China warns enterprises against fiscal risks after CITIC Pacific scandal

BEIJING, April 13 (Xinhua) -- China's Ministry of Finance (MOF) urged
Chinese enterprises to conduct better fiscal management Monday to fend off risks
amid the worsening global economic environment.

Chinese companies are facing higher investment risks, declining asset
quality and heavier fiscal burdens, according to a circular issued by the MOF.

The circular came after the Hong Kong-listed state-run conglomerate CITIC
Pacific announced a top-management reshuffle last week amid probes of its
reported huge losses from wrong bets on foreign exchanges last year.

Investment in financial derivatives such as hedging should be conducted
prudently and speculative acts are forbidden, said the MOF.

It told Chinese firms to carry forward with mergers and acquisitions in an
active and safe way and avoid unnecessary losses from blind expansion.

Enterprises were also required to strengthen cost control, ensure enough
cash liquidity and make efforts to reduce excessive inventories.

The MOF's circular echoed a February government announcement to launch a
special examination on major investment projects and mergers of
centrally-administered state-owned enterprises (SOEs) to prevent fiscal risks.

The 2008 profits of Chinese SOEs under direct central government control
recorded the first annual decline since 2002, falling more than 30 percent year
on year to 665.29 billion yuan (97.2 billion U.S. dollars).

While the global financial crisis took a toll on the SOE profits, loose
fiscal management also contributed to the profit slump, Meng Jianmin, deputy
chief of the State-owned Assets Supervision and Administration Commission
(SASAC), told a conference in February.

Management problems included too heavy debt burdens due to excessive
expansion and losses from speculative investment in derivatives, said Meng.

In a recent case in the spotlight, CITIC Pacific, a Hong Kong affiliate of
the Beijing-based centrally-owned CITIC Group, announced last Wednesday the
resignation of both the company's founding chairman Larry Yung Chi Kin and
managing director Henry Fan Hung Ling, amid an official probe into its currency
loss scandal.

The CITIC Pacific disclosed in October potential losses may exceed 15
billion HK dollars (1.9 billion U.S. dollars) from unauthorized hedging by
senior financial managers against changes in the exchange rates of foreign
currencies, notably the Australian dollar.