Chinese listed companies that rely on

Recently, 2,537 A-share listed companies announced their annual reports for the first half of this year. Net profits increased by 10% year-on-year. However, the report showed that government financial subsidies increased by 13% during the same period, exceeding the profit growth rate. Many companies with serious losses that should have been delisted miraculously turned losses into profits by relying solely on government subsidies.

Read the special topic in 60 seconds: There are huge government subsidies in various categories, and the intensity of subsidies exceeds the company's profit growth rate, allowing many listed companies to turn losses into profits by relying solely on subsidies without relying on their own profitability. For industries with severe overcapacity such as steel, cement, chlor-alkali, and photovoltaics, in order to maintain political performance, local governments still regularly provide huge subsidies to relevant listed companies, so that long-term loss-making companies can survive for a long time, exacerbating industrial excess.

The intensity of government subsidies exceeds the company’s profit growth rate. More than 90% of companies can receive various types of government financial subsidies

Recently, the 2014 semi-annual reports released by 2,537 A-share listed companies showed that a total of 2,235 listed companies received government subsidies in the first half of the year, accounting for 88.1%. In 2013, 95% of the listed companies received a cumulative financial subsidy of 112 billion. In the first half of this year, the intensity of government subsidies has exceeded the profit growth rate of listed companies. The report shows that the total net profit was 1.266 trillion yuan, a year-on-year increase of 10.13%, while the total government subsidies during the same period increased by 13.63% year-on-year. There are also various subsidy items. In addition to special funds for scientific research and development, energy conservation and environmental protection, at the local level, there are even various items such as demolition compensation.

Monopoly state-owned enterprise giants receive subsidies in the name of losses, but the actual net profits are far higher than the subsidies. Among these subsidies, state-owned enterprises always account for the majority. PetroChina has received the most for three consecutive years, but the huge subsidies only account for single digits of its net profits

Among the enterprises that receive government subsidies every year, state-owned enterprises always account for the majority. Of the more than 32 billion yuan in subsidies in the first half of this year, half flowed into 58 listed companies, and of these 58, 40 were state-owned enterprises, accounting for nearly 70%. In the 2013 annual report, seven of the top ten companies receiving subsidies were central enterprises and local state-owned enterprises. Among them, PetroChina has topped the list for three consecutive years, with subsidies increasing eightfold from 1.1 billion yuan in 2009 to 10.347 billion yuan in 2013. In the past ten years, PetroChina and Sinopec have received a total of 125.883 billion yuan in government financial subsidies. However, it is worth noting that the huge subsidies obtained in the name of "policy losses" do not account for a high proportion of their net profits. For example, in the first half of 2014, they only accounted for 7.5% of their net profits.

Listed companies rely on subsidies to achieve profitability. In the past three years, 278 listed companies have relied on government subsidies to turn losses into profits. Some companies even received financial subsidies that were thousands of times their net profits

Many of these listed companies still suffer long-term losses and rely on government subsidies to turn losses into profits. For example, in the first half of 2014, there were 131 companies with positive net profits that turned negative after deducting extraordinary gains and losses, of which 73 companies turned losses into profits due to government subsidies. From 2011 to the first half of 2014, 278 listed companies turned losses into profits through government subsidies. Some companies turned around losses through subsidies for three consecutive years. The subsidies received by some listed companies are even thousands of times the net profits generated by their main businesses. For example, Luxiao Technology's net profit in the first half of 2014 was 4,616,241 yuan, but it received government subsidies of 4,615,102 yuan, which means that after removing government subsidies, Luxiao Technology's possible "net profit" was only 1,139 yuan.

On the one hand, these companies that should have been delisted are constantly receiving generous subsidies from the government, and on the other hand, they are raising large-scale additional funds in the capital market. For example, in 2011, government subsidies accounted for 79% and 90% of the net profits of two companies, Sanan Optoelectronics and Derun Haoda, respectively. However, in the same year, these two companies carried out two additional issuances, raising 11 billion and 3.2 billion respectively.

In order to protect their shells and create political achievements, local governments do not hesitate to regularly subsidize companies that have been warned of delisting risks

In 2012, the revised delisting system required companies whose "financial accounting report for the most recent year showed negative audited net assets at the end of that year" to face delisting. Listed companies are one of the symbols of local government performance. The delisting of enterprises not only affects the government's performance assessment, but also has a negative impact on local employment and tax revenue. Therefore, in order to protect their shells, the government does not hesitate to regularly issue government subsidies to companies that have been warned of delisting risks, allowing companies to "turn losses into profits." At the time of the 2013 annual report, 41 *ST companies received government subsidies, with a total subsidy of 796 million yuan, and the average subsidy amount received by each company was approximately 19.41 million yuan. For example, *ST Yaxing, which has been losing money for two consecutive years, relied on two subsidies of 17.49 million yuan and 136 million yuan on the last day of 2013 to turn around and safely pass the test

It goes against the rules of the market and provides subsidies to industries with serious overcapacity, so that companies with long-term losses can still survive all year round, and even exacerbate overcapacity

Among the companies that receive financial subsidies every year and enjoy the exemption of death, there are still quite a few industries with serious overcapacity, such as Chongqing Iron and Steel and Midea Group, which ranked among the top 10 in terms of subsidy amount in the first half of the year. From chlor-alkali to steel, from cement to building materials, from LED to non-ferrous metals, these large amounts of excess and backward production capacity can only be opened but not closed due to huge subsidies, and output has not decreased but increased. Take *ST Nanhua as an example. The company's main business is the chlor-alkali chemical industry. It escaped the risk of delisting twice in 2013 and 2010 because the government promptly provided hundreds of millions of financial subsidies. The relevant person in charge of the China Chlor-Alkali Industry Association told the media that overcapacity and slowdown in downstream demand growth have led to increased pressure on the industry, but chlor-alkali chemical production capacity will still expand in the next two years, and excess will still intensify.

Huge subsidies attract companies to find ways to get money. In 2013, the National Audit Office announced that there are endless cases of companies defrauding financial subsidies, and the government's subsidies are also too random.

Huge subsidies with various names often mean gray areas. In June 2013, the National Audit Office announced that some Chinese companies illegally obtained government subsidies. Many of them had defrauded production capacity elimination subsidies. According to the notice, as many as 126 companies were involved in illegally obtaining central government funds to eliminate backward production capacity, accounting for 36.2% of the total number of illegal companies. Among them, Chongqing Iron and Steel used false elimination methods to defraud 7.65 million yuan in fiscal incentives for eliminating backward production capacity.

According to statistics from the National Audit Office, in 2013, local governments concealed revenue of 82.3 billion and illegal subsidies of 126.1 billion. Moreover, the government often distributes these subsidies at will. For example, in early 2014, *ST Zhuye announced that it had received an 89.48 million yuan comprehensive environmental management subsidy from the Zhuzhou Municipal Finance Bureau, which was included in the annual profit and loss to offset the losses in the first three quarters. However, a staff member of the Zhuye Group Secretary's Office told the media that the company did not know how the government calculated this amount. As for how the money is used, the company can continue to invest in environmental protection or use it in other areas. The government has no specific requirements for this.