Xinhua｜Exploring the Strong Resilience of Chinese Assets from the Perspective of SSE-listed Companies

Recently, the attractiveness of Chinese assets has been on the rise. Some overseas institutions are concerned with the endurance of Chinese assets' attractiveness. In fact, this depends on various internal and external factors, but the core lies in the intrinsic value and resilience of Chinese assets. The Shanghai Stock Exchange (SSE), with a total market value of nearly 50 trillion yuan, gathers the high-quality enterprises and leading companies from various sectors in China. The business performance and development trends of SSE-listed companies undoubtedly provide a crucial window for observing the value and resilience of Chinese assets. In 2023, a total of 2,272 companies listed on the SSE achieved operating revenue of 51.85 trillion yuan and net profits attributable to the parent company of 4.30 trillion yuan. These companies, with their solid performance and development momentum, depict the strong resilience and great potential of the Chinese economy.

Stable and positive performance builds the operational foundation for asset resilience

In 2023, under the background of the national economy's recovery and the solid advancement of high-quality development, SSE-listed companies overcame difficulties and challenges, delivering the result of steady and positive performance. For the year, they collectively achieved operating revenue of 51.85 trillion yuan, with net profits attributable to the parent company and net profits after deducting non-recurring gains and losses totaling 4.30 trillion yuan and 4.08 trillion yuan, respectively, remaining basically flat compared to 2022. Looking at a longer time frame, SSE-listed companies have maintained a stable growth trend in their business performance, with the compound annual growth rates for operating revenue, net profits attributable to the parent company, and net profits after deducting non-recurring gains and losses reaching 7.34%, 5.91%, and 6.00% respectively over the past five years, and even higher at 8.34%, 7.27%, and 7.70% respectively over the past ten years.

Remarkably, in 2023, 1,839 SSE-listed companies achieved profitability, accounting for over 80%. Among them, 935 companies achieved profit growth on the basis of achieving profitability for two consecutive years, 409 companies saw a performance increase of over 30%, and 233 companies achieved a performance increase of over 50%. The scope of losses also significantly narrowed. A total of 265 companies turned losses around or reduced their losses, collectively narrowing the loss amount by more than 290 billion yuan compared to 2022. A large number of companies demonstrated strong growth momentum. Over 600 companies achieved a compound annual growth rate of over 10% in both operating revenue and net profit over the past five years, accounting for over a quarter of all SSE-listed companies. The STAR Market showcased a surge of well-operated, high-growth companies. Using 2019 as the base year, the STAR Market saw compound annual growth rates of 23.3% in operating revenue and 24.4% in net profits over the past four years, with 92 companies achieving compound growth rates of over 30% in both operating revenue and net profits.

Building a modern industrial system to solidify the support of asset resilience structure

With the effect of macro policies emerging continuously, SSE-listed companies solidify the foundation of the real economy through high-quality development. In 2023, the operating revenue of SSE-listed companies in the real economy sector reached 43.28 trillion yuan, with a year-on-year growth rate 1.68 percentage points higher than the overall market, and a net profit of 2 trillion yuan, basically flat compared to 2022. The operating revenue contribution of companies in the real economy sector to the overall SSE market steadily increased, reaching 83.52%, an increase of 4 percentage points compared to 2018.

The guarantee function of basic industries has been continuously consolidated. In terms of energy security, coal and petroleum companies intensified efforts to increase reserves and production. Four coal companies with market values exceeding 100 billion yuan, including China Shenhua Energy Company Limited, produced a total of 755 million tons of commercial coal throughout the year, marking a 5% year-on-year increase. The three major oil giants (PetroChina Company Limited, China Petroleum & Chemical Corporation, and CNOOC Limited) produced a total of 2,941 million barrels of oil and gas equivalent, also reflecting a 5% increase. In terms of transportation, the three major airports - Baiyun, Shanghai, and Xiamen - ensured a total of 1,334,300 takeoffs and landings and a passenger throughput of 184 million, representing year-on-year increases of 93% and 183%, respectively. Railway transport companies like Beijing-Shanghai High Speed Railway Co., Ltd., Daqin Railway Co., Ltd., and Guangshen Railway Company Limited achieved a total passenger volume of 285 million and a freight volume of 746 million tons, representing year-on-year increases of 146% and 8%, respectively. The three major telecom operators saw the total number of 5G plan users reach 1.374 billion, with 5G penetration rates exceeding 75% for each operator.

Advanced manufacturing clusters have seen dual increase in quantity and quality. A large number of SSE-listed manufacturing companies have charted a new course for high-quality industrial chain development with a focus on high-end, intelligent, green, and integrated directions. Comparing the data at the end of April this year with 2018, the number of SSE-listed companies in the automotive industry increased from 89 to 121, with a total market value growing from 1 trillion yuan to over 1.8 trillion yuan. Intelligent connected new energy vehicles have become a new "business card" of Chinese manufacturing. In the field of power equipment, the number of SSE-listed companies increased from 72 to 142, with a total market value growing from less than 700 billion yuan to over 2.2 trillion yuan. Companies like LONGi Green Energy Technology Co., Ltd. and Tongwei Co., Ltd. have risen to become global industry leaders. The number of SSE-listed companies in the machinery equipment industry also increased from less than 100 to 213, with a total market value climbing from 790 billion yuan to nearly 1.8 trillion yuan. In the high-end equipment sector of the STAR Market, more than 120 new companies were clustered, covering various fields such as aerospace, industrial robots, and laser processing.

Significant progress has been made in strategic emerging fields. Taking the integrated circuit industry as an example, SSE main board companies and STAR Market companies have mutually promoted each other, and have basically established a development pattern led by industry leaders and supported by clusters, with a total market value exceeding 2 trillion yuan. In the chip design segment, representative companies such as Will Semiconductor Co., Ltd. Shanghai, Hygon Information Technology Co., Ltd., Gigadevice Semiconductor (Beijing) Inc., and Montage Technology Co., Ltd. are deeply engaged in their respective niches. In the wafer manufacturing segment, the top three wafer foundry companies in Chinese mainland, Semiconductor Manufacturing International Corporation, Hua Hong Semiconductor Limited, and Nexchip Semiconductor Corporation, are well represented. In the packaging and testing segment, JCET Group Co., Ltd. is among the global top three by market share. Additionally, leading companies such as the silicon wafer leader National Silicon Industry Group Co., Ltd., and discrete device leaders Hangzhou Silan Microelectronics Co., Ltd. and Wingtech Technology Co., Ltd. have jointly established a relatively complete industrial chain. Similarly, the bio-pharmaceutical industry has also achieved rapid development, with simultaneous advancements in segments such as biologics, chemical drugs, medical devices, and CROs. The entire industry achieved a total operating revenue of nearly 1.37 trillion yuan, reflecting a year-on-year increase of 3%. In 2023, 40 Class 1 innovative drugs were approved for market release in China, including those developed or co-developed by SSE-listed companies such as Jiangsu Hengrui Pharmaceuticals Co., Ltd, InventisBio, Co., Ltd., and Dizal (Jiangsu) Pharmaceutical Co., Ltd.

Key sectors have experienced an accelerated recovery. The aviation and airport industry has expedited its recovery, with a net loss reduction of 131.8 billion yuan compared to the same period last year. Consumer confidence has continued to rise, with a 3.29% year-on-year growth in operating revenue for the commercial and retail industry. Related industries such as tourism and catering have turned losses into profits overall, with the overall profit scale exceeding the level of 2019. The popularity of domestic brands has surged, with the net profit growth rates of textile and apparel, as well as beauty and personal care sectors reaching 12.21% and 17.36%, respectively. Enterprises in the real estate industry chain have accelerated their recovery. In 2023, 175 SSE-listed enterprises in the real estate industry chain actively expanded their business, significantly reducing their reliance on real estate. Related industries (construction and decoration, building materials, engineering machinery, home appliances, and light industry and home furnishings) collectively achieved operating revenue of nearly 9.8 trillion yuan, with net profits attributable to the parent company exceeding 270 billion yuan, marking year-on-year growth of 7% and nearly 1%, respectively. Notably, in May 2024, a series of policies focusing on the real estate sector were introduced. The People's Bank of China and the National Financial Regulatory Administration consecutively released three policies, announcing a reduction in down payment ratios, the removal of the lower limit for mortgage interest rates, and a reduction in individual housing provident fund loan rates. These measures are expected to fast-track the recovery of the real estate industry.

Accelerating the formation of new quality productive forces to inject new momentum into asset resilience

Efforts have been made to continuously increase innovative research and development, actively cultivate new quality productive forces, and lead industrial leapfrog development. In 2023, the R&D investment of SSE-listed companies in the real economy sector exceeded 1.05 trillion yuan, a year-on-year increase of over 6.44%, accounting for nearly one-third of the total R&D expenditure in the country for the year. Notably, the STAR Market achieved new highs in R&D investment, with a total R&D expenditure of 156.12 billion yuan in 2023, up by 14.3% from the previous year. In fact, R&D investment by SSE-listed companies has maintained a growth trend for ten consecutive years, with a compound annual growth rate exceeding 22%. In terms of R&D intensity, according to the 2023 annual report data, R&D expenditure of SSE-listed companies in the real economy sector accounted for nearly 2.43% of their operating revenue. Among them, 454 companies had an R&D intensity of over 10%, and 205 companies had an R&D intensity of over 20%, an increase of 56 and 45 companies respectively from 2022. The STAR Market's emphasis on R&D is even more pronounced, with the median R&D intensity of companies listed on the STAR Market reaching 12.2% in 2023 and 83 companies maintaining an R&D intensity of over 20% for three consecutive years.

The achievements of innovation are continuously injecting strong momentum into various fields. By industry, in 2023, the R&D expenditures in the construction and decoration, automotive, electronics, power equipment, and pharmaceutical industries each exceeded 80 billion yuan. Furthermore, over the past five years, the compound annual growth rate of R&D expenditures in 13 industries, including public utilities, communications, and transportation, exceeded 20%. Numerous companies have actively integrated into the new round of technological revolution and industrial transformation, leveraging new quality productive forces to propel their development. STAR Market companies have made a series of new progress and breakthroughs in technological innovation. By the end of 2023, a total of 124 projects led or participated by STAR Market companies had won major awards such as national science and technology awards. 60% of the companies' core technologies have reached international or domestic advanced levels. The cumulative number of invention patents has exceeded 100,000, with both Semiconductor Manufacturing International Corporation and CICT Mobile Communication Technology Co., Ltd. owning more than 10,000 patents.

Increased dividends and returns strengthen the resilience and value core of assets

Guided by regulatory guidance and fueled by positive market feedback, enriching investment value through diverse independent means has become an increasingly widespread consensus among listed companies in China. In 2023, SSE-listed companies announced a total cash dividend exceeding 1.73 trillion yuan. Dividends were issued by 1,700 companies, representing over 70% of listed companies, with an overall dividend payout ratio exceeding 40%. Among them, 526 companies had cash dividends exceeding 50% of their net profit attributable to the parent company, and 763 companies had a dividend payout ratio of over 40%. In terms of dividend yield, based on the market value at the end of April 2024, the overall dividend yield of dividend-paying SSE-listed companies exceeded 3%, with over 100 companies boasting a dividend yield of over 5%. The group of companies providing long-term and stable dividends has continued to expand. A total of 1,257 companies have provided cash dividends for three consecutive years, and 858 companies have done so for five consecutive years. More than 100 companies have maintained a dividend yield of over 3% for three consecutive years. Notably, nearly 100 companies have disclosed their 2023 interim dividend plans, with several companies, including the "Big Five" banks, announcing plans for interim dividends in 2024, indicating a growing trend of multiple dividends within a year.

The enthusiasm for increasing holdings and buybacks has surged. In 2023, 187 SSE main board companies issued buyback plans, with a total buyback amount reaching 20 billion yuan; shareholders of 182 listed companies increased their holdings, an increase of 53 companies compared to the previous year, with the total amount of increased shareholdings reaching 20.2 billion yuan. STAR Market companies also actively participated in buyback and shareholding increase activities. A total of 146 companies issued 152 buyback plans, with the maximum planned buyback amount amounting to 17.89 billion yuan. Moreover, 42 companies released 45 shareholding increase plans, with the amount of maximum planned increase by relevant personnel reaching 1.26 billion yuan. A total of 20 companies including KBC Corporation, Ltd. and Espressif Systems (Shanghai) Co., Ltd. have implemented multiple rounds of buyback plans.

Valuation levels remain low, and the trend of indexing investment is gradually emerging

Since the beginning of this year, with the rising investment value and market recognition of listed companies, the valuation of SSE-listed companies has improved but remains relatively low. As of the close on May 20, the overall price-earnings (P/E) ratio of SSE-listed companies was 14.02 times, up about 9% from the beginning of the year. Compared with international markets, the overall P/E ratios of the NASDAQ (43.90 times) and the New York Stock Exchange (20.37 times) were significantly higher during the same period. In the Asian markets, the overall P/E ratios of the Tokyo Stock Exchange, Korea Stock Exchange, and Singapore Exchange were 16.53 times, 20.20 times, and 14.13 times, respectively, indicating that the valuation of A-shares is still relatively low. Looking further, the P/E ratio of companies in the SSE 180 Index was 10.93 times, which is notably lower compared to the overall P/E ratios of the S&P 500 (26.76 times), Tokyo Stock Exchange Standard Market (16.43 times), and the KRX 100 Index (19.42 times). It can be said that the relatively low valuation levels of SSE-listed companies, combined with the overall positive fundamentals, support broader growth prospects and strong growth potential, laying a foundation for the resilience of SSE-listed companies' valuations.

At the same time, the trend of indexing investment is gradually taking shape, further supporting market liquidity improvement. By the end of April 2024, the total scale of China Securities Index products reached 2 trillion yuan, an increase of 19% over the beginning of the year. The total scale of SSE Composite Index products exceeded 380 billion yuan, an increase of 3.3% over the beginning of the year. Among them, the scale of broad-base index products represented by weighted and leading companies such as CSI 300 and SSE 50 increased by 74% and 31% respectively compared with the beginning of the year. Additionally, the STAR Market indices are becoming increasingly diverse, currently numbering 15, with the scale of domestic and foreign products reaching nearly 160 billion yuan. Among them, the scale of STAR 50 ETF product reached 130 billion yuan, and the scale of STAR 100 ETF product was nearly 19 billion yuan, representing an increase of nearly 40% from the issuance scale.

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