SCIO briefing on the performance of centrally administered SOEs in Q1

The State Council Information Office held a press conference in Beijing on Monday to brief the media on the performance of state-owned enterprises managed by the central government in the first quarter of 2020. April 22, 2020


Mr. Peng, you just mentioned that China's centrally administered state-owned enterprises (SOEs) saw profits and revenues dive during the first quarter. Would you like to explain the reasons for us? Thanks.

Peng Huagang:

Thanks for your question. I just mentioned that the production and operation of centrally administered SOEs have been hit hard by the outbreak and slumping oil prices. In the meantime, centrally administered SOEs have taken measures in response to the outbreak, and this has led to the plunge in revenues. The major reasons are as follows:

First, direct-to-consumer industries like the aviation, automobile and tourism industries have been hit hard by the pandemic. In the first quarter, there was a plunge in air traffic passenger demand, with decreasing passenger trips and seat occupancy rates. Some companies have incurred losses, and the aviation industry has generally operated at a loss. As vendors and suppliers are unable to resume production and operation in time, the sales of automobiles have decreased by 30% from the previous year, shaving revenues by 10 billion yuan in the first quarter compared to the same period last year. Dongfeng Motor, which is located in the former epicenter of the outbreak, has faced more serious repercussions. As almost all travels and business trips were postponed due to the outbreak, numbers of visiting tourists and hotel occupancy rates fell greatly, resulting in huge losses in revenues.

Second, the plunge in international crude oil prices has led to a significant reduction in profits by centrally administered oil and petrochemical enterprises. The price of Brent crude oil fell from $68 per barrel in early January to $23 per barrel at the end of March, which showed a drop of more than $40. Though the plunge in oil prices lowered the costs of overall national economic operation, it also had impacts on the operation and production of the centrally administered oil and petrochemical enterprises. As the market demand decreased in the first quarter, the sales of refined oil fell by more than 20%. Companies in petroleum exploration and refining industries reported that their revenues cannot cover costs. Oil and petrochemical enterprises are losing money. All of these factors led to a 30-point reduction in the growth of profits for the centrally administered SOEs.

Third, centrally administered SOEs implemented policies to give up profits amid the outbreak. SOEs firmly carried out policies to ease consumers' costs by 45 billion yuan, including reducing the price of electricity, gas and rent, and they also waived road and expressway toll fees. For example, the grid companies have taken measures to reduce the price of power used in large industries and common commerce by subtracting 3.3 cents per kilowatt-hour from the price of electricity, reducing the operational costs of more than 50 million companies by 20 billion yuan. The price of gas for non-residential use has been cut by 0.3 yuan per cubic meter, saving all non-residential natural gas users 7.5 billion yuan. And telecommunication companies have postponed the suspension of mobile services for 1.6 billion users and canceled the suspension of mobile services for 2.9 million medical health workers, as well as others working on the frontline of the fight against the pandemic. They also reduced charges of broadband services for micro, small and medium companies, saving those users 15 billion yuan.

Fourth, the costs of pandemic prevention and control efforts have an impact on revenue growth. Centrally administered SOEs in sectors that include coal, power, oil, transportation, grain and telecommunications have spared no effort to guarantee the supply of basic products and services and to expand and switch production to medical supplies. Airline and logistics companies work to guarantee transportation regardless of the costs. Companies in building sectors have taken on the mission of building specialized and makeshift hospitals. Many centrally administered SOEs have also sent out medical teams to Hubei. Since the outbreak, costs of labor, materials and logistics have increased greatly. In the first quarter, for every 100 yuan of business income, the cost that centrally administered SOEs had to pay increased by 2.4 yuan over the previous year.

The operation of centrally administered SOEs during the first quarter was influenced by multiple factors. The plunge in revenues is the price we have to pay for the COVID-19 prevention and control work. Compared to people's lives and health, it is worth paying the price. And the loss is temporary, and it can be mitigated through effective measures.

I need to point out that economic development is coming back to the track of sound development, and centrally administered SOEs have fared better as they are revving up work resumption. For example, during the first quarter, the output of crude oil and coal in centrally administered SOEs maintained positive growth. The value of newly signed contracts by construction enterprises increased by 3.7% over the previous year, with the value of contracts signed overseas growing by 18%. In March, the total power output of thermal power plants and the volume of goods transported by water transportation companies have recovered to the level seen in the same period of last year. Since April, in particular, the average daily sales of crude oil and steel are basically at last year's levels. And electricity consumption is above the level seen in the same period of last year. SASAC and centrally administered SOEs will work together and take effective measures to overcome difficulties, and they will make a big push to recover losses.

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