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

South China Morning Post logo South China Morning Post 07/03/2023 Zhang Shidong
  • The undervaluation of state-owned enterprises risks eroding their ability to raise funds via the markets, says Cai Jianchun
  • His bill urges the finance ministry and the securities regulator to help SOEs tap the capital market for fundraising

China should use a variety of capital-market tools such as funding and restructuring to boost the valuations of publicly traded state-owned enterprises (SOEs), according to the general manager of the Shanghai Stock Exchange.

Listed SOEs now trade at an average 14 per cent discount to book value, while the broader market is valued at a 60 per cent premium to net-asset value, Cai Jianchun told journalists in Beijing, according to media reports.

This undervaluation risks eroding the ability of state-owned companies to raise funds via the markets, which in turn destabilises the economy, he said.

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Cai's recommendation forms part of a broader bill he delivered to the annual "two sessions" political meeting on Monday.

Elected as a delegate to the Chinese People's Political Consultative Conference (CPPCC) for the first time, Cai also proposed an intensified crackdown on accounting fraud and the inclusion of index-based funds in the investment portfolios of pension funds.

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He is the latest senior regulator to address the battered valuations of SOEs, particularly those controlled by the central government with the company name typically starting with "China".

Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), called for a new methodology for valuing SOEs last year, while the government work report delivered to the legislative meeting over the weekend set the goal of deepening reforms and enhancing the competitiveness for SOEs.

Cai's reported comments appeared to cheer investors. Hong Kong-traded shares of state-owned giants CNOOC, PetroChina and China Petroleum and Chemical Corp rallied by more than 3 per cent on Tuesday, the biggest gainers on the Hang Seng Index.

"SOE reforms and boosting their core competitiveness are among the key tasks of the government this year," said Cliff Zhao, a strategist at CCB International in Hong Kong. "Given the policy tailwind, and SOEs' low valuation and attractive dividend yield, the value play is expected to carry on."

Cai's bill calls for more co-ordination between the State-owned Assets Supervision and Administration Commission, the finance ministry and the CSRC to help SOEs to tap the capital market for fundraising. Government-owned enterprises should also play a leading role in technology innovation to aid the state development strategy, it said.

SOEs should be encouraged to use new funding tools such as real estate investment trusts (REITs) and bond sales slated for technology innovation companies to boost their asset quality and competitiveness, according to the proposal by Cai.

Traders have been shunning Chinese SOEs mainly because of their low operational efficiency and corporate governance. China's escalating tensions with the US have also increased the geopolitical risk of holding the stocks.

A gauge tracking central state-owned enterprises in Shanghai and Shenzhen fetched an annual return of 1.3 per cent between 2016 and 2022, half the gain on the CSI 300 Index in the same span, according to Bloomberg data.

For Cai, SOEs deserve better. Their combined profits have risen 70 per cent from five years ago, while their market values have grown by only 10 per cent, he said. They own almost 60 per cent of total assets in the onshore markets and account for 60 per cent of profits.

Cai, aged 54, has been general manager of the Shanghai Stock Exchange since 2020. Before that, he spent almost two decades of his stint within the CSRC serving as deputy head of the Hebei and Zhejiang bureaus as well as the director overseeing bonds and listed companies.

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This article originally appeared on the South China Morning Post (, the leading news media reporting on China and Asia.

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