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Author: Taylor, Editor: Xiaoshimei

Market value management is becoming increasingly important.

According to Securities Daily, as of August 4 this year, there have been 5,201 investor questions and answers on the Shanghai and Shenzhen Stock Exchanges' investor interaction platforms that mentioned "market value management." Recently, many listed companies have stated in response to investors' questions that they have been steadily advancing work related to market value management.

Especially for companies with Chinese characters in their names, how to activate, expand and strengthen this huge asset has become an urgent issue of the times.

According to a previous report by China Fund News, based on the previous efforts to encourage central enterprises to incorporate factors related to the price realization of listed companies into the performance evaluation system for listed companies, the State-owned Assets Supervision and Administration Commission of the State Council will incorporate the effectiveness of market value management into the assessment of the heads of central enterprises, guiding the heads of central enterprises to pay more attention to and attach greater importance to the market performance of the listed companies they control, and promptly use market-oriented means such as increasing holdings and repurchases to convey confidence, stabilize expectations, and increase cash dividends to better return to investors.

The East Asian financial crisis in 1997 and the global financial tsunami in 2008, why has China been able to maintain its position in the world economic crises of the past few decades and continue to explode with growth vitality in the following years?

There are many reasons, but the stabilizing role played by state-owned enterprises is indelible.

Whenever the economy is under pressure, the return on capital will inevitably decrease and the risk will increase. At this time, private capital and foreign capital have a natural instinct to withdraw and avoid risks.

In contrast, state-owned capital is not simply aimed at making profits, but also shoulders social responsibilities. Its countercyclical investment can effectively combat economic downturns - creating jobs, boosting income, and restarting the consumer market.

For example, after 1997, the country launched the Western Development Strategy and the Central China Rise Strategy; the "Four Trillion Investment Plan" after the 2008 financial crisis, and so on.

This also leads to a phenomenon that whenever the economy is under pressure, state-owned enterprises will vigorously expand their balance sheets.

From 2008 to 2009, the liabilities of state-owned enterprises increased by 26% year-on-year, while the corresponding state-owned and state-controlled investment increased by 35% year-on-year; from 2015 to 2016, corporate financing fell into a slump, and state-owned enterprises once again expanded their balance sheets in a counter-cyclical manner. In 2016, state-owned enterprise investment increased by 19% year-on-year (the growth rate of private enterprise investment in the same period was about 10%). The above data are much higher than the investment performance of private enterprises in the same period.

They will support the economy during a downturn, and once the economy restarts, the assets invested by these state-owned enterprises will be widely used by society, thereby further expanding the means of production for the economy.

Without the three major operators making continuous infrastructure investments across the vast territory without considering short-term returns, there would be no comprehensive digital economy today; without universal road construction, there would be no extensive express delivery network, let alone the huge consumer market behind it.

If private enterprises make a country prosperous, then state-owned enterprises make it last.

After three years of fighting the epidemic and facing a complex external environment, the Chinese economy has shown strong resilience, but it has also encountered some problems to varying degrees. To boost vitality, stimulate domestic demand, protect employment, and restore confidence, state-owned enterprises must take the lead and are imperative. This is an important foothold for the current capital market to pay close attention to them.

Due to the certain social responsibilities they assume, the asset return capacity of state-owned enterprises is naturally weak. Coupled with the original internal institutional problems, the problem of inefficient development of state-owned enterprises has been criticized by society for a period of time.

Now, this prejudice is probably no longer valid.

After years of drastic and magnificent reform of state-owned enterprises, many large enterprises have turned the knife inward to target their long-standing problems, and problems such as "slacking off" and "big pot meals" have basically disappeared.

Data from the State-owned Assets Supervision and Administration Commission show that from 2016 to the end of 2021, central enterprises have "reduced" the number of legal entities by more than 19,000, accounting for 38.3% of the total number of households, and have cut the management level to within 5 levels, and inefficient assets and invalid assets have been disposed of in a timely manner. By the end of 2021, the labor productivity of central enterprises was 694,000 yuan per person, an increase of 82% from 2012.

Ning Gaoning, a well-known head of state-owned enterprises who has headed four of the world's top 500 state-owned enterprises, mentioned in an interview before: "The competition pressure on state-owned enterprises is no less than that of private enterprises. It will definitely be unrealistic to want to get by in the future."

Improved efficiency leads to a simultaneous increase in profitability.

Statistics from GF Securities show that since 2018, especially after 2021, the profitability of state-owned enterprises has been significantly higher than that of private enterprises. Contrary to this, the valuation level of state-owned enterprises is still much lower than that of private enterprises (less than half).

It can be seen from this that the proposal to reshape the valuation of state-owned enterprises is not a wishful thinking of the policy, but an inherent requirement for improving operating quality.

The State-owned Assets Supervision and Administration Commission of the State Council has also stated that state-owned enterprises should focus on indicators such as total labor productivity, return on net assets, and economic value added rate in the future, and take targeted measures to improve quality, increase efficiency, and stabilize growth, effectively improve the level of asset returns, and benchmark the value creation of world-class companies.

The improvement of the return on assets of state-owned enterprises will remain an important focus in the future. This is not only of great significance to the capital market, but also related to the smooth operation of the national economy.

Just imagine that the current state-owned assets are about 300 trillion yuan. If the return on assets is increased by one percentage point, an additional 3 trillion yuan in fiscal revenue can be generated. This is undoubtedly the most powerful direct supplement to the gap left by the current tax and fee cuts and the cooling of land finance, and will also provide sufficient room for macro-policy regulation.

State-owned enterprises are fully capable of doing this.

Over the past decade, central enterprises have invested a total of 6.2 trillion yuan in R&D funds, accounting for more than one-third of the total. In 2022, R&D investment exceeded 1 trillion yuan for the first time. A number of key core technologies have been broken through and reserved, especially in core areas such as power grids, communications, and energy that are related to the country's future competitiveness.

Twenty years ago, foreign companies were the first choice for talent, followed by private companies, and finally state-owned enterprises. Now, in some industries, the order may be reversed.

In terms of talent, capital, technology, and management, today's state-owned enterprises are no less capable than private enterprises.

Debt-driven investment, debt-driven consumption, debt-driven repayment, the fundamental driving force of today's world economic development comes from debt-driven. Whether there is room for "leverage" under controllable risks largely determines whether economic growth can continue.

Comparing current state-owned enterprises and private enterprises, the former have greater room for debt expansion.

Since 2015, the deleveraging of central state-owned enterprises has achieved significant results, while the leverage of private enterprises has increased instead of decreased. From 2017 to 2021, the asset-liability ratio of state-owned enterprises dropped from 60.4% to 57.1%, while the asset-liability ratio of private enterprises increased from 51.6% to 57.6% during the same period. Subsequently, the trend continued, and now the leverage ratio of private enterprises has surpassed that of state-owned enterprises.

Furthermore, state-owned enterprises have obvious advantages in financing costs.

Currently, the credit spread between private and central enterprises is 170bp, and the credit spread between private and local state-owned enterprises is 143bp. This means that the financing cost of central state-owned enterprises is more than 1.4% lower than that of private enterprises.

Therefore, if one had to choose a sector to leverage and boost the economy, state-owned enterprises would obviously have greater motivation and potential, especially in the current context of frustrated confidence in the private economy.

GF Securities' estimated data shows that if the debt ratio of central state-owned enterprises is brought back to its 2016 high, a total of about 15 trillion yuan in new credit can be added.

Based on the current calculation that every 4 yuan of credit brings 1 yuan of GDP, state-owned enterprises can release up to 3.75 trillion yuan of GDP by increasing leverage, corresponding to a growth rate of about 3 percentage points.

It should be noted that emphasizing state-owned enterprises does not mean denying private enterprises.

For decades, there have been countless discussions about whether private enterprises or state-owned enterprises are the protagonists of the national economy. Some people support the state-owned enterprises to advance and the private enterprises to retreat, while others call for the state-owned enterprises to retreat and the private enterprises to advance.

The reality of China's economy is far more exciting than academic discussions - China has accomplished in its own unique way and in just a few decades what would have taken the West hundreds of years to accomplish.

The current re-emphasis on the value of state-owned enterprises is just another objective requirement in the historical process.

Disclaimer

The content of this article related to listed companies is the author’s personal analysis and judgment based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.