Monday, January 5, 2009

Preliminary 2008 Results for Central SOEs

Central SASAC (国资委) announced that profits of the 142 firms owned by the central government decreased by about 30 percent in 2008, the first annual decline among central enterprises since 2002. According to an article in the 21st Century Business Herald:
While revenues of Central SOEs (state-owned enterprises) increased by 20 percent, profits dropped by 30 percent. According to SASAC, if you ignore the effects of two natural disasters (I'm guessing one is the Sichuan earthquake, not sure what the other was -- maybe heavy snows last winter?), as well as policy-induced losses among the petroleum and electricity generation industries (i.e. price controls on their products in the face of what were then rapidly increasing costs of inputs), then profits before tax would have been about the same as that of 2007.

However, we are left to wonder, even if you account for the main causes of the big losses, why did Central SOEs increase revenues by 20 percent without a corresponding increase in profit? Surely this indicates a big problem with expense management.

It was easy for the leaders of SOEs to look like geniuses during the long bull market.

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