China audits State Grid as corruption crackdown seen widening

China audits State Grid as corruption crackdown seen widening

Fri, May 9 2014

By Benjamin Kang Lim and Megha Rajagopalan

BEIJING (Reuters) – China is auditing the State Grid Corp of China, the utility said in the wake of a magazine report that one of the most senior executives in the world’s largest utility was under investigation.

Caixin, a well-respected Chinese business magazine, reported this week that Zhu Changlin, head of the State Grid’s North China operations, is under investigation, leading industry and government sources to believe State Grid could be next in line in the government’s campaign against graft.

It was unclear whether the probe into Zhu, which could not be independently verified by Reuters, is related to the audit.

In a statement via its microblog on Thursday, the State Grid called the audit “routine”.

“This economic accountability audit is a routine audit arranged according to our systems,” the statement said, without giving further details.

The statement added that State Grid is one of 14 major state-owned enterprises, including seven energy-related companies, being audited.

Industry sources told Reuters that State Grid Corp. – which transmits and distributes power to 1.1 billion people across close to 90 percent of China – is the central target of this round of audits.

The goal of the audits into State Grid and other firms is unclear, but industry officials said it is unlikely that auditors will emerge empty-handed.

“They (auditors) will definitely uncover a bunch of problems, big or small, from an audit of any big state-owned enterprises,” said a senior Chinese power industry official.

The audit, which started last month, has sparked investor concerns that Beijing may consider breaking up the State Grid’s monopoly.

Shares of State Grid subsidiaries that produce power equipment, including Henan Pinggao Electric Co Ltd and XJ Electric, have fallen sharply in the past month. The subsidiaries rely on State Grid’s spending on ultra high-voltage power transmission projects to bring in revenue.

Investors are also worried about an investigation into State Grid Chairman Liu Zhenya, a strong proponent of the controversial ultra high-voltage technology.

Liu says the technology would revolutionize long-distance power transmission and help resolve China’s geographical energy imbalance, but critics say the technology is costly and untested, and could make the system vulnerable to black-outs.

STUNNING TIGERS

President Xi Jinping has vowed to target powerful “tigers” as well as lowly “flies” in a fight against corruption that he has said threatens the party’s very existence.

“It’s beating (gongs) in the mountains to stun tigers,” another source said, invoking a Chinese proverb.

PetroChina, and its parent firm, China National Petroleum Corp (CNPC) are at the centre of one of the biggest corruption investigations into the Chinese state sector in years.

In March, the chairman and the president of Three Gorges Corp., the company that built the $59 billion project for the world’s biggest hydropower scheme, stepped down, but the pair have not been accused of any wrongdoing.

The party’s anti-graft watchdog published a scathing report in February saying some Three Gorges’ officials were guilty of nepotism, shady property deals and dodgy bidding procedures. The dam was funded by a special levy paid by all citizens.

But analysts say a central purpose of the anti-corruption campaign may be to consolidate Xi’s power and remove opposition.

“It is a way to strengthen control…,” said Johnny Lau, a Hong Kong-based political analyst. “We cannot expect that Xi Jinping will take action against corruption only because he wants to make things clean. There is a hidden agenda.”

 

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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