Tag Archives: automotive

Improving China’s Accounting Standards: Progress Report

Financial and accounting standards in China need to converge with global practices as the country becomes increasingly integrated with the world economy. Regulatory agencies are working on just that but there is mighty long way to go, both in bringing China’s accounting standards more in line with international financial reporting standards and with management practices for internal company controls and financial reporting. China’s version of generally accepted accounting principles (GAAP, but not the same as U.S. GAAP) is being replaced by a new code, known as CAS, based on international principle-based standards, and a version of America’s Sarbanes-Oxley internal financial controls for companies, known as C-Sox, being introduced.

The work, a massive undertaking, was started formally with new accounting standards legislation in 2007, although that, in the nature of Chinese legislation, was mostly an outline of the new system. A new report, Opportunities to improve financial reporting and internal controls in China CAS and C-SOX, by the management consultancy PricewaterhouseCoopers reviews progress so far on both fronts, with a look at the impact on the car industry in particular.

China’s old accounting rules and practices were a hangover from the days of a centrally planned economy, not fit for the country’s more mixed market economy and certainly not useful as a management tool for corporations involved in world trade and international capital markets. And, as we have seen with a succession of U.S. listed Chinese companies, they have embedded bad habits, such as not having to account for debt, that makes accounting fraud too easily become second nature.

One important caveat from the PwC report:

It is…important to recognize that these actions taken by the Chinese government are not intended to provide immediate and complete alignment with their equivalent global standards. Rather, they should be viewed as steps by the Chinese government to gradually establish a high quality financial management infrastructure that can support its rapidly growing economy—with consideration of its own unique set of circumstances.

Footnote: The U.S. Securities and Exchange Commission is investigating some accounting firms over their audits of Chinese companies whose shares trade in the U.S., and the inquiry is expected to lead to enforcement cases, the Wall Street Journal reports. Since February, about 40 Chinese companies have either acknowledged accounting problems or seen the SEC or U.S. exchanges halt trading in their stocks because of accounting questions.

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Making Electric Vehicles Viable

Since 2009 China has been supporting a large-scale pilot market to promote the development of electric-vehicle manufacturing. Initially in ten cities, this is now extended to 25. Electric vehicles are estimated to become a $250 billion market worldwide within 10 years, accounting for one in ten of new vehicle sales by 2020. China is determined to be a leading supplier to this nascent market, committing $15 billion of government funding to develop its industry. The World Bank has just published an initial assessment of the pilot project, outlining some of the challenges that need to be overcome to make electric vehicles a viable commercial market. The main recommendations:

  • Policy momentum: Purchase price subsidies need to be replaced by support for institutional and technology innovation, vehicle-charging infrastructure and manufacturing capacity.
  • Integrated charging: The recharging infrastructure for buses, trucks and taxis needs to be expanded to accommodate private cars. 
  • Common standards: Common, ideally global standards for charging, safety, and battery disposal are needed for both manufacturers and consumers. State Grid, the largest Chinese utility, has established charging standards, but these differ from U.S. and European standards, inhibiting access to global markets.
  • New business models:  Commercially viability must include the cost of charging infrastructure as the industry cannot rely forever on government funding.
  • Customer acceptance: Consumers will only buy electric vehicles if they think them worth the additional cost. Even when lifetime ownership costs become favorable, the initial price of electric vehicles will still be higher than that of conventional vehicles and have a longer payback period.
  • Greenhouse gas (GHG) benefits: Electric vehicles will have significant low GHG emission potential. Longer term, a large electric vehicle fleet also stands to play a role in grid storage which, combined with renewable energy production, can further reduce GHG emissions.

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SAIC To Put An MG Saloon Back On Britain’s Roads, Drive Into Europe

It is scarcely the thunderous 1950’s police-car lookalike MGZB that Brits of a certain age will remember, but the MG6, seen above in a corporate promotional shot, is soon to go on sale in the U.K., the Wall Street Journal reports, returning a saloon from the storied British sports-car manufacturer to Britain’s roads for the first time in years. The marque is now owned by SAIC Motor, acquired via a tortuous route following MG’s descent into bankruptcy and SAIC’s own merger with NAC. SAIC’s home-market version of the MG6 has sold well in China; the 1.8-litre model of the hatchback going on sale in Europe will be tweaked to European tastes, as will a planned 1.9-litre turbo-diesel.

SAIC is also looking to break new ground for a Chinese carmaker in western Europe. Not only is it producing the car at Longbridge in Britain’s Midlands, it is setting up dealerships in the country, making it the first to have a distribution channel in Europe of its own, though it may also tap into the expertise of the global dealer network of its U.S. partner, GM, as it reportedly plans eventually to sell 40,000 MG6s a year in Europe.

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Sichuan Tengzhong’s Hummer Bid Dies On The Vine

Sichuan Tengzhong Heavy Industrial Machinery’s $150 million bid for GM’s Hummer division has fallen through having failed to win approval from Chinese regulators. GM says it will begin winding down the iconic brand. The Commerce Ministry, as we predicted, was uncomfortable with the proposed deal and seems to have seen it off by not approving it rather than rejecting it outright. It has been an open secret that some officials weren’t keen on a Chinese company buying the poster child for American gas guzzling extravagance, while others felt uneasy about private vehicle makers expanding abroad ahead of state-owned ones.

Update: Some thoughts on Chinese investments in the U.S. that make sense at China Law Blog.

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