China SOEs Are Not Profitable

Here's a report From June 2013 by Chen Duanjie at the University of Calgary's School of Public Policy (PDF) CHINA’S STATE-OWNED ENTERPRISES:HOW MUCH DO WE KNOW? FROM CNOOC TO ITS SIBLINGS

The important part that relates to the Chinese article below:

According to Unirule’s calculations, by taking into account only the unpaid rent for using public land and natural resources, the average real return on equity of China’s industrial SOEs as a whole was in the red (-1.47 per cent) for the period 2001-2009, compared to its reported return on equity of 8.2 per cent, which is still below the 12.9 per cent achieved by the non-SOE industrial sector in the same period.

The article below is a roundup of opinion on China's SOEs as they are reporting earnings again, but one article asks if these companies really earn any money. One argument is the firms earn little to no profits after accounting for unpaid rent, another says that without the government's monopoly protection, the firms would be unable to earn a profit. Aside from real estate rental costs, there's costs such as the spectrum licenses that the telecom monopolies receive for free. China's government would earn as much revenue from the market, but likely more because of efficiency gains once the SOEs were forced to compete.

The article doesn't touch on bad loans, although the last opinion from Lin Yifu mentions the cost of funding on the rest of the economy.

国企真的赚钱吗

According to the latest Ministry of Finance data, state-owned enterprises, "money" list surfaced, petroleum, petrochemical, tobacco, electricity, telecommunications, coal highest in the top five. May 2014, the state-owned enterprises realized a total profit of 9,425.9 billion yuan (below), the annual growth of 6.9%. Central enterprises 7,161.7 billion, an increase of 7.7%. Local state-owned enterprises 2,264.2 billion, an increase of 4.4%.

The 2013 full-year, state-owned enterprises realized a total profit of 2.40505 trillion yuan, an increase of 5.9%. Among them, the central enterprises realized profits of 1.66528 trillion yuan, an increase of 7.4%; local SOEs 739.77 billion yuan, an increase of 2.7%.

SOE really make money? Phoenix Finance compiled some scholars view.

What deducting subsidies SOEs left?

"China highly profitable state-owned enterprises more problematic if the total profits over the past eight years in the name of removing subsidies and other income, from 2001 to 2008, state-owned and state holding enterprises the average real return on net assets was -6.2% Overall losses of state-owned enterprises in the state., Beijing Normal University, Associate Dean of Economics and Business Administration Gao Hua says.

Academy of Social Sciences researcher Zhao Nong economic pointed 2001-2006 2008, state-owned and state holding enterprises amounted to obtain a total profit of 4.91748 trillion, but pay less interest over the same period, rent, lease resources and access to financial subsidies totaled 6.476691 trillion yuan. If you exclude some of the unnecessary costs of subsidies and a variety of low amounts of variety to enjoy, from 2001 to 2008 the state-owned and state holding enterprises the average real return on net assets was -6.2%.

Zhang Shuguang: SOE profits if no deduction of rent

At present, China's government budget into public budgets, government fund budget, the state capital budget and the social security budget four categories. Publicly owned enterprises is an inevitable requirement of financial budget the government budget public.

Zhang Shuguang believes that the current profits of state-owned enterprises, taxes, rents three areas is not clear. 2008 central state-owned enterprises began to turn in profits, but the rents and profits of state-owned enterprises are not separated. SOE profits of more than one trillion per year, which includes a large part of the rent, if the net rent, state-owned enterprises there is little profit. State-owned enterprises should be free to enjoy the rents were released and profits.

Weiying: state-owned enterprises do not really make money

Now state-owned enterprises who can make money, basically rely on the government's exclusive monopoly. Three telecom companies, other people can not do, it can be done, even including banks, are relying on government measures, or those exclusive monopoly imposed by the government to protect it.

At this time, these companies earn these industries, in terms of economics we do, can not be called economic profit, it can only be called the accounting profit. Accounting profit differs from economic profit, accounting profit because it is written in the account, like a lot of the cost of it is hidden, it is not recorded in the account, and then say you make money. If these hidden costs are enumerated (economists call the opportunity cost of these hidden costs), these money is not money.

The simplest, like telecommunications companies, we really want to count it does not make money, if we can only say that three licenses issued, the license should auction, who is expected to be able to do it myself, who can pay high prices, like Chinese people are willing to move out of the year 10 billion yuan, or 50 billion yuan bid such a license to operate, this is a cost.

That now, we are limiting this resource, but we do not bid, no competition. So on the surface in the money, in fact it is what money? Called on economics rent, or called total rent, rather than true economic profit. Real economic profits are created by entrepreneurs, that the entrepreneur is how to create it? He found that the market is not balanced, he is such an economic profit earned through innovation ability. This may also be an important reason for a lot of things confused.

Lin Yifu: should stop subsidies to state-owned enterprises and wealthy groups

China adopted reform and opening up process is a gradual two-track system, which on the one hand the original nonviable large state-owned companies to give the necessary protection and subsidies, on the other hand let go in line with comparative advantage in labor-intensive industries access let the market play a role. Such a transformation of the way so that we are able to maintain a steady and rapid development, but also to pay a certain price. The main manifestations of worsening income distribution, corruption is increasingly common. The reason is that in order to protect, subsidize nonviable large enterprises, we retain some distortion of price signals, such as through financial suppress artificially low cost of capital, the financial resources allocated mainly to large state-owned and non-minority-owned businesses. This is equivalent to the large state-owned enterprises and the more affluent groups to provide subsidies, subsidies for these large companies is to put money into the financial system, and the lack of financial services for SMEs is relatively poor, farmers and ordinary families. For businesses can get funding, because funding is relatively cheap, so invest considerable capital-intensive industries, relatively few jobs created by this industry, which also inhibit labor demand and wages, further deterioration of income distribution. In addition, resource prices are low, who can get right to the exploitation of resources who can immediately get rich. These distortions have created a rent, with rent there is a rent-seeking behavior, lead to corruption corruption.

In the early years of reform and opening up, China is an extremely poor country, the capital is very scarce. Intervention in the market was distorted to these capital-intensive large-scale enterprises to retain some protection, subsidies to maintain economic and social stability necessary, are "timely." After 34 years of rapid development, we have now is a middle-income country, the shortage of capital is no longer so, many of the original does not comply with the comparative advantage of capital-intensive heavy industry is now in line with comparative advantages in the domestic and international markets with a competitive advantage. In such a situation, continue to keep those subsidies to protect from "timely" to the "icing on the cake", resulting in only worsen income distribution and corruption is spreading.