Report urges Chinese conglomerates to improve their capital allocation
The performance of Chinese listed multi-business companies significantly outpaced their counterparts in developed countries in the past 10 years, at least when measured by returns in the stock market, according to a report by Boston Consulting Group on Tuesday.
In order to sustain the positive trend, the report said domestic companies need to improve capital allocation and management of diversified businesses.
Thanks to China's vertiginously high economic growth in the past decade, the value creation capabilities of Chinese conglomerates significantly outpaced their peers in other major stock markets, according to the report.
Relative total shareholder returns of Chinese conglomerates attained more than 7 percent, which is higher than the 0.6 percent achieved in the United States and 3 percent in Britain.
The indicator measures performance of companies' stocks and shares over time.
Government-backed State-owned conglomerates witnessed higher returns compared to private ones, the report said.
Such large scale Chinese conglomerates include China Mobile and China Aerospace Science and Industry Corporation.
Many State-owned multibusiness enterprises are also well known outside China for their overseas acquisitions and investment sprees in the past several years.
Luo Ying, a partner at BCG, said accurate understanding of economic policies and strong strategic management capabilities helped state-owned ones sustain a market premium.
With downward economic pressure, Chinese conglomerates might find it hard to continue securing such high global rankings, according to Victor Chen, principal at the BCG in China.
He noted that the number of conglomerates that "destroy value" tends to increase, referring to those that achieved profit growth but witnessed negative total shareholder returns.
Conglomerates also face challenges, such as varied business environments in foreign countries, according to Chen.
He said companies should improve capital allocation and make long-term strategic plans to support multi-business development.
"Decisionmakers of the companies ought to have clear minds about the markets they are in, and make timely adjustments if there exist any weak point in management structure," said Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation.
Meanwhile, the companies should vigorously make innovations to enhance their competitiveness in the fierce international market, according to Bai.
The government's recent moves to strengthen supervision over overseas investment turns out to be an appropriate time to make adjustments, he added.