《经济学家》：如何看待大涨的中国企业利润？
2006年10月19日Economics focus ：Profits and prophecies
Oct 19th 2006
From The Economist print edition
Chinese companies earn higher returns than is commonly claimed
IT MAY be the world's fastest-growing economy, but do China's firms make healthy profits? This is the subject of a lively debate* among economists, investors and businessmen. According to the conventional wisdom, Chinese companies use capital inefficiently and have enormous overcapacity. As a result, profit margins are thin and falling, and heavy borrowing to finance unprofitable investment puts the banking system at risk.
However, Bert Hofman and Louis Kuijs, two economists in the World Bank's Beijing office, disagree. According to their analysis, based on figures reported to China's National Bureau of Statistics (NBS) by more than 200,000 state-owned and private companies, the profits of industrial companies have soared by an average of 36% a year since 1999. The average pre-tax return on equity by state-owned firms increased from 2% in 1998 to 13% in 2005; private companies' return went up from 7% to 16%.
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Furthermore, most corporate investment is now financed out of companies' own cashflows and only one-third from outside sources, such as banks.
This view was attacked in an article in the Far Eastern Economic Review by Weijian Shan of TPG Newbridge, one of the most successful private-equity firms in Asia. Mr Shan, an old hand at evaluating Chinese firms, says the World Bank is ?deluded?: most Chinese firms make little profit, their margins are being eroded, and their investment boom is being financed largely by lending from state-controlled banks. Who is right? The answer is important for policymakers as well as for investors. If the return on capital is indeed low and falling then today's pace of growth will prove unsustainable.
Mr Shan says that it is nonsense to argue that high profits are driving investment when business as a whole is such a big borrower. Total bank credit is bigger than the country's GDP, which is exceedingly high by international standards: in America the ratio is only 44%. Yet borrowing says nothing about the strength of profits. Firms can have high retained earnings (ie, saving) yet still need to borrow if they invest more than they hoard. Hong Liang, an economist at Goldman Sachs, argues that the high ratio of credit to GDP in China partly reflects the immature state of the country's securities markets.
Corporate bonds amount to only 4% of GDP compared with over 100% in America. Ms Liang's analysis supports that of the World Bank: she calculates that the debt-to-equity ratio of Chinese industrial firms has fallen from 1.8 to 1.4 over the past decade as firms have financed more investment from profits rather than borrowing.
It is true that gross lending to firms is much bigger than lending net of deposits, which the World Bank focuses on. Profitable firms deposit their saving in banks, which then lend it to less profitable ones. The stock of bank debt and hence the risks of bad loans may therefore still be large.
Mr Shan insists that excess capacity, soaring commodity prices and flat or falling prices for finished goods are eroding profit margins. Using the same data as the World Bank, he calculates that gross margins fell from 18% of sales revenue in 1999 to 15% last year. But gross margins take account only of the direct costs of production; they exclude selling, distribution, administrative and financial costs, which have all risen more slowly. After deducting all costs Messrs Hofman and Kuijs reckon that profit margins have risen from less than 3% in 1999 to almost 6% in 2005.
But surely Mr Shan has a point: how can profit margins increase when wages and raw material prices have been rising so rapidly? Since 1998 wages have gone up by no less than 14% a year, while export prices have fallen. The explanation is that productivity has grown even faster than wages, expanding by 20% a year in industry, cutting unit labour costs. As a result, the share of national income going to workers has declined, while that to firms has increased. Profit margins were squeezed slightly in 2005, as commodity prices shot higher, but this year they have widened again.
Efficiency gains
The improvement in average profits should not be a surprise, as it partly reflects productivity gains in the wider economy. The growth rate in China's total factor productivity (the efficiency with which both capital and labour are used) has been one of the fastest in the world over the past decade, thanks to the expansion of the private sector, as well as a substantial restructuring of state-owned firms.
How reliable are the profit data? The NBS figures exclude taxes and include subsidies. This should not affect the trend in profits over time. Moreover, government subsidies to business are now negligible.
Since profits and capital spending have boomed hand in hand, what has happened to the return on capital? Ms Liang estimates that it has risen steadily since the late 1990s, unlike in the early 1990s investment boom, when it plunged. For those sceptical about the NBS data she also analyses the profits of Chinese companies listed overseas, whose finances are audited according to international accounting standards. The average return on equity in China is similar to that in America and Europe (see chart, above). An independent study published by the OECD last year also found big gains in the return on capital of Chinese firms.
In 2003 the average rate of return for private-sector industrial firms was higher than the average in developed countries.
Even if total profits are booming, China still has many corporate duds. A fifth of all industrial firms (and a third of state-owned enterprises) continue to lose money. Experienced investors also know that even if they find a profitable firm, all too often they fail to provide foreign investors with a decent return.
This is good reason for investors to tread carefully. However, for the economy as a whole, China's rising profits should promise more years of strong growth ahead.
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