Chapter Five: Validation — The Diagnosis of Vanke, Verified by the Market

Chapter Five: Validation — The Diagnosis of Vanke, Verified by the Market On the evening of March 30, 2022, Vanke released its 2021 annual report. Net profit attributable to the parent company was 22.52 billion yuan, a year-on-year decline of 45.7%. This was only the third time Vanke had experienced a net profit decline in its 31 years as a listed company. When I saw this figure, I was not surprised. My system had already identified the root of the problem before the annual report was even released. But the moment I saw the data, my first reaction was not "my method works" — it was "I want to help them." I. The Team Started in 2020 In August 2020, I formally assembled a research and development team. At that time, there was no system; everything was done manually. We downloaded annual report data for listed companies in Excel, extracted each financial account, copied it in, calculated the revenue ratio for each one, and plotted trend lines one by one. Producing a single report took at least half a day. On many nights, the office lights remained on well past midnight. By 2021, the team had produced over 300 corporate diagnostic reports. We called the investor relations departments of many listed companies, wanting to communicate with them in depth, wanting to share our diagnostic conclusions. But no one was able to connect. When we called, the response was either "send an email" or "we do not accept external research." Not a single enterprise was willing to hear us out. That same year, I taught for a semester at a finance college in Shenyang, explaining our evaluation system to the students. I gave them our diagnostic reports as a template for their graduation theses — to use this methodology to analyze a real enterprise and write a complete diagnostic report. They ultimately did it. At that moment, I knew this methodology could be taught. So when I saw Vanke's annual report, I made a decision — this time, I would speak out publicly. I would no longer make phone calls; I would speak directly. II. What I Saw In April 2022, after the annual report was released, I used the publicly available annual report data from three consecutive years — 2019, 2020, and 2021 — to conduct a complete financial health diagnosis of Vanke. The diagnostic conclusion was clear. The first problem: costs were out of control in the Shanghai region. The Shanghai region's costs and expenses accounted for a staggering 49.8% of the total, and the three-year trend line was continuously rising, while all other regions were declining. The second problem: inventory was piling up in "properties under development." The revenue ratio of properties under development was climbing continuously and abnormally. From 2019 to 2021, the trend line pointed relentlessly upward, far outpacing the growth rate of revenue. In 2021, properties under development accounted for a staggering 183.94% of total revenue — nearly ten times that of completed properties held for sale. The third problem: the management chain was opaque. The engineering department's planned completion area for 2021 differed from the actual completion area by 160,000 square meters, with the reasons vaguely stated. The design department was single-mindedly pursuing "enhancing design capabilities" without quantifying the cost pressure this would impose on engineering. In 2021, Vanke made a new provision for inventory impairment of 3.12 billion yuan, directly impacting net profit attributable to shareholders of the parent company by 2.14 billion yuan. These three problems did not suddenly appear in 2022. They had been present in the data from 2019 to 2021 all along — it was just that no one had used the right tools to see them. III. On April 29, 2022, I Spoke Out On April 29, 2022, I published an article on Toutiao, calling out Yu Liang by name and publicly pointing out these issues. Before that, we had called Vanke's investor relations department countless times, sent emails, and written letters. Each time, there was no result. So I chose to go public. After the article was published, there was no response whatsoever. Vanke did not reply. The market remained as it always had been — those who were bullish remained bullish, and no one believed that a leading real estate enterprise could run into trouble. In May 2022, I decided to try one more time — I wrote a formal letter to Yu Liang. The letter was extremely specific: the diagnostic conclusions, proposed solutions, a calculation showing ROE could be raised from 10.25% to 13.10%, a plan to recover a cash leakage of 11.125 billion yuan, and the possibility of saving 4.5 billion yuan in asset impairment losses. I also proposed an investment intention — 1 million yuan for a 1% stake, pledging to help Vanke recover a cash flow leakage no less than ten times the investment amount. If this target was not met, I would charge no fee. That letter was my final effort. Yet Vanke still did not respond. IV. My Judgment at the Time When I wrote the letter in May 2022, my judgment was: if Vanke did not change, its stock price was bound to plummet. This was not gambling; it was a deduction based on data. Costs were out of control, inventory was piling up, the management chain was opaque — if these three problems were not resolved, profits would continue to decline. When the industry was doing well, Vanke could still hold on, but once the industry turned downward, all the hidden dangers would be fully exposed. At that time, the market was still bullish, and brokerages were still issuing "buy" ratings. But my judgment was — the bottom was not yet in sight. V. This Is Not Just Vanke's Problem After completing over 300 reports, I discovered a fact that made me even more certain: this was not just Vanke's problem. Every listed company, to a greater or lesser extent, suffers from the same problems — opaque data, unclear management chains, and financial indicators that cannot be seen through. Vanke was simply the one where the problems were exposed most thoroughly. Why do I do this? Because I see that in China's capital market, listed companies are still using the DuPont system to perform multiplication and division tabulations, whereas in the United States, this method is no longer the standard required to be presented in listed company announcements. Our capital market is still measuring enterprises with a yardstick from a hundred years ago. This systemic backwardness is not only painful for enterprises — the nation sees it too. On February 18, 2022, the State-owned Assets Supervision and Administration Commission of the State Council issued the "Guiding Opinions on Accelerating the Construction of a World-Class Financial Management System for Central Enterprises" (SASAC Financial Evaluation [2022] No. 23). When I saw this document, I was exhilarated. Because was this not exactly what I had been wanting to do all along? To establish a practical, implementable financial management system for the nation — one that would, from the very foundation, make enterprise financial management transparent, penetrable, and traceable. This is not an embellishment; it is an absolute necessity. Only when finances are sound can indicators be sound; only when indicators are sound can results be sound. If you cannot see through the indicators, you are bound to fail. VI. From Manual Excel to One-Click Reports When doing the Vanke diagnosis in 2021, we used the most rudimentary method — manually downloading data, manually extracting accounts, manually copying and pasting into Excel, manually calculating revenue ratios, manually plotting trend lines. Producing one report took at least half a day. Now it is different. In 2026, our system is online. Enterprises upload their data, and the system automatically generates a report — it comes out in seconds. The Vanke diagnosis was the first time my methodology was fully applied to a real enterprise. Before it, I only had theory. After it, I had battlefield validation. Those 300-plus reports, that year of manual labor, those rejected phone calls and emails — together, they constitute the entire foundation of confidence upon which I have built this system today.