20 February 2019
Oil giants such as Sinopec are among the biggest recipients of government subsidies in China. Photo: Bloomberg
Oil giants such as Sinopec are among the biggest recipients of government subsidies in China. Photo: Bloomberg

The subsidy game at Chinese listed firms

Chinese listed firms received a total of 77 billion yuan (US$12.3 billion) in subsidies last year from different agencies of the government, enabling some loss-making companies to swing to a profit.

This was revealed in a study of 1,556 A share companies that had declared their 2013 annual reports as of April 10. According to the study published by Guangzhou’s Southern Weekend newspaper, 1,377 firms had received subsidies, or 90 per cent of the total.

The figures tell many stories – how billions of yuan are channeled into favored state companies, many of them already very profitable, or into loss-making firms to keep them from being delisted. City and provincial governments want to protect their local companies, so that they can continue to provide jobs and taxes.

They also show the extent of the challenge faced by Xi Jinping and Wang Qishan in trying to attack the enormous power of interest groups, which have built up enormous financial and political clout and often act in defiance of the directives of the central government.

The top prize went to China National Petroleum Corp (CNPC) which received 10.3 billion yuan, more than eight times the 1.1 billion it received in 2009. The money was paid as a rebate on value-added tax on imports of natural gas, including liquefied natural gas. In 2013, China Petroleum & Chemical Corporation (Sinopec) received a subsidy of 2.4 billion yuan.

For the 10 years up to and including 2013, these two companies received a total of 125.88 billion yuan in government subsidies. These are two of the most profitable companies in China, which enjoy a near monopoly positions in the one of the world’s fastest growing markets. They certainly do not need the money.

The top five recipients in 2013 were CNPC, China Eastern Airlines (CEA), Sinopec, Zhongxing Telecom (ZTE) and TCL Group. CEA received 2.37 billion yuan, ZTE 2.306 billion yuan and TCL 2.2 billion yuan. The top 10 in the list received one third of the total in subsidies, as they did in 2012.

The subsidies come under different headings – repayment of certain types of taxes, payment to encourage clean energy and pro-environmental policies, money to buy new equipment, incentives for high technology, and for getting factories located in a particular city.

In some cases, the subsidies enabled a company to turn a loss into a profit. They exceeded actual profits in the case of over 170 listed firms. CEA, for example, reported a 2013 net profit of 2.1 billion yuan – without the subsidy, it would have posted a loss of 227 million yuan.

One of the clearest examples was electric automaker BYD. It reported a profit of 553 million yuan and received a subsidy of 667 million. Between 2007 and 2013, it received a subsidy of 870 million yuan from the city of Changsha, 865 million yuan from the city of Shenzhen and 250 million from Shaanxi provincial government. In addition, Shenzhen has promised to pay it 500 million a year from 2009 to 2015 to promote new energy cars.

A total of 23 ST (special treatment) companies received between them 1.5 billion yuan in subsidies. They rely on these payments to stay listed.

Under the current delisting policy, net profit is the only measure in determining whether a company’s listing should be suspended. So, many firms scramble for subsidies in order to stay listed.

For example, Baoshuo Co, a firm on the brink of delisting, received 607 million yuan from the city and county level governments – enabling the company to drop ST from its name on March 6. Based in Baoding, Hebei province, the firm makes plastic and chemical products for sale to the domestic market.

ST Nanhua, based in Nanning, Guangxi region, posted losses of 210 million and 280 million yuan respectively in 2011 and 2012. On November 29, the company announced that the Nanning city government had decided to give it a subsidy of 290 million, enabling it to retain its listing.

In some cases, the subsidies go to firms in sectors that suffer from overcapacity, including steel, cement and coal. Anhui Conch Cement Company, for example, received 882 million yuan last year. Maanshan Iron & Steel last year reported a net profit of 157 million yuan after receiving 453 million in subsidies.

In June 2013, the Auditor-General published a report of misuse of the subsidies and found that 126 companies had received them illegally, in the name of money given to shut down antiquated production. Chongqing Steel, for example, received 7.65 million yuan in a subsidy to close down old equipment – but it did not do so.



Hong Kong-based writer, teacher and speaker

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