On November 11, stocks such as Sugon, China Great Wall, and ZTE hit their daily limit, while others like SinoStar, ChinaSoft, and Sinotech, along with China Power, China Satcom, and China Science Press, either hit their daily limit or rapidly followed suit.

Due to their social responsibilities, state-owned enterprises (SOEs) inherently have weaker asset return capabilities. However, this bias is now hard to justify.

According to the State-owned Assets Supervision and Administration Commission (SASAC), from 2016 to the end of 2021, central SOEs reduced their legal entity count by over 19,000, accounting for 38.3% of the total, and streamlined their management levels to within five tiers, disposing of inefficient and ineffective assets in a timely manner. By the end of 2021, the labor productivity per capita of central SOEs reached 694,000 yuan, an 82% increase from 2012.

Ning Gaoning, a renowned SOE leader who has headed four Fortune 500 SOEs, previously mentioned in an interview, "Today, the competitive pressure on SOEs is no less than that on private enterprises. It is unrealistic to expect an easy life in the future."

Efficiency improvements have led to a simultaneous increase in profitability.

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

Therefore, the proposition of reshaping SOE valuations is not a policy wish but an inherent requirement for improving business quality.

SASAC has also stated that SOEs should focus on indicators such as labor productivity per capita, return on equity, and economic value added, and take targeted measures to improve quality, efficiency, and stable growth, effectively enhancing asset return levels and benchmarking world-class enterprises in value creation.

The improvement in the asset return rate of SOEs remains a critical focus in the future, which is not only significant for the capital market but also crucial for the smooth operation of the national economy.

Imagine that the current state-owned asset volume is approximately 300 trillion yuan. If the asset return rate increases by one percentage point, it could generate an additional 3 trillion yuan in fiscal revenue. This would be a powerful direct supplement to the current gaps caused by tax and fee reductions and the cooling of land finance, providing ample room for macroeconomic policy adjustments.

SOEs are fully capable of achieving this.

Over the past decade, central SOEs have invested a cumulative 6.2 trillion yuan in research and development, accounting for more than one-third of the total. In 2022, R&D investment exceeded 1 trillion yuan for the first time, breaking through and accumulating a batch of key core technologies, especially in core areas related to the country's future competitiveness, such as power grids, communications, and energy.

Twenty years ago, foreign enterprises were the first choice for job seekers, followed by private enterprises, and lastly, SOEs. Today, in some industries, this order may have reversed.

In terms of talent, capital, technology, and management, today's SOEs are on par with private enterprises.

Debt-fueled investment, consumption, and repayment drive the global economy. The availability of "leveraging" space with controllable risks largely determines the sustainability of economic growth.

Compared to private enterprises, SOEs currently have more room for debt expansion.

Since 2015, central SOEs have achieved remarkable results in deleveraging, while private enterprises have seen an increase in debt. From 2017 to 2021, the asset-liability ratio of SOEs decreased from 60.4% to 57.1%, while that of private enterprises increased from 51.6% to 57.6%. This trend has continued, and private enterprises now have a higher leverage ratio than SOEs.

Moreover, SOEs enjoy a significant financing cost advantage.

Currently, there is a credit spread of 170 basis points (bps) between private enterprise and central SOE credit bonds, and a spread of 143 bps between private enterprise and local SOE credit bonds. This means that the financing cost for central SOEs is more than 1.4% lower than that for private enterprises.

Therefore, if a sector is chosen to leverage the economy, SOEs have greater motivation and potential, especially given the current setback in private sector confidence.

According to GF Securities' calculations, if the debt ratio of central SOEs is brought back to the 2016 high, it could add approximately 15 trillion yuan in new credit.

Based on the current ratio of 4 yuan of credit generating 1 yuan of GDP, leveraging SOEs could unleash up to 3.75 trillion yuan in GDP, equivalent to approximately 3 percentage points of growth.

It should be noted that emphasizing SOEs is not to deny private enterprises.

For decades, there has been extensive debate about whether private or state-owned enterprises are the protagonists of the national economy. Some support the advancement of state ownership and the retreat of private ownership, while others advocate the opposite. In reality, China's economy has been far more exciting than academic discussions—it has accomplished in decades what the West took centuries to achieve, in its unique way.

Today's renewed emphasis on the value of SOEs is simply another objective requirement in the course of history.

Disclaimer

This article involves content related to listed companies, based on the author's personal analysis and judgment according to information publicly disclosed by listed companies in accordance with legal obligations (including but not limited to interim announcements, periodic reports, and official interaction platforms). The information or opinions in this article do not constitute any investment or other business advice. Market Value Watch bears no responsibility for any actions taken based on this article.

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