someone with the screen name “Gengtian 40 Nian” postulated that theexcessive reception expenditure allows room for corruption, saying “the reception feewould be better called a corruption fee.”

Famous Weibo commentator Laoxu Shiping said in a posting that China RailwayConstruction’s reception fee may well exceed the given figure.

A netizen with the screen name “Sanshanliushui Woheshan” called for the release ofdetails on how exactly the money was spent. “Who is receiving it? What are they doingfor it and how much does it cost?” the netizen asked.

Chinese premier Li Keqiang vowed in March to keep expenditure on governmentoverseas visits, vehicles and receptions from growing during his tenure.

Most government departments have cut their spending in the three areas as part of thefrugality campaign that prohibits officials and military officers from engaging inextravagant behavior.

Some people argue that listed firms, especially SOEs, should also comply with therequirements of the campaign as their funds belong to shareholders.

Sun Lijian, a professor with Fudan University, said in a Weibo posting that theexorbitant reception spending may be closely related to more deep-rooted problems.

“[These companies] can obtain more business opportunities by offering receptions andgifts, which may be a root for corruption among the top management and the unfaircompetition between SOEs and privately owned companies,” Sun said.

The high expenses may also be related to low efficiency in the companies’ internalgovernance and a potential problem of tax evasion, according to the professor.

He urged companies to unveil detailed information about reception fees, althoughcorporate law does not make this a requirement at present.

About bambooinnovator
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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