Central Huijin Investment Ltd (CHI,中央汇金投资有限责任公司) is an enterprise whose paid-in capital 828 billion Chinese Yuan is completely from China Investment Corporation (CIC，中国投资有限责任公司) which is wholly owned by the State Council of the People's Republic of China (PRC) under the leadership of Chinese Communist Party (CCP) whose General Secretary is Jinping Xi.
On 30 Nov 2021 CHI published 2021 Q3 financial statements as of 30 Sep 2021. The total assets as of 30 Sep 2021 is 6.12 trillion, mostly long-term equity investment 5.46 tn, and comprehensive income is 418 billion for the first nine months increasing 18 billion year on year. Operating cashflow is 197 billion increasing 121 billion year on year. Investing cash net inflow is maily from collected investment income 150 billion. In contrast, many private entities and even some state-owned enterprises are struggling for life. The operating cashflow didn't benefit ordinary Chinese taxpayers despite its capital being mainly from Chinese taxpayers.
Financial Statements of CHI as of 31 Dec 2020 was given an unqualified audit opinion by Tianzhi International CPA, a Chinese member of Baker Tilly International Limited, on 22 June 2021.
According to annual report of 2020, its investment was mainly consisted of investment in state-owned large financial institutes, among other things, including Bank of China (64% of equity of Bank of China，BOC中国银行), China Construction Bank (57%，CCB中国建设银行), Industrial and Commercial Bank of China (35%，ICBC中国工商银行), Agricultural Bank of China (40%，ABC中国农业银行), China Development Bank (35%，CDB国家开发银行), China Reinsurance (Group) Corporation(72%，中国再保险（集团）股份有限公司), etc. CHI owned 20% of equity in Shenwan Hongyuan Group Co.,Ltd（申万宏源集团股份有限公司） which is in Xinjiang where crime against humanity and genocide are ongoing. The financial institutes investees have financed genocide in Xinjiang via lending and rendering underwriting services to other CCP owned entities such as China Communication Construction Company(中交集团), China State Construction Engineering Corporation Ltd(中国建筑) or other companies.
CHI claimed that 2020 annual financial statements complied with Chinese Accounting Standards for Business Enterprises (CAS,企业会计准则). But it didn't consolidate financial statements of subsidiaries such as BOC, CCB and China Reinsurance (Group) Corporation. It reasoned that the Caijinhan【2008】98 issued by the PRC Finance Ministry gave an exemption allowing it to carry it through equity method but it failed to outline the specific content of such document to help financial statements users to understand of what nature the document is. CAS 33 Consolidating Financial Statement amended in 2014 stated that an entity must be either an investment entity or not an investment entity. An investment entity should account for all the investments in subsidiaries at fair value through profit or loss except for those that supply supporting services to parent company.
Many thought falsely that consolidating financial statements would greatly increase financial situation viewed by readers. But it isn't the case. Financial statements shall faithfully represent what they purport to represent. Besides, its banks investees are mostly heavy debted and liability ratio would have increased tremendously if subsidiaries were consolidated. Increased debt ratio is not good for a bond issuer. CCB's liability ratio to assets under CAS in 2020 is 91% (25.7 trillion/28.1trillion *100%). BOC's ratio is 91%(22.2 trillion/24.4 trillion*100%). CHI's ratio is 9.27% (0.54 trillion/5.82 trillion*100%) based on its financial statement without consolidation, which leaves a false impression that CHI has a good standing in resolving debt overally.
CHI, in fact, carried its investment in subsidiaries both in equity method and at fair value through profit or loss.
CHI also failed to disclose whether it had control or material impact over investee in accordance with CAS 41 Disclosing Interests in Other Entities.
CHI failed to disclose intangible assets by classes. State-owned entities often obtain land use rights carried under intangible assets free of charge or for low cost. Acquiring land use rights from state is a related party transaction for a state-owned enterprise.
Disclosure of details of short-term borrowings, accrued interest and other payables isn’t understandable as it failed to outline specific detailed items. CAS required that financial statements must be understandable.
CHI stated that there was no events after reporting period that must be reported. The date of authorising the financial statement was 22 June 2021 but it stated that in the other parts of annual report outside financial statements that it issued 5.5 billion bonds on 8 March 2021. It failed to diclose the 5.5 billion bonds issuance as event after reporting period.
There were many material misstatements in disclosing related party transactions.
In section 4 of Part 8 Related Parties and Related Party Transaction, it disclosed the balances of debts due to and from banks but it didn't disclose related party transactions that have lead to the change in balances and corresponding related interest revenue and interest expense. It failed to disclose the credit facility related banks granted. ICBC, ABC, BOC and CCB granted credit 170 billion Chinese Yuan, 150 billion, 100 billion and 100 billion respectively to CHI as of 31 Dec 2020.
Just as Chinese state-owned banks systemtically omitted disclosure of relation party transactions with other major state-owned enterprises such as CSCEC group, CNPC group, CRGLgroup, CCCCL group, CHI also systemtically omitted disclosure of such class of relate party transactions with these state-owned enterprises.
Currency Unit: RMB in billions
Credit Facility transactions of CHI's investee banks with other state-owned enterprises as of 30 September 2019:
|
Borrower
Name
|
BOC(中国银行)
|
CCB（中国建设银行）
|
ICBC(中国工商银行)
|
BOCOM(交通银行)
|
ABC(中国农业银行)
|
CDB(国家开发银行)
|
|
CSCEC group 中国建筑
|
350
|
320
|
140
|
230
|
300
|
150
|
|
CNPC group中国石油天然气集团有限公司
|
60
|
30
|
86
|
30
|
180
|
-
|
|
CRGLgroup中国中铁
|
280
|
271.8
|
117.6
|
72.64
|
179
|
10.43
|
|
CCCCL group中交集团
|
324.35
|
198.1
|
-
|
88.5
|
271.59
|
375.68
|
|
Total
|
1,014.35
|
819.9
|
343.6
|
421.14
|
930.59
|
536.11
|
There were no evidences to show that these banks ceased lending relation with the state-owned enterprises mentioned above. For example, one of the subsidiaries of CSCEC got credit facility 14.16 billion CNY from CCB as of 31 March 2020. As of 31 December 2020，CRGL obtained credit facilitiy from CHI's investee banks CDB, ABC, ICBC, CCB and BOC for 231.7 bn, 256.26 bn, 213.42 bn, 271.8 bn and 290.2 bn.
CNNC(中核集团), an enterprise also owned by PRC State Council, obtained credit facilitiy from CHI's investee banks CDB, ABC, ICBC, CCB and BOC for 250 bn, 110 bn, 200 bn, 150 bn and 200 bn as of 30 June 2020.
136 billion underwriting services had been rendered by related banks in 2020 but were omitted in the disclosure of related party transactions. As an issuer of bonds, CHI failed to disclose in prospectus that its bond were underwritten by related parties and its financial situation hadn't been scrutinied independently by underwritters.
It omitted disclosure of key management's compensation. Key management are those that decide how, when and where to invest the money, operate or decide other significant. Key management personnel, among other things, include but are not limited to Chun Peng, Rujun Shen, Yong Wang and Zhibin Xu.
The misstatements have been repeated again and again every year. No one in the CCP including Jinping Xi corrects the misstatements.
The board of directors, the board of supervisors and executives in the CHI, mainly consisted of CCPers, failed to maintain integrity and objectivity and failed to excercise due diligence and professional judgement. A CCPer is a member of the Chinese Communist Party or a member of the Communist Party of China whose General Secretary is Jinping Xi,the general director of Xivirus pandemic.
Given the facts mentioned above, it's not difficult to cast doubt on whether CCP is unwilling to follow international accounting convention, which includes consolidating subsidiaries or carrying at fair value and fullying disclosing related party transactions and corresponding nature of associated relations, and ineligible to administer accounting affairs fairly.
