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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.

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