Market participants call that listed companies in mature capital markets rarely receive government subsidies as high as A-shares. Their performance depends entirely on the company's operating capabilities, rather than unfair financial subsidies. High subsidies have laid hidden dangers for the highly regulated capital market, and it is urgent to speed up the improvement of the supervision mechanism.
302 companies received a total of 3.792 billion yuan in government subsidies
Domestic home appliance giant TCL Group has received huge government subsidies, which has become the focus of much attention in the market recently. TCL received a total of approximately 2.2 billion yuan in subsidies in 2013, but TCL Group’s net profit attributable to listed shareholders that year was only 2.109 billion yuan. This also means that without subsidies, TCL's actual profitability should be a loss.
The situation that was exposed is just the tip of the iceberg for A-share listed companies. According to statistics from reporters, government subsidies covered 94% of listed companies in the two cities in 2012; in 2013, 2,370 companies received a total of 106.783 billion yuan in subsidies, with an average of about 45 million yuan per company, a year-on-year increase of about 22%. These 2,370 companies achieved a total net profit of 2.26 trillion yuan that year, which means that government subsidies accounted for 4.73% of their total profits.
Today’s 2014 semi-annual report shows that financial subsidies for listed companies are still common. The 302 companies that have been disclosed have received a total of 3.792 billion yuan in government subsidies. Although the big blue chips have not yet announced their mid-term results, the average subsidy amount for each company only exceeds 10 million levels. However, in terms of profit ratio, these 302 companies have achieved a total net profit of 31.052 billion yuan. This means that among companies that have disclosed interim reports, the government subsidies they received in the first half of this year accounted for 12% of their total net profits, which has doubled compared with 2013.
Some listed companies rely on government subsidies to make a living
"Government subsidies are intended to promote some growing emerging companies to promote economic transformation, but this is not the case in actual operation. Some industries that receive high subsidies are even industries with overcapacity. Some companies rely entirely on government subsidies to maintain their own development. This behavior of not paying attention to the development of their own industry and enterprises and relying solely on subsidies is undoubtedly a waste of time." Chen Lei, an analyst at Hongyuan Securities, said in an interview with reporters yesterday.
Among the companies that have received huge government subsidies, there are indeed some representatives of industries recognized as overcapacity. According to reporters’ statistics, the “subsidy king” of A-shares at this stage is undoubtedly Sanan Optoelectronics, a listed LED chip company. In the first half of this year, Sanan Optoelectronics received 28 government subsidies totaling 196 million yuan, and various government subsidies accounted for nearly 30% of its net profit.
After combing through Sanan Optoelectronics’ financial report data in recent years, the reporter found that high subsidies have become the company’s “routine dish.” In the four and a half years since 2010, Sanan Optoelectronics has received subsidies of more than 3.5 billion yuan. And if the government subsidies from Sanan Optoelectronics are removed, this listed LED chip company basically made no money in 2011 and 2012. For example, in 2011, Sanan Optoelectronics had 805 million yuan in government subsidies included in its annual report, but the company's net profit that year was only 936 million yuan.
A similar example is Zhuzhou Metallurgical Group Co., Ltd. in the non-ferrous metal industry. Last year, the company received three government subsidies totaling 60.71 million yuan in the name of "comprehensive resource utilization products enjoy instant VAT refund upon collection". But at the same time, Zhuzhou Ye Group achieved a net profit of only 9.3684 million yuan in the first half of 2014. In other words, if government subsidies are excluded, Zhuzhou Metallurgical Group will continue to suffer a huge loss of more than 50 million yuan after losing 194 million yuan in the same period last year.
Experts call for the establishment of a fair and just market environment
How should we view the huge government subsidies for listed companies, especially state-owned enterprises? Gu Chan, a well-known financial columnist, said in an interview yesterday that local financial subsidies are divided into three categories. First, listed companies in which the local State-owned Assets Supervision and Administration Commission participates or controls. In order to implement state-owned enterprise reform and asset restructuring, some companies with declining performance need to be given policy subsidies to ensure that their performance is not too ugly; second, local governments show "fatherly love". These places often only have one or two listed companies. In order to strive for more local companies to be listed, they whitewash the performance of listed companies; third, companies are subsidies for old city renovation. "Compared with the first two, the third one is more reasonable."
Chen Lei said in an interview with reporters that listed companies in mature foreign markets rarely receive government subsidies as high as A-shares. Their performance depends entirely on the company's operating capabilities, rather than unfair financial subsidies. "Reasonable fiscal subsidies are beneficial to the adjustment of the economic structure, such as industries closely related to the national economy and people's livelihood, and companies supported by national and local government policies. However, if large-scale, long-term subsidies appear in the capital market, it will destroy the fair competitive environment for other enterprises and cause harm to economic development and capital market development."
Many economists have expressed similar views on the drawbacks of government subsidies. "China has formulated many industrial policies and given many subsidies, which has caused many enterprises to learn bad things. They spend all their time thinking of ways to apply for government subsidies without real innovation." Zhang Weiying, a famous economist, publicly stated this at the 2014 Boao Forum Annual Conference. Economist Lin Yifu also said that at the beginning of China's economic transformation, state-owned enterprises encountered many problems and received large amounts of government subsidies. But now many state-owned enterprises are already competitive in both domestic and international markets, so there is really no reason to subsidize them anymore.
There are reports that at the Prime Minister's Forum in July this year, Dong Mingzhu, chairman of Gree Electric Appliances, said, "We do not need national industrial policy support! As long as there is a fair competition environment, companies can do well on their own." Fang Hongbo, chairman of Midea Group, also called for the country to minimize the introduction of some subsidy policies in the future, because the introduction of some stimulus subsidy policies will ultimately lead to insufficient market competition.
If high subsidies have planted hidden dangers in the highly regulated capital market, then how should we speed up the improvement of the supervision mechanism? "We should appeal to the financial department, because there are many things that the China Securities Regulatory Commission cannot control." Gu Chan said that the China Securities Regulatory Commission can only manage through information disclosure. For example, the amount of subsidies and the reasons for the subsidies must be disclosed one by one. How to effectively control subsidies is something that the financial department needs to study. “With the advancement of mixed ownership reform, it is expected that the unreasonableness of huge subsidies to listed companies will eventually be resolved.”
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