Jan 21, 2019 (China Knowledge) - China’s state-owned enterprises (SOEs) reported record high revenues and profits last year even as their private counterparts struggled to survive amid a credit crunch and slowing economy.
Revenues of these SOEs increased 10.1% from 2017 to RMB 29.1 trillion while net profits rose by 15.7% to RMB 1.2 trillion. The surge in revenues and profits were attributed supportive measures implemented by the government to support these firms.
In addition, SOEs also benefitted from cost-cutting measures which made them more efficient and better able to manage risk in a slowing economic environment.
The performance of SOEs come in contrast to the private sector last year which saw a record number of corporate debt defaults as companies struggled to find financing options and were faced with high borrowing costs.
Such problems are less encountered by SOEs as Chinese banks are more willing to provide loans to state-owned firms compared to private firms due to the assumption that SOEs are implicitly guaranteed by the government.
However, this advantage may be reduced in the coming years as the government introduces more measures to support the private sector and encourage more loans. Previously, the Chinese government had focused on supporting SOEs but has not shifted its focus to the private sector.
This new wave of support will likely benefit private firms and allow to be more profitable.
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