Beijing, July 19 (Reporter Wang Jingrong, Intern Tang Xinrui) The Third Plenary Session of the 20th Central Committee of the Communist Party of China was held in Beijing from July 15 to 18, focusing on the issue of further deepening reform in an all-round way and promoting Chinese-style modernization.
The Central Committee of the Communist Party of China (CPC) held a press conference at 10 a.m. on July 19, 2024 to introduce and interpret the spirit of the Third Plenary Session of the 20th CPC Central Committee. Han Wenxiu, deputy director of the Central Finance Office in charge of daily work and director of the Central Agricultural Office, pointed out in conveying the spirit of the meeting, "It is necessary to deepen the reform of state-owned assets and state-owned enterprises, promote state-owned capital and state-owned enterprises to become stronger, better and bigger, enhance core functions, enhance core competitiveness, and carry out accounting for the added value of the state-owned economy." ”
Li Jin, former vice president of the China Enterprise Reform and Development Research Association, was interviewed by the reporter of this website on learning and understanding the spirit of the relevant meeting.
Increase investment in scientific and technological innovation to truly create value for the country
Zhonghong.com: Carrying out the accounting of the added value of the state-owned economy is a general management issue, and this time it is prominently emphasized, what do you think about this?
Li Jin: It is extremely important to explain this issue. In fact, the realization of economic added value assessment is a "management revolution", which will effectively curb the investment impulse of central enterprises, encourage enterprises to increase investment in scientific and technological innovation, and truly create value for the country. Of course, this is also an idea put forward in response to the current phenomenon of weak economic added value of a small number of state-owned enterprises. In the first half of this year, the added value of the mainland's industrial economy above designated size was not high, and the profits were low, which was a prominent problem at present, which was also one of the reasons for promoting the implementation of this mechanism.
What is the added value of the state-owned economy? The so-called economic added value refers to the economic income after the cost of capital (the opportunity cost of debt and shareholders' capital) is deducted, which is the net value created by the enterprise for shareholders and the "real profit" created for investors. From the perspective of state-owned central enterprises, it is to create "real profits" for the country. The assessment of economic added value is to guide enterprises to enhance their value creation capabilities and improve the level of capital returns. The change reflects a major shift in the state's assessment of state-owned enterprises from emphasizing superficial to internal, and from emphasizing short-term benefits to emphasizing long-term benefits. Accurately understanding and grasping the value added of the economy (EVA) is of vital significance to promote the development of enterprises, improve the operational efficiency of enterprises, and increase enterprise value.
Economic value-added refers to the balance of the company's net operating profit after tax minus the cost of capital, and its calculation formula is: economic value-added = net operating profit after tax - cost of capital = net operating profit after tax - adjusted capital × average cost of capital ratio. In the assessment of economic added value, the factors that affect the results are three aspects: net operating profit after tax, capital, and average cost of capital ratio.
Strengthen the main business, control risks, and optimize the structure
Zhonghong.com: Combined with the current situation, how do you see the necessity of implementing economic value-added accounting?
Li Jin: Is an enterprise with a large scale and high profits a good enterprise? After the introduction of economic value-added as an assessment indicator, it is different, because profitable enterprises do not necessarily create value.
In the past, the performance appraisal system of central enterprises was mainly based on financial indicators, and the financial indicators were mainly based on absolute indicators such as profits. Taking financial indicators as the core is easy to cause enterprises to blindly expand their scale, pursue quantity while ignoring quality, and ignore investment in science and technology.
In 2007, the State-owned Assets Supervision and Administration Commission of the State Council launched a pilot project for the assessment of economic added value, which was implemented in 2010. SOEs seldom consider the efficiency of capital utilization. For example, if an enterprise invests 1 billion yuan in real estate development, it is difficult to recover the investment due to poor project management and other reasons, and if 1 billion yuan is deposited in the bank, the interest earned in the same period may be higher than the income from investing in real estate, but the waste caused by poor use of capital cannot be reflected in the current accounting. Now, this state still exists. Over the course of a year, the profit is not as good as the bank interest, and in fact there is no profit.
According to the SASAC business performance assessment method for the person in charge of central enterprises, in the annual business performance assessment index of central enterprises, the total profit index remains unchanged, but the economic added value index will replace the return on net assets index, and the assessment weight will be gradually increased.
There are several benefits to the assessment of economic added value.
The first is to strengthen the main business and strictly control the investment in the non-main business. In the financial crisis, some large enterprises in the world have gone bankrupt or fallen into difficulties, and one of the common reasons is overexpansion, blind mergers and acquisitions, and a large amount of capital investment in inefficient fields. At present, some central enterprises still have the phenomenon of excessive pursuit of scale expansion, excessive occupation of inefficient capital, and low efficiency of capital use. One of the purposes of introducing the assessment of economic added value is to guide the central enterprises to strengthen their main business, control risks, and optimize their structure. After the introduction of value management with economic value added as the core performance measurement indicator, income from non-core or non-recurring businesses will be excluded from the accounting adjustment; Income derived from a large amount of capital investment, after deducting costs, is compared with the total cost of capital, including equity (shareholder) capital, and when the former is less than the latter, the value index of the enterprise will be reduced accordingly and the contribution of these revenues to profits will be offset accordingly.
Second, it is conducive to further cultivating the ability of independent innovation. In the past, in order to make the total profit look good, some companies sometimes significantly reduce the investment in research expenses that technological innovation relies on, so as to reduce costs. In the new assessment method, strengthening the assessment of enterprises' independent innovation ability has become a major highlight. In order to guide enterprises to increase R&D investment in key areas and occupy the commanding heights of the future, the SASAC clearly stipulates that the R&D expenses of enterprises will be regarded as profits to calculate the assessment score, so as to encourage enterprises to cultivate independent innovation capabilities.
Pay attention to benefit evaluation and highlight the orientation of value creation
Zhonghong.com: Could you please tell us about the current implementation of economic value-added accounting?
Li Jin: The assessment of economic added value is a new assessment method, and a management system with value creation as the core has been initially established. The SASAC has been implemented for more than 10 years, and the overall effect is good. Most central enterprises decompose the EVA index to various departments and subordinate units, extending the tentacles of assessment.
At this stage, most central enterprises have combined value creation with strategic planning, investment and financing decision-making, production and operation, and run through the whole process of enterprise operation and management. At the same time, we should grasp the key driving factors of EVA, strengthen process tracking and control evaluation, and improve the pertinence and effectiveness of value management. Some companies also analyze EVA indicators on a monthly basis and establish a dynamic management and control mechanism.
At the same time of implementing EVA assessment, central enterprises actively introduce the concept of value management, enhance the awareness of capital cost, continuously optimize the capital structure and resource allocation, strengthen the main business, and improve the ability to resist risks. In this way, we should pay attention to the benefit evaluation and highlight the value creation orientation of the EVA assessment. Attach importance to innovation and creativity, and further improve the reward and punishment system. If an enterprise has made major achievements, major breakthroughs and outstanding achievements in the field of scientific and technological innovation, it will be rewarded with extra points in the annual assessment and commended in the tenure assessment. The Interim Measures also set the EVA index as the threshold for upgrading A-level enterprises. In addition, 70 per cent of the performance-based pay is provided for to be cashed out at the end of the annual appraisal and the remaining 30 per cent to be cashed out at the end of the tenure appraisal. These measures have further enhanced the incentive and restraint effect of assessment.
Highlight the key and promote state-owned capital and state-owned enterprises to become stronger, better and bigger
Zhonghong.com: What do you think are the main points of focus for the implementation of economic value-added accounting?
Li Jin: At present, the parameter values of the EVA indicator are subject to discussion. There are actually many difficulties in the EVA assessment, which will affect the accuracy of economic added value. Generally speaking, there are many benefits of using EVA to evaluate enterprise performance, but from another point of view, EVA assessment also has its disadvantages, such as it is difficult to reflect the differences in enterprise operation, and it is very difficult to complete the classification assessment; Still based on financial data, there is still room for depth in its assessment results; The adjustment project does not conform to the principle of cost and benefit, and it is difficult to form a common value standard, etc., which also requires us to conduct in-depth research and improvement of EVA in practice, so as to make the EVA assessment of state-owned enterprises more smooth and effective.
In short, the implementation of EVA appraisal is the inevitable direction of performance appraisal and the top priority of performance appraisal. The EVA assessment of the SASAC is still in its infancy, and it should be gradually explored and practiced on the basis of summarizing experience, and constantly improve the EVA assessment plan to achieve effective incentives and constraints; Continuously lead the EVA assessment to the depth, improve the ability of enterprise value creation, and finally achieve the goal of maximizing enterprise value.
State-owned capital and state-owned enterprises are stronger, better and bigger, enhance core functions, enhance core competitiveness, and finally settle down in the state-owned economic value-added accounting, which illustrates the importance of state-owned economic value-added accounting. Based on the existing situation, we must solve the difficulties and consolidate and popularize this system and mechanism.
Editor: Tang Xinrui
Review: Wang Mingyue
Source: Zhonghong.com