As China’s reform agenda has progressed and the economy has become more diversified, the dominance of SOEs in the overall economy and their share of China’s listed capital markets has declined in tandem.
However, SOEs still make up a significant proportion of Chinese indices. The SOE weighting in the MSCI China Index at 37% is significantly higher than the MSCI Emerging Market Index at 22%. The MSCI All China Index, which includes a higher proportion of onshore China A-shares, has an even greater SOE weighting at 49%.
It is crucial, therefore, for any investor in China’s equity markets to understand these companies’ unique characteristics.
In this paper, we consider five questions key to investors in China’s SOEs.
How big is the state-owned enterprise sector in China?
What do China’s SOE ownership structures look like?
How are China’s SOEs evolving?
Where are the investment opportunities?
Do private companies have better governance and lower regulatory risks than SOEs?
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