Industrial integration, mindset overhaul key to value creation, development

At the same time, business, consumer and credit information collected by enterprises through business activities with their counterparts or partners will serve as the foundation of financial services. In this way, financial activities that are combined with industries will help enterprises control financial risks effectively.

Having said that, we also found that the financial business activities of many companies are completely independent of their primary businesses. This kind of financial services may bring relatively high returns to the companies temporarily and can be regarded as part of its diversification.

However, high-leverage financial business with high volatility will significantly increase the risks faced by such companies and even have a negative effect on their primary businesses, as this type of financial business is separated from a specific industry and lacks an advantage in industry information.

In the meantime, the complexity and connectivity of financial business may also lead to the rapid spread of risks from a company or a financial institution to others. It may eventually evolve into systemic risk for the whole market.

Recently, the central government stepped up regulation of the phenomenon where finance is not yet integrated into the industries that some State-owned enterprises specialize in. Therefore, companies should have a clear understanding of the attitudes of regulators on this matter.

In the future, value creation will be realized by Chinese enterprises through industrial integration and the improvement of efficiency.

How to achieve rapid economic growth by optimizing the combination of factors of production and increasing their efficiency? That challenge has become the key to the transformation of China's growth model.

To realize better economic development, the country should rely more on industrial integration and the improvement of efficiency of the existing companies and industries.

In the foreseeable future, listed companies will either merge other companies with themselves or get merged with others. Apart from the trend of companies to get listed under the registration-based IPO system, another hot trend we may see is that unlisted companies will exit the market after being acquired by listed companies.

For Chinese enterprises, there is still a lot of room for improvement in terms of their operational capabilities. Those companies that can offer cost-effective products and services still have a number of opportunities to do business internationally.

Companies also need to improve the integration of supply chains to better satisfy the needs of younger generations of consumers, which raise higher requirements on product design and the speed of iterative product development.

Besides, in the next five to 10 years, traditional companies have a lot to do in terms of digitalization in such areas as purchasing, production, sales, logistics, human resources and organization to enhance corporate efficiency.

By using new technologies including 5G, artificial intelligence and blockchain, traditional companies can better match consumer goods with consumer needs, ensure smoother logistics, and realize smarter and more automatic production.

With capital market reforms going on, Chinese companies will no longer find it extremely difficult to obtain external financing for innovative business.

As a result, an increasing number of companies will make a transition from adopting diversification strategies to adopting professional development strategies by managing their non-primary businesses separately from their primary businesses.

To put it simply, Chinese companies are in urgent need of changing their traditional modes of operation and mindsets, as well as making full use of new technologies, to improve efficiency and create value.

The writer is an associate professor of finance at the China Europe International Business School (CEIBS).

The views don't necessarily reflect those of China Daily.