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Some Chinese listed companies may be playing number games to make last year's profits look better.

 

By Wednesday, 287 listed companies had disclosed their 2005 financial reports. Their total net profits saw an 18.66 per cent increase compared to the previous year.

 

Experts warned investors that listed companies might be manipulating accounting rules to increase their paper profits.

 

"Companies facing delisting from the exchange and suffering losses in the previous year could play such number games to attract investors," said Cheng Weiqing, a researcher studying annual financial reports with CITIC Securities.

 

Seventeen of the 287 firms that have disclosed their reports would have suffered from a loss rather than enjoying a profit if they had excluded unusual gains and losses.

 

"There are 1,370 listed companies but only around 300 listed companies have disclosed their reports. But we should wait for more firms' data before we draw a conclusion," Cheng said. "The proper time for a detailed analysis and final conclusion will be in the middle of April."

 

Statistics from Shanghai Securities News show the total amount of unusual gain and loss items in the firms' financial reports was 907 million yuan (US$112 million), a 42.5 percent jump compared to 2004.

 

Analysts said this means unusual gains have contributed a lot to profits rather than a real solid performance. Unusual gains, such as including government allowances and earnings from the disposal of assets, play a big part in profit surpluses.

 

Cheng added that the application of new accounting rules to be applied next year was another reason for the high amount of unusual gains.

 

The rules, released by the Ministry of Finance last month, have been revised to reflect international standards of accounting and auditing practices. They will focus more on a firm's current operating business rather than unusual gains and losses.

 

Earlier, officials from the China Securities Regulatory Commission warned investors to pay attention to firms' profits as the new rules come into play, as some listed firms will manipulate their figures.

 

"The new accounting rules will affect the presentation of the current financial reports," Cheng said.

 

A few securities firms have predicted that the total 2005 profit for domestic listed companies will be 0.2 per cent to 0.5 per cent more than in 2004. However, Cheng thought the actual result would be lower.

 

Companies working in the nonferrous metals sector enjoyed a harvest year.

 

"Nonferrous metals manufacturers will probably see a more than 50 per cent profit surplus compared to the previous year," said Wang Qianming, a researcher in nonferrous metals with CITIC Securities. "It was because the price of nonferrous metal was continuously jumping in 2005."

 

Wang believed such companies would continue to have a good performance in the next two years.

There are around 20 listed nonferrous metal companies in China. More than half have disclosed their annual financial reports.

 

(China Daily March 17, 2006)