appConfigEntityId

bodyType

customContents

entityId

entityUuid

isVideo

articlePageQuery

article

articleSchemaContent

content

hooksArticlePageAdvertisementConfigArticle

hooksArticlePageFloatingButtonConfigArticle

appConfig

filter

json

liveArticle

Elise Mak

Reporter for the Business Desk covering property, banking and finance.


The credit profiles of some of China’s state-owned enterprises (SOEs) could improve as they invest more in advanced, high-end manufacturing as part of a push by Beijing to upgrade production capabilities, according to credit rating agencies.
The central government has urged SOEs to shift their investment focus from infrastructure construction to hi-tech manufacturing in areas such as robotics, pharmaceuticals, mining and clean energy.
Because of this, Fitch expects to see an increase in their capital expenditure (capex) this year, which could affect credit metrics. Leverage could increase if such moves are debt-funded.
But there will probably be “only a moderate increase of capex intensity in the near term by most central SOEs,” as investments in key sectors are “likely to be selective and must meet certain return criteria,” Wang Ying, managing director of Asia-Pacific corporates at Fitch, told the Post.
In a note on Monday, Wang said: “If SOEs are able to pick and integrate the right targets, control risk effectively and promote innovation, outcomes should be credit-positive for the firms involved and beneficial for China’s growth.”


She said any increase in their leverage is likely to be limited, especially if the investments are partly funded by equity flotations, thanks to a recent trend towards higher valuations for central SOEs listed on domestic stock exchanges.
Since most central SOEs have critical importance to national security and self-sufficiency, Wang said “their ratings are equalised with or notched down from the China sovereign rating” to reflect their potential for strong state support.
“Hence, their ratings will remain unchanged, even if their leverage increases,” Wang said.
Through constant merging and restructuring, the number of central SOEs under SASAC supervision dropped by half from around 190 between 2003 and 2022, said Mike Zhu, vice-president and senior analyst for the corporate finance group at Moody’s Investors Service.
He too believes the SOE reforms could “have a positive impact” on their credit quality.
“Besides mergers, many backward production capacities have been eliminated in competitive industries and the market share of central SOEs has increased,” he said at the Moody’s & CCXI China Credit Outlook Conference in Beijing on Tuesday.
“We expect more mergers and acquisitions within the same industry in the next few years, including integration along the upstream and downstream industrial chains. As a result, the operating efficiency of central SOEs will likely improve.”
As the State-owned Assets Supervision and Administration Commission (SASAC) requires central SOEs to maintain a certain leverage ratio, Zhu said that ratio “has basically remained at a relatively stable level in the past five years.”
He added that hybrid securities and the provision of guarantees for non-related parties as required by regulators would boost SOEs’ risk management. Mixed ownership would also help improve governance levels and investment efficiency.
And as SOEs become more important to the government, it will benefit their credit rating, Zhu said. Beijing’s focus on certain hi-tech industries will boost demand in those areas, and elevate the income and profits of companies in those sectors.
On Monday, investment bank China International Capital Corporation, or CICC, said there is potential for a correction in the valuations of SOEs as they have “significant discounts” compared to their overseas counterparts, particularly in the banking, construction, and oil and gas sectors.
For instance, the Industrial and Commercial Bank of China has a valuation of US$244.15 billion, while JP Morgan is valued at US$399.59 billion. Similarly, China State Construction has a valuation of US$42 billion compared to Vinci ADR, a French construction company, valued at US$71 billion.
Companies leading the pack in key technology sectors, those with low valuations but expected to undergo reform, firms in state-supported sectors, and those with strong cash flow “should be investment targets,” CICC said.


Xi-Trump summit: China’s state car has already proved a match for the US ‘Beast’

China’s storage makers aim to climb value chain with advanced packaging bets

As Chinese carmakers diversify beyond CATL batteries, Beijing warns of market overreaction

Chinese EV battery giant CATL starts trial production at Hungarian factory

China manufacturing

China’s state-owned firms could get better credit ratings, valuations as Beijing pushes for manufacturing upgrade, analysts say

Beijing has urged SOEs to shift their investment focus from infrastructure construction to hi-tech manufacturing in areas such as robotics, pharmaceuticals, mining and clean energy. Photo: AFP

China’s SOE, tech stocks rally to strengthen as traders seek shelter from faltering economic recovery, say brokerages

A worker producing electronic components at a factory in Suqian, in China’s eastern Jiangsu province. Photo: AFP

Goldbugs scour Chinese stock markets for trades leveraged on surging metal prices as lure of SOEs, economic reopening dulls

Gold rose to this year’s highest level of US$2,050.28 an ounce earlier this month and is within striking distance of the all-time peak of US$2,063.54. Photo: Reuters

As MSCI adjusts China indices to reflect growing investor interest in undervalued SOEs, analysts say non-state-owned firms worth a look too

The Nanjing Street shopping and tourist area in Shanghai. The rally in SOEs has boosted confidence in China’s economy at a time when it has failed to live up to market expectations – investors had been expecting a strong recovery in export, retail spending, tourism and infrastructure construction after Beijing’s exit from zero-Covid last year. Photo: EPA-EFE

Chinese banks surge at pace not seen since 2015 as traders chase perennial laggards on valuation, SOE bets

A branch of Industrial and Commercial Bank of China in Beijing. Policy tailwind has also created confidence in banking stocks, with the industry’s major players all being state-backed. Photo: Reuters

China must boost battered valuations of SOEs, says Shanghai Stock Exchange general manager in proposal to ‘two sessions’

The undervaluation of state-owned enterprises risks eroding their ability to raise funds via the markets, says Cai Jianchun. Photo: EPA-EFE

Business

China Business

Companies

Markets

Banking & Finance

Money

Markets & Investing

Economy

China Economy

The government has urged SOEs to shift their investment focus from infrastructure construction to hi-tech manufacturing
Though likely to entail bigger capital expenditure, the ‘outcomes should be credit-positive for the firms involved,’ said Fitch


The credit profiles of some of China’s state-owned enterprises (SOEs) could improve as they invest more in advanced, high-end manufacturing as part of a push by Beijing to upgrade their production capabilities, according to Fitch and Moody’s.


China economy

Infrastructure

State-owned enterprises

Investing