April 25, 2016

Big Trouble in Big China: Corporate China is actively destroying shareholder value through excessive growth – and why the economy and the stock market will diverge in performance

  • Our concerns about value destruction in Corporate China were highlighted in last month’s Seeking Alpha article, Economic Suicide in China, which garnered a number one ranking for readership in its category, and 75+ comments
  • Much has been in the press about the problems with Chinese banks. However, we analyzed the aggregate performance of 850+ publicly-traded Chinese non-financial firms, adjusting for financial statement reporting distortions to get a clear apples-to-apples comparability over time and around the world
  • Sadly, the Adjusted Return on Assets of Corporate China has steadily fallen year-by-year below anyone’s measure of cost of capital. Economic profit is distinctly negative and Corporate China is destroying economic value en masse
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