Index to assess SOE efficiency
(Xinhua)
Updated: 2006-10-07 09:10 China will use an
economic value added index when assessing the performance of state-owned
enterprises affiliated to the central government, known as central SOEs in
China.
"Profitable enterprises don't necessarily create value," said Huang Shuhe,
vice chairman of the State-owned Assets Supervision and Administration
Commission, adding that the EVA index aims to assess how efficiently capital is
utilized by the 165 central SOEs and to what extent they create value.
The EVA refers to the residual income of enterprises after taking the cost of
capital out of their net operating profit after tax. It considers not only the
actual cost of capital but also its opportunity cost, in other words the maximum
returns that could have been achieved with the capital if it had been invested
elsewhere.
Huang said the EVA index reflects the performance of enterprises more
accurately, but that the present indices are still useful.
Established in 2004 by the SASAC, the current performance assessment system
for central SOEs examines their annual profits and returns on net assets, and
hands out rewards or punishments depending on their scores.
The SASAC reported that 156 of the 183 central SOEs earned profits in 2003,
with the other 27 losing money. However, only 49 central SOEs passed the EVA
test, with the other 134 unable to cover the cost of their capital.
Since then progress has been made, according to a SASAC official.
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