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Systemic Non-Disclosure by Chinese State-Owned Banks Under IAS 24: A Case Study of CSCEC and State Council-Controlled Entities

 Abstract: This report investigates the systemic nondisclosure of material related-party transactions by five major Chinese state-owned banks, despite claiming compliance with International Financial Reporting Standards (IFRSs), specifically International Accounting Standard 24 (IAS 24) on Related Party Disclosures. It focuses on undisclosed loans to China State Construction Engineering Corporation Ltd (CSCEC), an entity directly controlled by the State Council of the People's Republic of China (PRC), through the State-owned Assets Supervision and Administration Commission (SASAC). Data is drawn from publicly available 2019 annual reports and CSCEC’s 2019 bond prospectus, all of which are verifiable from stock exchange websites and official bank investor relations portals.

1. Introduction The People's Republic of China operates a state-capitalist financial system dominated by large state-owned commercial banks and centrally controlled enterprises. Despite listing their securities in international markets and claiming adherence to IFRSs, Chinese banks frequently obscure the scale and nature of their dealings with related entities under common state control. This paper exposes how the PRC's Ministry of Finance (MOF) and State Council entities exploit loopholes in IAS 24 to avoid transparency, with CSCEC serving as a case study.

2. IAS 24 Requirements IAS 24 mandates the disclosure of transactions and balances with related parties. Paragraphs 26 and 27 are especially relevant to government-related entities:

  • Para 26(a): Name the government and describe the nature of its relationship with the reporting entity.

  • Para 26(b): Disclose the nature and amount of each individually significant transaction; for others, provide qualitative or quantitative indicators.

  • Para 27: Determine disclosure detail based on transaction significance and relationship closeness.

3. Related Party Status: State Council-Controlled Entities CSCEC is controlled by SASAC, which is under the State Council. The five banks analyzed—Bank of China (BOC), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), Bank of Communications (BoCom), and Agricultural Bank of China (ABC)—are also state-controlled. Thus, under IAS 24, transactions between these parties require detailed disclosure.

4. Loans to CSCEC: Verified Quantitative Data According to CSCEC’s bond prospectus dated November 2019 and hosted on the Shanghai Clearing House (SHCH) and Ministry of Finance (MOF) websites, the following credit facilities and utilized loans were reported:

  • BOC: Credit line RMB 350bn; Loans RMB 95bn

  • CCB: Credit line RMB 320bn; Loans RMB 200bn

  • ICBC: Credit line RMB 140bn; Loans RMB 80bn

  • BoCom: Credit line RMB 230bn; Loans RMB 70bn

  • ABC: Credit line RMB 300bn; Loans RMB 130bn

These values are corroborated by:

Each bank's 2019 annual report discloses significantly smaller top individual borrower exposures:

  • BOC: RMB 69.76bn

  • CCB: RMB 70bn

  • ICBC: RMB 60bn

  • BoCom: RMB 37bn

  • ABC: RMB 117bn

Yet loans to CSCEC went undisclosed as related party transactions.

5. Footnote Analysis: Vague Disclosures Each bank acknowledges state ownership in boilerplate footnotes:

  • BOC, Footnote 43.1: Mentions dealings with state entities but lacks details.

  • CCB, Footnote 60: Names CIC and Huijin but omits specific recipients like CSCEC.

  • ICBC, Footnote 49: Lists Huijin and MOF as shareholders.

  • BoCom and ABC: Similar language with no entity-level specificity.

6. Additional Related Party Dealings The banks also engaged in underwriting and investment services for state entities. Example:

7. Ownership Structure Ownership verification (sources linked below):

Huijin is wholly owned by CIC, which was capitalized using RMB 1.55 trillion MOF-issued bonds. MOF reports this via treasury announcements.

8. Legal and Regulatory Implications The omissions breach:

  • IAS 24.26–27

  • Listing rules of Hong Kong, London, Tokyo

  • International financial transparency and investor protection standards

9. Conclusion This case evidences systematic nondisclosure of material intra-state financial activities by Chinese SOEs and banks under shared State Council control. The exploitation of IAS 24 exemptions and generic disclosures effectively conceals these transactions from foreign investors.

10. Political Influence on IFRS Governance There is growing concern over the Chinese Ministry of Finance’s attempts to shape international standards-setting bodies to its advantage. The MOF is the primary funder and overseer of China’s Accounting Standards Committee, which has been active in lobbying the IASB for broader exemptions under IAS 24. It may have been repeatedly argued at the IASB level that because the MOF is an “investor,” transparency could harm state financial interests. This position conflates investor protection with regime secrecy and undermines global efforts to ensure fair financial disclosure.

These efforts echo Leninist organizational doctrines, where institutional opacity and vertical command structures override independent financial control and transparency. The centralization of economic levers under the State Council reflects Leninist norms—where finance, audit, and enterprise are tools of political control, not market mechanisms. The MOF’s influence at the IASB level has therefore created systemic tension between the ideals of global standards and the CCP’s political imperatives.


Appendices

  • Appendix A: Extracts from 2019 Annual Reports (HKEX, LSE, SSE)

  • Appendix B: CSCEC Bond Prospectus (SHCH, ChinaBond)

  • Appendix C: Ownership and Control Charts (CIC, Huijin, MOF)

Key Official Verification Sources:

Prepared by: CPA Jim
Freelance Investigator, Accounting and Auditing
Date: May 2025

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