Macroscope | Why China’s reform of state-owned enterprises matters more than ever
- China’s campaign to improve the financial performance of listed SOEs comes as Japan’s stock market is benefiting from corporate governance reforms
- However, China is not Japan. Beijing is battling a structural downturn, and corporate governance reforms alone are not going to turn sentiment around
Although data for the first quarter was mixed, gauges of economic output have been beating expectations since February. This is partly why Chinese equities have enjoyed a rally, with the MSCI China index – which tracks stocks listed at home and abroad – outperforming nearly all major developed market indices over the past three months.
Even Nomura, one of the most bearish voices on China, points to “recent green shoots”. Bank of America’s April Asia fund manager survey showed that a net 28 per cent of respondents expected a stronger economy over the next year, compared with a net minus 10 per cent in February.
What is clear is that China’s economy and markets are at an inflection point. While it is too soon to tell whether a sustainable recovery will materialise, the credibility and efficacy of the steps policymakers take to address the country’s acute vulnerabilities will determine whether confidence can be restored.
One area that deserves more attention is the reform of state-owned enterprises (SOEs), not least because they account for more than one-third of China’s economic output. They also comprise the bulk of strategic industries, such as energy, infrastructure and utilities.
