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Chinese state capitalists celebrate soaring stock prices

Rremember Name: China Science Media (cspm) may be the hottest state-owned textbook stock of all time. The company, which has published books such as “The Physics of Gas Detonations and Its General Framework Theory,” has seen its shares rise 230% since the beginning of the year.It’s not the content that promotes it, even though it’s engaging cspmIts market value has reached nearly 30 billion yuan ($4.3 billion). At the behest of regulators, China’s state-owned enterprises have been revived across the board. The authorities insisted on stopping the focus on profits. Instead, the social contribution of businesses and their wider impact on the economy should be considered. All told, the “reconsideration” of China’s dumbest companies was worth 3 trillion yuan in the first five months of this year.

The success of this concept, dubbed the “valuation system with Chinese characteristics,” has been a huge success for the country’s state capitalists. It demonstrates the ability to direct investment flows. Yi Huiman, chairman of the China Securities Regulatory Commission, first mentioned in November that the principles of the system are constantly evolving. At their heart is the idea that standard valuation methods fail to value state-owned enterprises because they adhere to central government policies designed to improve overall economic prosperity, not just the companies’ bottom lines.

Chinese state-owned enterprises (State-owned enterprisess) is known for poor performance and stingy dividends. Their market valuations reflect this. Part of the problem, say proponents of the new system, is poor communication between companies and investors. Some even asked analysts not to cover them. Mr Yi said it was time for these companies to help investors understand their “intrinsic value”.No method for doing so was disclosed, but investors speculate the values ​​include local employment and hesitation by many State-owned enterprisess Fire unproductive workers.

It sounds eerily similar to what investors reluctantly call “national service”, sacrificing profits to boost economic growth. China’s largest lenders are often asked to do this by lowering lending rates for risky borrowers — defying all business logic — in the hope of stimulating growth. Kweichow Moutai, a state-owned baijiu maker and one of China’s most valuable listed companies, has routinely spent money on public works and even started bailing out the province’s local government. According to classical valuation models, this is all bad for shareholder value.

The biggest beneficiaries of the new system are likely to be pensioners. China’s pension capacity is seriously insufficient. Poor demographics and early retirement ages exacerbate the problem. Officials are transferring trillions of yuan in state capital to the state pension fund as part of the reform process. The boost in company valuations could ultimately help the state meet its pension obligations.The new valuation system, Meng Lei said Swiss banka bank, is trying to help investors understand the broader implications of this transfer of state capital to pensioners.

Are there examples of more traditional investment firms such as cspm? After this year’s carnival, shares in state-owned enterprises have fallen again. A new index tracking them has fallen 11% since its May 8 peak.291 state-owned shares included in China coverage Master of ScienceAs an index operator, the company trades at about 6 times forward earnings, or near all-time lows, according to bank Goldman Sachs. This is about half the proportion of non-state-owned enterprises.

Even before the recent fall, State-owned enterprisess deals at deep discounts. Officials now hope to walk the talk. The regulator that oversees state-owned assets recently changed its main metric for assessing company performance from net profit to return on equity.analyst at CICCAccording to a Chinese investment bank, this could help boost returns on capital and operating performance. In this case, the interests of state capitalists and private investors would be more aligned than they are now.

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