State auditors say China Cosco Shipping has yet to sort out all of its structural and management challenges following its merger more than two years ago.
In a report published last week after a year-long audit, the National Audit Commission detailed dozens of financial and management hangovers from the merger process, but also gave Cosco credit for its achievements in the vast reorganisation.
Launched in May 2017, the probe covered the 2016 books of China Cosco Shipping Group and 13 subsidiaries. It reached back as far as 2007 in addressing issues that preceded the merger that culminated in February 2016, at both Cosco Group and China Shipping.
Unauthorised golfing
Auditors criticised the group for illegal stock investments, vessel transactions without board approval, incorrect accounting of time charter liabilities, lavish entertainment and unauthorised golfing.
The company responded with assurances that it is taking the report seriously and improved practices are being introduced, in addition to correcting the financial statements.
“We resolutely took this audit as an opportunity to resolutely implement the decisions of the Party Central Committee and the State Council,” the company said.
Auditors cited a series of what they called illegal practices in financial accounting, investment and management, amounting to billions of yuan. In addition, there were violations of the “Eight Central Provisions”, a broad set of Communist Party guidelines usually mentioned in connection with extravagant entertainment practices.
Non-financial issues included failures to meet requirements for reducing levels of management following the merger, or to complete disposals of unspecified inefficient assets.
Stock and real estate transactions figured prominently in the report, as did deals undertaken without the required board or holding company go-aheads, including vessel disposals. Auditors said overstated liabilities based on future hire for three chartered-in vessels caused 2016 profits to be understated.
“Illegal uses of capital” in respect of disposals of, or investments in, stock shares totalled CNY 2.6bn ($394m), auditors said.
Many of the dozens of individual issues in the report are described in such broad terms that individual subsidiaries, vessels, contracts, projects and officials are impossible to identify.
But it singled out large real-estate projects such as Cosco’s Boao hotel and golf resort in Hainan, as well as CNY 1.7bn-worth of office buildings acquired by the former Cosco Bulk Carriers subsidiary.
Headline coverage of the report in the Chinese media has called attention to improper “subsidies” received by 33 officials, under the heading of the Eight Central Provisions violations. The 33 unnamed officials received a total of CNY 380,600.
