Plenty of Room For Corruption in $2 Trillion of State Assets Overseas

Earlier this year there was the decision to audit overseas assets of SOEs. At the time, the figure was estimated around ￥4 trillion.

China state-owned firms' overseas assets are not audited: Xinhua

Official figures showed the value of assets at around 110 SOEs totaled 35 trillion yuan at the end of 2013. Of that, they showed 12.5 percent were overseas, meaning over 4 trillion yuan in assets was not subject to any detailed government audit.

A new figure puts the actual total at more than 3 times that amount, or roughly $2 trillion in assets.
iFeng: 境外国资已超12万亿 国企管理层腐败导致巨额损失

SASAC published data show that as of the end of 2014, most of the central enterprises have set up overseas (including Hong Kong and Macao) up branches in these institutions across more than 150 countries or regions of the world, with total assets had reached 38.7 trillion yuan. In the central business pure SASAC supervision of offshore units, total assets, operating income, gross profit has reached 4.68 trillion yuan, 4.49 trillion yuan and 120 billion yuan.

...In addition, the state-controlled financial institution the size of the foreign assets of more substantial. According to the Bank of China [ 0.81% funds research report ] Industry Association released the "2013 Annual Chinese silver industry Social Responsibility Report "shows that as of the end of 2013, 18 co-funded banking financial institutions in 51 overseas countries and regions set up overseas 1127 branches, total assets of over 1.2 trillion US dollars , according to the current exchange rate , equivalent to RMB 7.45 trillion yuan.

Therefore, only the above relate to foreign state-owned assets, the total amount is more than an astronomical 12 trillion yuan.

A lot of money was lost on bad investments, such as iron ore production. Other assets were lost due to bidding between two different SOEs. Then there's good old fashioned corruption.

Director of the Research Center of the emerging strategic industries, Tsinghua University Wu Jinxi that, first, the loss of overseas state-owned assets is due to the blind expansion of some state-owned enterprises and the "hungry", swallowed hard to swallow another gesture of many overseas projects, especially in some resource projects . Chinese companies such as the Australian large investments iron ore and coal projects, now operating very difficult; secondly, to engage in image engineering and sensibilities, and to go out and go, knowing that there are still risks hastily. Once again, the state-owned enterprises serious internal friction, such as CSR CNR when bidding against each other. Like "dogs fight, play off" phenomenon are many. In addition, management corruption will lead to a huge loss of state assets overseas.

Currently, due to the normalization of the regulatory mechanisms have not been fully established, more than one trillion yuan of overseas state-owned assets at any risk of being eroded. Well, the most impressive of all cases of loss of state assets abroad What are the characteristics? What is the deeper reason behind them is? By combing found that loss of state assets overseas can be divided into the following "five most": "The most hasty," the hastily; "most regrettable" business missteps; "the most strife" vicious competition; the "most helpless" rigid approval; "most corrupt" management loopholes.

There are examples of each provided:

1. "The most hasty," the hastily: A2 highway project in Poland

Process: A2 highway project in Poland is the Polish government bidding projects in overseas consortium won the bid in September 2009 in which the A, C two sections, total length of 49 kilometers. This is the first Chinese company contracted infrastructure projects in the EU, but because the offer made ​​by only 52 percent of overseas government budget in Poland, once attracted dumping accusations. In May 2011, because there is no time to Poland in overseas subcontractor payment, the latter refused to transport supplies to the site, and eventually taking place from May 18 to shut down. Early June 2011, the overseas finally decided to abandon the project, and compensation for 188.5 million euros .

Reflection: random bidding system. Overseas eager to enter the EU market infrastructure, develop a low bid of policy that you want to take advantage of cheap labor in China to reduce costs and raise the price change halfway through the project profit. Little do they know the expected labor cost advantage does not exist in the construction process and raw materials continue to rise, while Poland is a relatively transparent national financial engineering system is also very robust, does not allow half-way fare increase, which makes overseas wishful thinking in vain. When the quick success of state-owned enterprises to go overseas is very serious, eventually became the next set for ourselves, to catch a lot of state-owned assets in exchange for a profound lesson.

2. "most regrettable" business missteps: CAO Chen to event

Process: in December 2004, chief executive of China Aviation Oil (Singapore) Corporation CAO Chen to accept the police for criminal investigation case huge losses. Previously, Chen to breaking into overseas markets, the whole seven years, suffered a rainbow night: a result of successful overseas acquisitions has been called the "oil empire bought a" oil tycoon, because the enterprise is engaged in speculative activities and nearly $ 554 million The huge losses; a man who led Asian economic trend, the annual salary of S $ 4.9 million "workers", because of illegal operations in the futures market on trial.

Reflection: as also Xiao Xiao loser. Former CEO of CNOOC Chen to only seven years, put the China Aviation Oil (Singapore) Corporation from a half-dead state-owned business into overseas oil empire in Asia swept. But after that, Chen to oil prices because of the option misjudgment, overnight hit bottom from the top. Completely regardless of market trends reverse operation, the cost can be both a hole ruined himself a public company. This is quite a bit "as also Xiao Xiao loser" means.

3. "The most strife" vicious competition: the north and south car overseas bids

Process: Since the spin-off in 2000 under the former Ministry of Railways, China Railway Locomotive & Rolling Stock Industry Corporation, China South Locomotive [ -3.00% funding research report ] and China CNR [0.00% funds research report ] has been infighting. In 2011, Turkey's locomotive tenders, China CNR artificially low prices to compete with China South Locomotive, eventually making the project was snatched Korea. A year later, the Argentine government outsourcing projects locomotive, CSR want报一箭之仇. China CNR offer first-round bid $ 2.3 million / units, Alstom and other foreign competitors offer higher than the cost, it is expected to bid. However, China South Locomotive has opened a $ 1.27 million / vehicle "super cheap" and eventually grabbed a total of nearly $ 1 billion in orders from China in the north drivers.

Reflection: the same root, fratricidal. China Southern, CNR malicious competition abroad as well as poaching each other, resulting in significant project originally profit so quietly naught. Chu sequence level SASAC research center director who at the Fourth International Investment Forum utterance: "The previous foreign fellow villagers, two tears, the case is now his country fellow, his eyes fiercely exposed this competition has led to the national interest. lose a lot. "It is true that the fragmented nature of the vicious competition for Chinese enterprises in the international negotiations is very passive, and ultimately had to take a low offer or accept the high price, resulting in large number of hidden loss of state assets.

4. "The most helpless" approval rigid: Minmetals lost development opportunities, etc.

Process: In 2005, a department of the State Minmetals declaration, to more than 20 billion acquisition of Canada's non-ferrous metals giant Noranda, but authorities said that the project risk, a feasibility study is not sufficient, the application shall not be approved for the project . The results of the second year of the value of Noranda doubled, rising to more than 50 billion dollars, Minmetals therefore lost opportunity. Coincidentally. 2006, to participate in the high-end Shanghai Baosteel steel competitive market, to be near a low cost of Australian iron ore and coke construction of Baosteel Zhanjiang steel base, with a total investment of nearly 70 billion yuan. However, until May 2012 the project was approved, then the international steel market has changed dramatically, Baosteel only living in an even greater disadvantage in serious excess capacity in the market.

Reflection: rigid approval mechanism. Central enterprises belonging to public enterprises entrusted with the operation, not only bear the responsibility for the country's economic security, but also bears the obligation for all people to wealth accumulation. However, because some sectors but rigid approval process, greatly reduce the operating efficiency of state-owned capital, resulting in long-term state-owned assets is difficult to value. The rapidly changing market, and the relevant departments for approval mechanism, regardless of whether it was. Opportunities are fleeting, how to improve processing efficiency, how to handle properly in strengthening market regulation and activation between economic vitality, how to find a balance between controlling investment risk and maximize return the country to seek capital efficiency, taking into consideration the relevant departments of the wisdom and play .

5. "most corrupt" management loopholes: Bo Qiliang pocketed

Process: As a deputy in the oil and gas stock company in charge of the oil overseas business president , but also the Chinese oil [ -1.19% funding research report ] overseas exploration and development company general manager Bo Qiliang, was the entire oil greatest power to send, which is responsible for overseas business occupy half of the oil. Bo Qiliang use friends and family overseas projects seeking their own pockets. According to media reports, Bo Qiliang brother set up the company through an agent, specializing in the oil business overseas materials procurement. More than 80 overseas projects in the oil, 80% of the company's materials, annual revenue of around 20 billion. May 16, 2014, Central Discipline Inspection Commission informed the Ministry of Supervision, vice president of China National Petroleum AG Bo Qiliang alleged serious violation, the organization is under investigation.

Reflection: The regulation block loopholes in the system. For a long time, since the oil in the overseas assets supervision and there are serious loopholes in the system, resulting in thin Qiliang and his ilk can self-dealing on mergers and acquisitions, procurement and other projects, rent from fat. Through the establishment of associated companies with their own business, resulting in state-owned assets fall into personal pockets. The foreign agents and derivative enrichment "trick", many overseas projects are private capacity operation, but the state of the funds invested, many projects end up really became a private. This became the way of making money overseas state-owned agency's intention is not certain, but often it is difficult to find. Their greed plus loopholes in the system, to thin and fall Qiliang ilk open the door to corruption.

There's a lot more discussion in the very long article, which concludes:

The second stage is the beginning of this century "massive march" stage, after the state-owned enterprise restructuring strength gradually, and as China's accession to WTO, the central government actively implement the "going out" strategy background, state-owned enterprises began to accelerate out of the country . State-owned enterprises to go out at this stage both brilliant achievements, but the problem there is a big problem facing many risks. Some of the investment or business failure resulting in loss of state assets in the case of very painful, a great loss. Overall, international operations of Chinese enterprises at this stage is still in the exploratory stages of learning, international experience, and risk management capability there is a large gap between China's multinational corporations. In addition, the assets of the regulatory system this stage the central rate of foreign investment is not perfect.

Long story short: central planning is wasteful. Chinese companies were told to go abroad, so they went abroad.