China's National Audit Office Accuses State-Run Dongfeng Motor of Serious Violations of Regulations
Li Suwan
/SOURCE : Yicai
China's National Audit Office Accuses State-Run Dongfeng Motor of Serious Violations of Regulations

(Yicai Global) June 26 -- China's state-owned auto-manufacturer, Dongfeng Motor Corporation made investment decisions in breach of relevant regulations and procedures between 2009 and 2015, providing guarantees totalling CNY4.35 billion (USD635 million) to auto dealers, of which CNY1.25 billion was made in 2015 and involving other violations, the audit results recently released by China's National Audit Office showed.

The problem found in the audit was that Dongfeng Motor provided guarantee for car dealers, an audit professional told Yicai Global today. "Car dealers are usually private enterprises. If they get guarantee from Dongfeng Motor, a state-owned enterprise, not only can they obtain easier cash flow from banks, but also get borrowing rates that are lower than the ones for private enterprises, which even come with some preferential policies."

"But under the relevant regulations, as a state-owned enterprise Dongfeng Motor should not have been allowed to provide direct guarantees for dealers, because the risk would be great," the auditor added.

In addition, the audit also found other major issues in the company's internal management. From 2009 to 2010, Dongfeng Motor made and sold automobiles in a joint venture with a partner that didn't have the right technology nor mass production capacity, something which led to a total loss of CNY1.18 billion (USD172 million) for the project in June 2016, said the audit report.

In 2012, Dongfeng Motor also took a decision in contravention of relevant regulations, signing a cooperation framework agreement with an overseas enterprise before completing due diligence, and then the company's project group changed it into a joint venture agreement without approval, resulting in the company having been sued by the other party after its exit, with a loss of about CNY90.4 million, the audit administration added.

For the problems in the audit, Dongfeng Motor made a written response to Yicai Global on 25 saying that the company has taken effective measures to rectify them, and a serious disciplinary action has been taken against relevant responsible persons.

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Keywords: Dongfeng Motor , Financial Performance , Risk , State Auditing Administration