May 2, 2014 7:00 am JST

Chinese companies find way to boost profits for fiscal 2013

NORIYUKI DOI, Nikkei staff writer

SHANGHAI -- The aggregate net profit of Chinese companies climbed nearly 14% in the fiscal year through December, the largest growth margin since 2010, but the figures warrant a second look.

     State-owned banks, carmakers and electronics manufacturers showed particular strength. But closer scrutiny reveals persistent weakness among large state-owned enterprises, some of which only squeezed out profits by selling assets.

     China has a uniform reporting period through December, and companies listed on the Shanghai and Shenzhen bourses must file disclosures by April. The combined net profit for 2,513 Shanghai- or Shenzhen-listed companies with Class-A shares that had announced earnings by Thursday came to 2.249 trillion yuan ($359 billion), up 13.8% on the year.

     Banks, which contributed about half that sum, raised their combined profit by over 10%. Carmakers and electronics manufacturers likewise boosted profits, helped by rising consumer incomes.

     Better business conditions, however, do not tell the whole story. Companies that registered net losses in 2011 or 2012 took such steps as selling off assets or restructuring to push themselves back into the black and avoid the risk of being delisted.

     Businesses that suffer two consecutive years of net losses receive a designation from Chinese stock exchanges that shows they are in danger of being delisted. After three straight losses, trading in their shares is suspended, and a fourth year in the red results in a delisting.

     China Ocean Shipping Co. sold a logistics business, container manufacturing subsidiary and two office buildings to its unlisted parent, enabling it to post a 200 million yuan net profit. Excluding those one-time gains, however, Cosco would have been 7.1 billion yuan in the red. It was given a danger of delisting designation after logging a 9.5 billion yuan loss in 2012, the largest of any Chinese company.

     Struggling with low prices in an industry characterized by excessive supply, Aluminum Corporation of China Ltd. used similar methods to swing to a profit. Without the 5.4 billion yuan gleaned from selling shares of a subsidiary, it would have posted a loss.

     Maanshan Iron & Steel Co. swung to a profit after scraping up 3.8 billion yuan by unloading assets, including a logistics subsidiary and real estate, to its unlisted parent.

     But selling off assets only provides a temporary lift. Aggregate profit growth for the first quarter of fiscal 2014 slowed to 8.1% on the year.

     Cosco, for instance, sank back into the red. Chairman Ma Zehua said the problem of excess supply has yet to be solved.