The need to choose your targets carefully

While this may sound like perfect predictability, analysts agree on another trend – stumbling SOEs inadvertently inspire private innovation by first monopolising key industries, then failing to fulfill the needs of China’s smart, pragmatic and increasingly quality-conscious population. As happened in the cases of luxury goods, healthcare, education and, more recently, entertainment and technology, China’s wealthiest and best-connected citizens, starting with a Party elite, initially purchase from abroad. Only when firms such as Louis Vuitton and Ferragamo, foreign pharmacies and hospitals, or Harvard and Oxford universities no longer have the capacity to satisfy the needs of a growing Chinese clientele, do SOEs throw money and political clout at the problem, whereas private firms mobilise speed, market acumen and intellect. Eventually, state-sponsored champions become safe bets for investors, while underdogs offer risky but potentially bank-breaking gambles for the future.


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Middle East Focus – May 2019

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