State Ownership Offered Ballast to Chinese Equities

Quick take
2 min read
April 29, 2025
Amid the turbulence in the Chinese equity market after the U.S. imposed new tariffs on Chinese imports earlier this month, one characteristic was a steadying force: the degree of Chinese state ownership. The market's initial reaction to the tariff shock, measured by the performance of the MSCI China Index, was to drop 15% from April 3 to April 7, but by April 25, the index was up 11% from its April 7 low. Chinese companies with higher exposure to state ownership and/or lower exposure to U.S. revenue sources proved more resilient over these chaotic days.
SOE exposure helped tame the bear
From April 3 to April 25, the best-performing factor in the Chinese equity market, according to the MSCI China Local Equity Factor Model, was the state-owned enterprise (SOE) factor, a distinctive factor in the China market. Although heavily state-influenced companies may lag in bull markets, in times of stress they are likely to receive policy support and directives intended to shore up confidence.
Location, location, location — less US exposure, greater odds of resilience
Our analysis of the economic exposure of Chinese industries shows that those with high U.S. revenue exposure — such as pharmaceuticals and biotech, tech hardware and autos — suffered steep losses, while defensive industries that depended less on U.S.-source revenues — including food, beverage and tobacco, telecom and utilities — had smaller declines. In addition to an industry's or company's revenue-exposure distribution and level of state policy support, the geographic location of its assets could be a useful indicator of potential tariff-related impacts.

Chinese industry performance tied to US revenue exposure

Bubble size is the weighted-average economic exposure to the U.S. of the MSCI China Index’s GICS® industry groups. GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.

SOE factor was best performer in the China A-shares market from April 3 to 25

The chart includes the top- and bottom-performing factors in China A-shares based on the MSCI China Local Equity Factor Model.

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