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Friday
Jul042014

Auditors uncover lots of weirdness in China SOEs

China’s National Audit Office (NAO) has found massive financial irregularities ranging from theft of state assets to dodgy tender deals in more than a dozen state-owned firms, according to the agency’s annual audit report.
 
Eleven state firms, including oil giant China National Petroleum Corp (CNPC), were found to have decision-making errors that caused losses over 13.4 billion yuan ($2 billion). CNPC executives were criticized by the NAO for power abuse and collusion with private enterprises for personal gains.

Henan-based Xinxiang Investment Group Ltd counterfeited urban re-construction projects and inflated investments to raise funds for tourism development and lending, the auditor said.

The NAO also uncovered dereliction of duty, insufficient due diligence and mismanagement at 12 overseas investment projects developed by the China Investment Corp., which could lead to investment failures.

The local branches of the Bank of China and Agricultural Development Bank of China were found to have problematic loans, illegal deposit-taking and chaotic financial records. The two banks have each issued loans worth over 6 billion yuan ($962 million) in violation of lending regulations. Moreover, both banks distributed inappropriate bonuses and benefits to employees. The Agricultural Development Bank of China also used fake invoices for reimbursement, the auditor said.

Misuse of public funds, dodgy tender deals, and overpayments in acquisitions were discovered in state conglomerate China Resources (Holdings) Co Ltd. Improper bidding procedures were also reported in the China State Shipbuilding Corp and China National Tobacco Corp.

China National Tobacco overstated its 2012 revenues and its Guangdong subsidiary failed to pay 325,600 yuan ($52,226) in consumption taxes. In addition, its Yunnan subsidiary built an unauthorized golf course between 2008 and 2010 at a cost of 681 million yuan ($109 million), the auditor said.

Most of the companies named in the audit report have issued statements pledging to correct their problems.

Sources: Reuters, Wall Street Journal, NAO, People’s Daily Online (人民网)

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Hui Zhi is the Senior Manager for Content with the China Compliance Digest, where a version of this post first appeared.