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State-owned enterprises of China

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A state-owned enterprise of China (Chinese: 国有企业) is a legal entity that undertakes commercial activities on behalf of an owner government.

As of 2017, China has more SOEs than any other country, and the most SOEs among large national companies.[1][page needed] As of the end of 2019, China's SOEs represented 4.5% of the global economy[2] and the total assets of all China's SOEs, including those operating in the financial sector, reached US$78.08 trillion.[3]

State-owned enterprises accounted for over 60% of China's market capitalization in 2019[4] and estimates suggest that they generated about 23-28% of China's GDP in 2017 and employ between 5% and 16% of the workforce.[5] Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies.[6] Almost 867,000 enterprises have a degree of state ownership, according to Franklin Allen of Imperial College London.[7]

The role of the Chinese Communist Party (CCP) in SOEs has varied at different periods but has increased during the Xi Jinping administration, with the CCP formally taking a commanding role in all SOEs as of 2020.[8][9] For example, Lai Xiaomin, the former president of state-owned China Huarong Asset Management announced in 2015 that during the operation of China Huarong Asset Management, the embedded CCP committee will play a central role, and party members will play an exemplary role.[10] As Jin et al. wrote in 2022,[11]

The overarching principle of SOE reform is to firmly implement the Party’s leadership and the modern enterprise system. This principle creates a political governance system in China’s SOEs—a Party-dominated governance system characterized by Party leadership, state ownership, Party cadre management, Party participation in corporate decision-making, and intra-Party supervision.

CCP branches within China's SOEs are the governing bodies which make important decisions and inculcate its ideology.[12]

Role

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When China's SOEs were first created, they served as instruments for carrying out national goals and providing social stability via the iron rice bowl.[13] Financial performance of SOEs was not a major concern until China's reform era.[14] With the exception of a small number of national monopolies, SOEs compete in the market as privately enterprises do.[15] State ownership does not prevent SOEs from seeking to make profits; rather they are incentivized to make profits to increase the value of the state's assets.[16]: 7 

SOEs have monopolies in the industries of telecommunications, military equipment, railroads, tobacco, petroleum, and electric power.[17]: 62 

SOEs have a primary role in China's energy sector.[18] Its five large state-owned power generation companies are: Datang, Guodian, Huadian, Huaneng, and China Power Investment Corporation.[19] Its state-owned grid companies are State Grid Corporation of China (SGCC) and China Southern Power Grid Corporation.[20]

Most Chinese universities are SOEs.[21]

China's SOEs are at the forefront of global seaport construction, and most new ports built by them are part of the Belt and Road Initiative.[22] State-owned banks are important sources of funding for port construction.[23]

SOEs that compete in the market are largely owned by provincial or sub-provincial governments.[24] A significant cluster of these SOEs are joint ventures with foreign companies in the automotive industry.[24]

In addition to their own operations, SOEs invest in private enterprises.[25] From the perspective of these private enterprises, this form of partial state ownership is helpful in obtaining financing from banks, particularly as prompts banks to require less collateral.[26] Sometimes in investing in private enterprises, SOEs acquire enough shares to nationalize them.[27] Over the period 2018–2020, 109 publicly traded enterprises with more than $100 billion in collective total assets were nationalized in this way.[27]

SOEs help stabilize public finance, including through allowing the government to use assets as collateral to issue debt or to sell shares to balance budgets.[28] According to academic Wendy Leutert, China's SOEs, "...contribute to central and local governments revenues through dividends and taxes, support urban employment, keep key input prices low, channel capital towards targeted industries and technologies, support sub-national redistribution to poorer interior and western provinces, and aid the state's response to natural disasters, financial crises and social instability."[29]

History of SOEs

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Following the CCP victory in the Chinese Civil War, one of the party's early steps was to nationalize enterprises that the defeated Nationalists had controlled.[30]

During the Third Front campaign to develop heavy industry in China's interior regions, almost 400 state-owned enterprises were re-located from coastal cities to secret sites in the Chinese interior where they would be more protected in event of foreign invasion.[31]

Beginning the late 1970s, SOEs became allowed to pay bonuses to workers.[17]: 10 

In 1984, the State Council issued a directive to expand the autonomy of SOEs.[32] SOEs were also allowed to sell surplus goods on the market once they had met their quotas.[32] Through the reform of "substituting taxes with profits" (li gai shui) the government sought to give SOEs incentives to pursue profits, sought to reduce SOE dependence on the government, and sought to increase market competition.[17]: 10 

With the goal of boosting innovation and efficiency, more than half of China's largest SOEs had established technical development centers by 1993.[18] The same year, the CCP issued its "Decision on Issues Related to the Establishment of a Socialist Market Economy System."[33] In the wave of reform thereafter, one goal was to separate SOE management from government and to empower a select group of SOEs with special property rights and autonomy.[33]

Consistent with CCP general secretary Jiang Zemin and Premier Zhu Rongji's strategy of grasping the large, letting go of the small, major SOE reform occurred in 1997,[33] which represented a change from the previously incremental reform efforts.[34] The state was encouraged to preserve large SOEs and to allow weaker ones to be "let go" through closing or consolidating.[35] Other major policies that were part of the 1997 reforms included management and employee buyouts and the inclusion of foreign strategic partners.[34]

The general trend since 2000 has been for SOEs to increase in importance consistent with a broader resurgence of state activity in the market.[36] SOE mergers have been routine since 2000.[37] Beginning in 2003 with Hu Jintao's administration, the Chinese government increasingly funded SOE consolidation, supplying massive subsidies and favoring SOEs from a regulatory standpoint.[38] These efforts helped SOEs to crowd out foreign and domestic private sector competitors.[38]

As part of China Western Development program, China's five large state-owned hydropower companies planned, underwrote, and built the majority of dams on the river and its tributaries.[39]

Beginning in 2007, central government SOEs were required to provide to the central government a portion of their capital income, stock dividends, property transfer income, enterprise liquidated income, and other state-owned capital income.[17]: 48 

SOEs were major beneficiaries of China's stimulus program following the Great Recession, which began a period where the private sector withdrew and the state-owned sector expanded.[40]

Under Xi Jinping

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The pace of SOE mergers has increased under Xi.[37] The goals of China's current SOE mergers include an effort to create larger and more competitive national champions with a bigger global market share by reducing price competition among SOEs abroad and increasing vertical integration.[37]

Overall, China's focus on SOEs during the Xi era have demonstrated a commitment to using SOEs to serve non-market objectives and increasing CCP control of SOEs[41] while taking some limited steps towards market liberalization, such as increasing mixed (state and private) ownership of SOEs.[42] Along with increased mergers, promotion of mixed ownership, and management of state capital have continued; results have been mixed.[42] Transitioning solely state-owned enterprises to a mixed ownership was announced in 2013 at the 18th Central Committee of the Chinese Communist Party and re-affirmed by the 19th Party Congress.[43]

Following an August 2015 directive, SOEs' articles of association are required to specify the leading role of party organizations in their firms.[44]: 80  The 2015 directive also increases the importance of party organizations within SOEs by requiring that the CCP committee secretary and the chair of the board must be the same person.[44]: 80 

According to Xi, "[T]he dominant role of state ownership cannot be changed, and the leading role of the state-economy cannot be changed."[38] In Xi Jinping Thought, the historical importance of state-owned enterprises is highlighted:[38]

[W]ithout the important material foundation that state-owned enterprises have laid for China's development over a long period of time, without the major innovations and key core technologies achieved by state-owned enterprises, and without state-owned enterprises' long-term commitment to a large number of social responsibilities, there would be no economic independence and national security for China, no continuous improvement in people's lives, and no socialist China standing tall in the East of the world.

Xi Jinping Thought also emphasizes the role of SOEs as part of the dominant position of state ownership necessary for common prosperity.[45]

In 2019, a CCP rule required SOE articles of association to require that major decisions must be discussed by the SOE's party committee before they are considered by management or by the board of directors.[44]: 80 

In 2023, multiple state-owned enterprises, including Shanghai Municipal Investment Group, established internal People's Armed Forces Departments run by the People's Liberation Army.[46][47][48] They are expected "to work together with grassroots organizations to collect intelligence and information, dissolve and/or eliminate security concerns at the budding stage," according to the People's Liberation Army Daily.[47]

In 2024, the Chinese government announced SOE management would be assessed based on stock market performance.[49]

State Council (Central Government)

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China Investment Corporation

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SASAC of the State Council

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For a more comprehensive list, see State-owned Assets Supervision and Administration Commission § Central SOEs.

As of 2022, SASAC oversees 97 centrally owned companies.[50] These are the central SOEs which cover industries deemed most significant to the national economy.[16]: 6  Companies directly supervised by SASAC have been reduced and consolidated through mergers according to the state-owned enterprise restructuring plan with the number of SASAC companies down from over 150 in 2008.[51]

Ministry of Finance

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Main article: Ministry of Finance of the People's Republic of China § As shareholder

Ministry of Education

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Regional Governments

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Governments below the national level operate portfolios of SOEs which operate both domestically and abroad.[50] Examples of regional or local SOEs include:

Anhui Province

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Beijing Municipality

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Chongqing Municipality

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Gansu Province

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Guangdong Province

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Shenzhen City

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Zhuhai City

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Guangxi Zhuang Autonomous Region

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Guizhou Province

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Hebei Province

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Heilongjiang Province

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Hubei Province

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Wuhan City

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Liaoning Province

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Shanghai Municipality

[edit]

Shandong Province

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Linfen City

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Yantai City

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As of 2019

Shanxi Province

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Tianjin Municipality

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Xinjiang Uyghur Autonomous Region

[edit]

Zhejiang Province

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Ningbo City

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Hong Kong S.A.R.

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See also

[edit]

References

[edit]
  1. ^ Pieke & Hofman 2022.
  2. ^ Wei, Lingling (2020-12-10). "China's Xi Ramps Up Control of Private Sector. 'We Have No Choice but to Follow the Party.'". The Wall Street Journal. ISSN 0099-9660. Archived from the original on 2022-08-21. Retrieved 2022-08-22.
  3. ^ Tjan, Sie Tek (17 October 2020). "China State Firms' Assets grow even as the Government presses for lighter debt". Caixin. Archived from the original on 7 January 2022. Retrieved 19 October 2020.
  4. ^ Hissey, Ian (17 December 2019). "Investing in Chinese State-Owned Enterprises". insight.factset.com. Archived from the original on 18 April 2021. Retrieved 15 March 2021.
  5. ^ Zhang, Chunlin (15 July 2019). "How Much Do State-Owned Enterprises Contribute to China's GDP and Employment?" (PDF). World Bank. Archived (PDF) from the original on 13 August 2023. Retrieved 22 April 2024.
  6. ^ Tjan, Sie tek (18 August 2020). "The Biggest but not the Strongest: China's place in the Fortune Global 500". Center for Strategic and International Studies. Archived from the original on 7 October 2020. Retrieved 19 October 2020.
  7. ^ "Xi Jinping really is unshakeably committed to the private sector". The Economist. July 11, 2024. ISSN 0013-0613. Retrieved 2024-07-13.
  8. ^ Drinhausen, Katja; Legarda, Helena (15 September 2022). ""Comprehensive National Security" unleashed: How Xi's approach shapes China's policies at home and abroad". Mercator Institute for China Studies. Archived from the original on 8 February 2023. Retrieved 15 February 2023.
  9. ^ Wang, Orange; Xin, Zhou (January 8, 2020). "China cements Communist Party's role at top of its SOEs, should 'execute the will of the party'". South China Morning Post. Archived from the original on January 8, 2020. Retrieved January 8, 2020.
  10. ^ "《中国华融党委书记、董事长赖小民赴广东分公司调研 强调全系统要总结、学习、推广"广东经验"助推中国华融转型发展》". Archived from the original on 2020-08-27. Retrieved 2020-08-26.
  11. ^ Jin, Xiankun; Xu, Liping; Xin, Yu; Adhikari, Ajay (2022). "Political governance in China's state-owned enterprises". China Journal of Accounting Research. 15 (2): 100236. doi:10.1016/j.cjar.2022.100236. S2CID 248617625.
  12. ^ Marquis & Qiao 2022, p. 14.
  13. ^ Jin 2023, p. 84.
  14. ^ Jin 2023, p. 84-85.
  15. ^ Li 2024, p. 117-118.
  16. ^ a b Chen, Muyang (2024). The Latecomer's Rise: Policy Banks and the Globalization of China's Development Finance. Ithaca and London: Cornell University Press. ISBN 9781501775857.
  17. ^ a b c d Lin, Shuanglin (2022). China's Public Finance: Reforms, Challenges, and Options. New York, NY: Cambridge University Press. doi:10.1017/9781009099028. ISBN 978-1-009-09902-8.
  18. ^ a b Lewis 2023, p. 24.
  19. ^ Lewis 2023, p. 40.
  20. ^ Lewis 2023, p. 41.
  21. ^ Lewis 2023, p. 217.
  22. ^ Shahab Uddin, Shanjida (2023). "Bangladesh and Belt and Road Initiative: Strategic Rationale". China and Eurasian Powers in a Multipolar World Order 2.0: Security, Diplomacy, Economy and Cyberspace. Mher Sahakyan. New York: Routledge. p. 132. ISBN 978-1-003-35258-7. OCLC 1353290533.
  23. ^ Shinn & Eisenman 2023, p. 272.
  24. ^ a b Li 2024, p. 113.
  25. ^ Marquis & Qiao 2022, p. 217-218.
  26. ^ Marquis & Qiao 2022, p. 21.
  27. ^ a b Marquis & Qiao 2022, p. 218.
  28. ^ Li 2024, p. 116.
  29. ^ Pieke & Hofman 2022, p. 146.
  30. ^ Liu 2023a, p. 36.
  31. ^ Meyskens 2020, p. 3.
  32. ^ a b Ang 2016, p. 81.
  33. ^ a b c Roach 2022, p. 215.
  34. ^ a b Heilmann 2018, p. 96.
  35. ^ Roach 2022, p. 215-216.
  36. ^ Hu 2023, p. 129.
  37. ^ a b c Pieke & Hofman 2022, p. 140.
  38. ^ a b c d Marquis & Qiao 2022, p. 217.
  39. ^ Harrell 2023, p. 220.
  40. ^ Marquis & Qiao 2022, p. 216.
  41. ^ Pieke & Hofman 2022, p. 138.
  42. ^ a b Pieke & Hofman 2022, p. 141.
  43. ^ Li 2024, p. 120.
  44. ^ a b c Tsang, Steve; Cheung, Olivia (2024). The Political Thought of Xi Jinping. Oxford University Press. ISBN 9780197689363.
  45. ^ Marquis & Qiao 2022, p. 223.
  46. ^ "Big Chinese state-owned enterprises setting up army-linked militias". Radio Free Asia. October 3, 2023. Archived from the original on 2023-10-06. Retrieved 2023-10-07.
  47. ^ a b Liu, Natalie (2023-11-07). "Why is China Highlighting Militias in State Owned Enterprises?". Voice of America. Archived from the original on 2023-11-09. Retrieved 2023-11-09. According to Chinese media, units have been established this year in at least 23 SOEs nationwide, nine of them in Wuhan.
  48. ^ He, Laura (2024-02-21). "Major companies in China are setting up their own volunteer armies". CNN. Archived from the original on 2024-02-22. Retrieved 2024-02-22.
  49. ^ Harding, Robin; Sandlund, William (2024-04-17). "China reforms its unloved state-owned enterprises to win back investors". Financial Times. Archived from the original on 2024-04-17. Retrieved 2024-04-17.
  50. ^ a b Pieke & Hofman 2022, p. 137.
  51. ^ "China gives state firms $8 bln to combat slowdown". Reuters. November 28, 2008. Archived from the original on October 15, 2020. Retrieved July 1, 2017.
  52. ^ "Zhōngguó bǎowǔ "wúcháng" shōugòu mǎgāng gāngtiěyè jiānbìng chóngzǔ tísù" 中国宝武“无偿”收购马钢 钢铁业兼并重组提速. 第一财经 (Yicai) (in Chinese (China)). Shanghai. 3 June 2019. Archived from the original on 18 June 2019. Retrieved 18 June 2019.
  53. ^ "关于方正东亚信托有限责任公司调整股权结构的批复" (in Chinese). CBRC. 4 November 2016. Archived from the original on 9 January 2017. Retrieved 9 January 2017.

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