China SOEs' One True Master

(Bloomberg Gadfly) -- Investors who bet China's state-owned enterprises would start handing out more red envelopes will be cheering Friday.

Shares of PetroChina Co. soared as much as 4.6 percent, making it the best-performing stock on Hong Kong's benchmark Hang Seng Index. China's biggest oil producer said late Thursday it will pay out 100 percent of its earnings as dividends, implying a yield of 3.4 percent.

China SOEs' One True Master

Gadfly predicted this last week. It makes sense. China is pushing SOE reform, and that requires funds. If state firms offer higher dividends, they become more attractive to foreign institutional investors.

Simple, right? Or perhaps not.

During PetroChina's analyst briefing, management said it would be "flexible" with its dividend policy. Translation: PetroChina is paying a fat bonus this year because Beijing wants it to. If next year Beijing changes its mind and wants PetroChina to spend money on a fleet of LNG-powered oil tankers instead, the energy giant will do just that.

China SOEs' One True Master

Look at China Life Insurance Co., one of the most cash-rich state firms out there.

It also released first-half results Thursday. Value of new business, a key metric that insurance companies use to measure future cash flows, increased 30 percent from a year earlier, while the value of new-business margins rose 7 percentage points to 42.7 percent. Total investment yields also improved, to 4.6 percent from 4.4 percent, as China's stock market recovered and bond returns climbed.

China SOEs' One True Master

Yet China Life shows no inclination to increase its paltry 1.1 percent dividend yield, and didn't announce an interim payout. The insurer must feel it's done enough in the way of national service. The 21.7 billion yuan ($3.3 billion) being tipped into China Unicom is an expensive undertaking, after all.

Investors need to realize that pleasing shareholders isn't front and center of SOE bosses' minds. Keeping Beijing happy... well, that's another matter.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

To contact the author of this story: Shuli Ren in Hong Kong at sren38@bloomberg.net.