Investing in China has often been met with a bit of hesitation because of concerns about the country's state-owned enterprises. China's SOEs account for near 40% of its stock market and more than a third of its public investment.
There are two main worries about investing in China that are specific to SOEs. The first is that minority shareholder interests might not necessarily be the top priority for SOEs. Indeed, taking size as a proxy for SOEs, the CSI 500 index has outperformed the CSI 300 since 2005, but has given up some of those gains starting in 2017. Secondly, investors worry about the debt on the SOEs' balance sheets given that the SOEs can tap cheap financing from state-owned banks.