Reevaluating State-owned Enterprises in the Era of Deep Integration with Capital Markets
Xu Yujie & Du Kunlun
In the early months of 2024, the National Development and Reform Commission explicitly proposed to incorporate asset management into the performance evaluation of central enterprise leaders. This not only marks a major transformation in capital markets but also signals the entry of state-owned enterprise (SOE) reform into the deep-water zone. Following this, the new round of "Deepening SOE Reform" was launched, with its core goals aimed at "enhancing core functions" and "improving core competitiveness." A series of concentrated deployments have clearly indicated that this round of SOE reform has bid farewell to the path dependence of scale expansion and instead focused on inward-looking growth driven by "value creation." Against this backdrop, the role of capital markets is undergoing a profound metamorphosis. It is no longer just a "financing channel" for SOEs but is historically being pushed onto the reform stage as a "core engine," "teststone," and "discovery platform" to drive SOE transformation.
According to data released by the Ministry of Finance, as of the end of 2024, the total assets of non-financial state-owned enterprises in China have risen to 371.9 trillion yuan, with operating income reaching 84.72 trillion yuan and profits exceeding 435 billion yuan. All indicators have set new records, demonstrating the further enhancement of national strategic support for SOEs. This series of achievements would not have been possible without the aid of capital markets. However, long-standing issues such as "valuation traps" in state-owned listed companies on capital markets have persisted. This phenomenon of disconnection between value and price has not only affected the book value of SOE assets but also constrained their capital operation capabilities. How to conduct a deep re-evaluation, re-assessment, and re-creation through capital markets is now the key focus of this round of reform.
Firstly, asset pricing needs to become more market-oriented. Policy has already clarified that it will play a role in state-owned assets trading pricing and establish a "margin for error mechanism" to encourage SOE managers to boldly use market-based methods for capital operation, while ensuring compliance with laws. Secondly, value management needs to be proactive. Incorporating value management into performance evaluation is a revolutionary move to push SOEs from being "passive recipients of valuation" to "active value creators." SOEs should leverage stable dividends, share repurchases, strengthened investor relationships, and high-coordination mergers to continuously enhance their intrinsic value. Lastly, information disclosure needs to effectively convey value. SOEs need to change their past conservative disclosure style, learn to use market-understandable language to "tell their stories," and fully showcase their non-financial information on strategic, research, and ESG aspects to allow the market to comprehensively understand their true value.
Any profound transformation requires top-level design guidance. This round of SOE reform is placing capital markets at its core due to the systematic reconstruction of national strategic positioning, valuation standards, and state-owned asset supervision modes from a country's perspective. From the "Three-year Action Plan" to the "Deepening Action Plan," and then to the proposal for a "China-specific valuation system," a clear policy trajectory has emerged, providing fundamental guidance for capital markets' deep involvement in SOE reform.
As the reform unfolds, three major trends will emerge: one is that mergers and acquisitions will shift from focusing on "quantity" to prioritizing "quality," with the key question being whether this can lead to true governance transformation and business synergy. Two is that value management will become an indispensable component of SOEs, with various capital operations centered around value creation becoming more vibrant. Three is that strategically emerging industries' state-owned enterprises may be the first to realize value re-evaluation, serving as a benchmark for China-specific valuation systems.
This reform requires all parties to work together. SOEs should seize policy windows, boldly and prudently formulate capital market strategies; investors should keep pace with the times, reassessing SOE investment values from new perspectives; and regulatory authorities should continue to refine systems, seeking an optimal balance between "liberalization" and "regulation," creating a stable, transparent, and efficient capital market environment for SOEs.