(Photo/People's Daily)

On June 23, the National Audit Office publicized its auditing results of twenty state-owned enterprises in China. Eighteen were found to have fabricated over 200 billion RMB in revenues and 20 billion RMB in profits in recent years by creating fake transactions, intentionally complicating transaction procedures, and adjusting financial statements.

It is believed that the enterprises posted false statics to window-dress their revenue, although the fabricated revenue and profit only account for 0.8% and 1.7% of their total in the same period.

According to Zhu Boshan, an expert on SOE reform, revenue generated by SOEs is often related to top executives’ salaries and promotions and their employees’ welfare.

National Business Daily found that the National Audit Office specifically investigated China Huaneng Group and its six subsidiaries.

According to its profile, Huaneng has made overseas acquisitions since 2003. The energy giant aims to become one of world’s top five in its industry by 2020. From April 2011 to June 2013, it made overseas acquisitions worth more than 10 billion RMB. However, due to the weak demand for energy, Huaneng suffered losses.

The problem of Huaneng is common among the twenty SOEs. Out of all the 155 overseas transactions done by these enterprises, 61 of them put assets of approximately 38.5 billion RMB at risk. Bad investment decisions, loopholes in management, insufficient research, and untimely risk reduction are the major reasons behind the risks.

Zhang Weihua, an expert on overseas mergers and acquisitions said, “It takes time to tell whether an overseas acquisition made by an SOE is successful or not.” He then added: “But some SOEs made decisions without proper research beforehand. They should keep the market in mind when making overseas investments. And an accountability system should be established to prevent SOEs from making such reckless investments.”