A Primer on the Financial Policies of Chinese Firms

Takeaways from a multi-country comparison
Download PDF report about Chinese Firms - English Version

Despite their expanding size and global presence, the current financial policies of Chinese firms vary greatly from those of large global peers in the U.S., the U.K. and Germany. Chinese firms have materially more leverage, a much higher reliance on loans versus bonds, and maturities nearly 80% shorter than those of typical U.S. firms.

To bring their balance sheets in line with global peers, Chinese firms might need to raise over 5 trillion yuan (about 17% of their market capitalization) in equity to de-leverage, and issue nearly 5 trillion yuan of bonds, to reduce their reliance on loans, as well as to extend debt maturities.

While materially modifying financial and operational policies has the potential to be challenging for stakeholders and cause some short-term dislocation, it creates the most value in the long run.

We propose a three-phased action plan (The Great Rebalancing Act) for Chinese firms and state-owned enterprises to modify their capital structures to be more comparable with their large global peers:

The Great Rebalancing Act: A three-phase corporate action plan

Balance sheet restructuring
CFA Primer Icon Leverage
CFA Primer Icon Liquidity
CFA Primer Icon Efficiency
Leverage Liquidity Efficiency
  • Issue equity to de-leverage balance sheet
  • Achieve a sustainable capital structure
  • Shift focus from loans to capital markets
  • Reduce reliance on implicit government support
  • Boost operations to organically de-leverage
  • Offset decline in ROE due to de-leveraging
The Great Rebalancing Act could last several years and will ultimately require executives from across the firm to adopt a well-crafted operational and financial strategy

Learn More

Download a copy of our latest report, A Primer on the Financial Policies of Chinese Firms in English or Chinese.

Related Insights

China’s Increasing Outbound M&A

Key drivers behind the trend

Explore about China’s Increasing Outbound M&A

Asian Corporates Aggressively Using M&A to Pursue Growth

Insights from M&A leaders across the region

See study insights about Asian Corporates Aggressively Using M&A to Pursue Growth

Corporate Finance Advisory

Corporate Finance Advisory comprises a team of experts who work together to serve clients on a broad range of corporate finance issues and structured solutions.

Learn more about Corporate Finance Advisory

This material is not a product of the Research Departments of J.P. Morgan and is not a research report. Unless otherwise specifically stated, any views or opinions expressed herein are solely those of the authors listed, and may differ from the views and opinions expressed by J.P. Morgan’s Research Departments or other departments or divisions of J.P. Morgan and its affiliates.

RESTRICTED DISTRIBUTION: Distribution of these materials is permitted to investment banking clients of J.P. Morgan. Distribution of these materials to others is not permitted unless specifically approved by J.P. Morgan. These materials are for your personal use only. Any distribution, copy, reprints and/or forward to others is strictly prohibited. Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. Information herein constitutes our judgment as of the date of this material and is subject to change without notice. Actual events or conditions are unlikely to be consistent with, and may differ materially from, those assumed. Accordingly, actual results will vary and the variations may be material.

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In no event shall J.P. Morgan be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction. J.P. Morgan makes no representations as to the legal, tax or accounting consequences of a transaction. The recipient should consult their own legal, regulatory, investment, tax, accounting and other professional advisers as deemed necessary in connection with any purchase of a financial product. This material is for the general information of our clients and is a “solicitation” only as that term is used within CFTC Rule 1.71 and 23.605 promulgated under the U.S. Commodity Exchange Act. Questions regarding swap transactions or swap trading strategies should be directed to one of the Associated Persons of J.P. Morgan’s Swap Dealers.

JPMorgan Chase and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities LLC, J.P. Morgan Limited, J.P. Morgan Securities plc and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in EMEA and Asia-Pacific. Lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities.

© 2016 JPMorgan Chase & Co. All rights reserved.

 

Copyright © 2017 JPMorgan Chase & Co. All rights reserved.