Private-sector company share prices have outperformed state-owned ones by more than 120% over the past decade, according to the Wall Street bank.

“SOEs have an advantage in accessing cheaper credit” and government subsidies, “but at the cost of serving public and social functions and supporting government policies,” the JPMorgan analysts wrote.

The valuation gap is stronger in the market for Chinese shares in Hong Kong, “where foreign investors are typically more concerned about transparency and governance issues,” they added.

While the Stock Connect between the Hong Kong and Chinese exchanges means in theory price gaps should be arbitraged away, there’s an enduring discrepancy. “It is worth noting that the A-H dual-listed companies are highly dominated by the SOEs,” Zhu and his colleagues wrote. A shares refer to mainland listings, and H shares are those in Hong Kong.

Sector Effect

State firms have a bigger presence in old-line industries such as utilities and energy, but even measuring them against privately-run peers by sector, they have underperformed, the JPMorgan calculations show.

The shares of private industrial firms did 90% better than state-owned competitors, the bank said. In property the outperformance was 61% and in information technology it was 56%, JPMorgan said.