How to Count in Chinese

[rffrydr]

FT

Experts warn of China's 'blind spot'

By Barney Jopson in London

Published: December 30 2006 02:00 | Last updated: December 30 2006 02:00

A blind spot in a newChinese accounting system has the potential to foster trouble for stock market investors once it is activated on January 1, outside experts warn.

Some 1,200 companies listed on the Shanghai and Shenzhen stock exchanges will from next week be required to follow the accounting rules, which are modelled closely on the international financial reporting standards (IFRS) in force in Europe.

But China's requirements differ from IFRS in one area of concern to market watchers: the disclosureof transactions between businesses under common ownershiop or management control, known as related parties.

China's finance ministry has decreed that state-controlled entitities will not be regarded as related parties, so transactions between them will not have to be reported. .....
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

All that background necessary for robust and healthy markets: law, property, patents...self interest all are subsumed in stock. That last part is where our research usually begins and ends--even for the best:

http://www.ft.com/intl/cms/s/0/47b86d5c-9b95-11e0-98f2-00144feabdc0.html

[rffrydr]

Bain Capital gets taste of confucianism at shareholder meeting:

Gome

Published: May 12 2010 09:32 | Last updated: May 12 2010 13:22

[rffrydr]

Deflator....reflator:

http://ftalphaville.ft.com/blog/2010/01/27/135651/chinas-unreal-gdp/


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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

It'll be three years before we can "add it up":

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aueh06DOY37A

[rffrydr]

Fitch working their "magic" on chinese banks:

http://ftalphaville.ft.com/blog/2009/12/18/116111/are-chinese-banks-massaging-their-losses/

This would be quite the muckraking exercise by Alphaville if indeed those loans are being paid off. But, in the end, what a futile effort if both borrower and lender be...the same.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

ICBC Number 1:

http://tinyurl.com/mpqdtw
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Damned lies and statistics:

http://ftalphaville.ft.com/blog/2008/11/25/18683/when-is-chinese-gdp-not-chinese-gdp/
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

STRUCTURED FINANCE: forget these at your peril when talking the merits of asian banks e.g. HSBC:

[rffrydr]

We have room for some "converging" as well. Singapore's math taught in Los Angeles:

http://www.latimes.com/news/printedition/front/la-me-math9mar09,1,5861820.story?coll=la-headlines-frontpage
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Yes, a whole new bunch of accountants can make a good living by consulting on this going forward. Same with the tax lawyers. Convergence is inevitable - and pretty soon, reading accounting statements will be the same exercise no matter what company in the world you will be buying.

Another example of a flattening world and a more efficient market.

[rffrydr]

FAREWELL TO GAAP?

Maybe it's us that got it wrong:

Accounting reflects ideologies. While western regulators fought to make accounts resemble economic reality, Soviet auditors were reputedly receiving guidance on the rates of depreciation for different types of screws. Today, the gulf is between standards International Financial Reporting Standards and US Generally Accepted Accounting Principles. The former has the loyalty of about 45 per cent of world market capitalisation and the latter about 33 per cent. Non-aligned territories, including Latin America and Japan, are hedging their bets. But the probability that US GAAP will lose out is growing.

On Tuesday, the Securities and Exchange Commission began a consultation about whether US companies can opt to use IFRS. The catalyst is the likely removal by 2009 of requirements for foreign companies listed in the US to publish a reconciliation of IFRS to US GAAP. This reform makes complete sense - companies are spending up to Dollars 25m annually for a two-page reconciliation published weeks after results that no one uses. But it has a consequence: if foreign companies can list securities in America using only IFRS, why can't US companies do the same?

Don Nicolaisen, the former SEC chief accountant, has argued that US companies should be required to use IFRS. But assuming companies have

a choice, is it credible that they would take the unpatriotic option? Some would, particularly international businesses that must use IFRS in their overseas subsidiaries.

The question may now be whether IFRS's long-term dominance is an ephemeral prize. US expansion might require compromises by standard-

setters - the project to bring the standards closer has encountered some stumbling blocks. In the future, a powerful US lobby might not prioritise the IFRS agenda of market- based valuations; deeply controversial in some quarters. Meanwhile, the imperative to improve IFRS's garbled presentation risks being put on the back burner. For standard-setters, balancing commonality and quality is as difficult as ever.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Same company, two markets, two earnings reports...and two very different stories:

http://www.cnbc.com/id/15840232?video=234317965&play=1
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

China for sale--but at what price?

Full story here. More proof that there is more to capitalism than capital:

Jan 11th 2007 | HONG KONG
From The Economist print edition
New accounting rules have replaced the Little Red Book as China's guide to self-improvement. Can the state handle the truth?
Satoshi Kambayashi


SEPARATING truth from propaganda in China has always been hard, not least when it comes to numbers. Accountants, of all people, were seen as such a threat that during the 1960s they were packed off to re-education camps, dooming the profession for decades afterward. Even in kindlier times, businesses reported information that would interest a centrally planned economy, such as production quotas. The measuring sticks of bourgeois managers—costs, debt, depreciation, and (of course) profit—were ignored.

But since the 1990s China has begun scrubbing up its accounting system. At the beginning of this year it made its biggest move yet when the Ministry of Finance required the 1,200 companies listed on the Shenzhen and Shanghai stockmarkets to adopt, with important exceptions, norms similar to International Financial Reporting Standards (IFRS). These standards may sound like instruments of accounting torture, but countries all over the world are embracing them. China has given all its other firms the option of complying with them “voluntarily”—a word with many shades of meaning. If the changes are more than just cynical window-dressing designed to attract foreign investment, they will mark a profound shift in what China wants people to know not only about its companies, but also about its economy and its government.


A new accounting system would certainly help China. Most companies are good at keeping tabs on their operations, but the book-keeping is complicated by use of a thick manual that makes bewildering distinctions between different kinds of provisions. The result is a mess. “The records are complete, the question is how do you make sense of them,” says T.J. Wong, a professor of accounting at the Chinese University of Hong Kong.
Murder by numbers

There is abundant evidence, from trade statistics to fumes spewing out of factories and power plants across the country, that the Chinese economy is doing well. But how well individual companies are doing is far harder to tell. The financial results of companies that global investors wish to buy into can be as unintelligible as the dialect spoken in the company town. It is said (with apparent sincerity) that some Chinese firms keep several sets of books—one for the government, one for company records, one for foreigners and one to report what is actually going on.

Under the new approach, accounts will be prepared under 39 principle-based standards structured to reveal the economic value of a firm, with the aim of using market prices wherever possible. A clear understanding of a firm's revenues, costs and debt would enhance the efficiency of China's companies—the avowed goal—as well as making it easier to attract foreign capital and to invest abroad.

More profoundly, by properly reflecting costs, the heavy burden of state control would become more evident, as would the pricing signals that indicate the real desires of the Chinese people. Sleazy transfers of mispriced assets from the state to the private sector would become vastly more difficult. Theoretically, accounting would serve as a force for democracy.

Given all these benefits, the decision to shift accounting standards was, says one informed observer, not unlike the one to host the Olympics. It emanated from the top of the Beijing government and was aimed at bringing China into line with the rest of the world. Accounting, however, makes Olympiads look easy.

All China must pull off to host the games is to renovate bits of its big cities. By contrast, international accounting standards are built on foundations that China does not possess, such as experience of truthful record-keeping and deep, clean, markets so that “fair” valuations can be placed on financial instruments, property and softer assets like brands and intellectual property. (These in turn rely on enforceable laws.) What market exists that could put a fair price on the clumps of freshly built office blocks that stand empty in cities across China, asks Gary Biddle, a professor of accounting at the Hong Kong University of Science and Technology.

The decision to adopt international accounting standards was made in November 2005, to be put into effect in little more than a year. The announcement generated praise (for its worthy intentions) and shock (for its ambition). America, despite having the world's deepest financial markets, is concerned about using market-based “fair-value” reporting and will only partially converge with international standards by the end of 2008, if then. Thailand and South Korea have yet to pledge convergence of their own systems with IFRS, despite having many years' more experience than China with market-based accounting systems.
Beansprout counters

To witness the scale of the work ahead, you need only look at the upheavals in a mainland firm when it lists its shares in Hong Kong, and must therefore bring its accounts up to international standards. In a developed market, the number-crunching ahead of a listing takes months. In China, it can take up to three years. And these are typically the best Chinese companies, able to afford the best advisors.

Certain conditions, such as “related-party” transactions, are almost impossible to bring into line with international standards, so they will be fudged. Under international accounting norms, deals between companies with overlapping ownership are supposed to be clearly disclosed. This is a sound principle in general and particularly appropriate for companies in countries where the government owns a piece of almost everything, and presses companies to take steps that may be bad for them (such as buying from troubled suppliers to protect jobs).

But because overlapping ownership is so common in China (the government still owns shares in almost every large company), detailing each transaction would overwhelm a financial report. For “pure state-controlled enterprises” there will be no disclosure requirement.

An equally large problem is the lack of accountants to process the raw numbers. In no other place in the world, and probably at no other time in history, have accountants been so sought-after as they are in China. By even the most generous reckoning, the country has fewer than 70,000 practising accountants, trying to do the work of anything from 300,000 to a million bean counters. To be an accounting student at a reputable school is to have a good job waiting. But even after several years of education, accountants require an apprenticeship, especially if they are to get to grips with international standards based on intellectually demanding principles rather prescriptive rules. Accountants in Britain, acknowledging the difficulties, are helping with the training.

Hong Kong and China are also hosting seminars where the new standards are presented to crowds of eager accountants; but the long lectures do not provide anything like enough of a guide to a person preparing, or auditing, a firm's books. It is said that Chinese officials have put pressure on many outsiders helping introduce the new regime to say that convergence has already taken place; that has clearly frightened many, and muffled criticism.

Silence, though, would be costly, says Martin Fahy, director of development for the Asia-Pacific region at the Chartered Institute of Management Accounts. “You can't have a functioning financial market and economy without objective and independent accounting. This is a test for not only China, but for the integrity of the accounting profession as well.”

To gauge accountants' understanding of the changes to financial reporting in China, a manager at a large investment-fund company has asked a string of accounting firms whether earnings will rise or fall or at least better reflect businesses' performance. It is hard to imagine a simpler test. No one had an answer.
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Today is the Tomorrow you worried about Yesterday!