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Global Equity Investment: Investing in China's State-Owned Enterprises

Incoming reform poses a serious risk to the profitability and return on capital for China's state-owned enterprises

Zhao Hu 11 January, 2012 | 0:00

Lackluster profits and the heightened risk associated with investing in U.S. and European equities have forced more investors to delve into Chinese equities, particularly the state-owned enterprises (SOEs). Government enterprises saw a 37.9% jump in profits in 2010. Profits from SOEs in the financial services, resources, and transport sectors more than doubled. As a result, state-owned enterprises now represent more than 30% of China’s gross domestic product. Although there is a lower return on equity, investments in these state-controlled behemoths has been safe. But we believe that incoming reform after the leadership transition in 2012 poses a serious risk to the profitability and return on capital for state-owned enterprises.

 

Reforming SOEs Is Critical To Achieving Sustainable Growth

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About Author

Zhao Hu  Zhao Hu is a stock analyst covering basic materials and industrial companies.

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