Wednesday, October 26, 2011
[IWS] USCC: [CHINA] AN ANALYSIS of STATE-OWNED ENTERPRISES and STATE CAPITALISM in CHNA [26 October 2011]
IWS Documented News Service
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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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U.S.-China Economic and Security Review Commission (USCC)
An Analysis of State‐owned Enterprises and State Capitalism in China [26 October 2011]
By Andrew Szamosszegi and Cole Kyle
http://www.uscc.gov/researchpapers/2011/10_26_11_CapitalTradeSOEStudy.pdf
[full-text, 121 pages]
Press Release 26 October 2011
Washington, D.C. - Today the U.S.-China Economic and Security Review Commission released a new report, "An Analysis of State-owned Enterprises and State Capitalism in China."
China's breathtaking economic growth, has often led observers to assume that the country's economic system has been transformed into a capitalist economy dominated by private enterprise. Although China's reliance on private enterprise and market-based incentives has been growing, and the CCP's treatment of private enterprises and entrepreneurs has been changing, it is a mistake to minimize the current role of the State and the CCP in shaping economic outcomes in China and beyond. The Chinese government and state-owned enterprises (SOEs) remain potent economic forces. Indeed, some of China's SOEs are among the largest firms in China and the world. They are major investors in foreign countries. They have been involved in some of the largest initial public offerings in recent years and remain the controlling owners of many major firms listed on Chinese and foreign stock exchanges.
Previous reports and analyses by academics and policy experts have estimated that Chinese SOEs, and other state-affiliated enterprises, hold a lower share of China's non-agricultural GDP than that estimated in this report, which provides a comprehensive analysis of that country's control and influence over its economic enterprises. This report tracks testimony heard by the Commission that China's privatization reforms have, in some cases, reversed and that the state sector is strengthening.
The report concludes that:
• SOEs and entities directly controlled by SOEs, accounted for more than 40 percent of China's non-agricultural GDP. If the contributions of indirectly controlled entities, urban collectives, and public Township and Village Enterprises (TVE) are considered, the share of GDP owned and controlled by the state is approximately 50 percent.
• The share of GDP accounted for by the non-state sector, including foreign invested firms without ties to the government of China, is also approximately 50 percent.
• Based on the current direction of economic policy making in China the state sector will continue to play an important role in China, even if its share of GDP shrinks further.
• China's SOEs are potentially formidable competitors because they benefit from a number of government preferences in China. Based on recent U.S. regulatory filings by SOE-owned entities, SOEs and their subsidiaries benefit from preferred access to bank capital, below-market interest rates on loans from state-owned banks, favorable tax treatment, policies that create a favorable competitive environment for SOEs relative to other firms, and large capital injections when needed. Further, Chinese SOEs also appear to dominate China's expanding government procurement market.
• When it joined the WTO in 2001, China promised that the government would not influence, directly or indirectly, the commercial decisions of SOEs. China does not appear to be keeping this commitment. The state very much does influence SOE commercial decisions and the most recent five-year guidance does not herald that this is changing. If anything, China is doubling down and giving SOEs a more prominent role in achieving the state's most important economic goals.
• For some U.S. firms whose participation in China's economy facilitates the government goals, China will continue to be a profitable market. For others, especially those in strategic and emerging industries that the government is targeting, the Chinese market may become far less hospitable.
This report was prepared for the Commission by Capital Trade, Incorporated. It can be found online at: http://www.uscc.gov/researchpapers/2011/10_26_11_CapitalTradeSOEStudy.pdf
Press Contact:
Jonathan Weston
202-624-1487
Table of Contents
I. Executive Summary ................................................................................................................. 1
II. Introduction ............................................................................................................................ 4
III. Overview of state capitalism in China .................................................................................... 5
A. Economic footprint of SOEs ............................................................................................... 11
1. Output and value added ............................................................................................. 12
2. Fixed investment ........................................................................................................ 14
3. Employment and wages ............................................................................................. 16
4. Taxes/revenues ........................................................................................................... 19
5. The observable SOE share of output .......................................................................... 20
B. Comparison of the observable state sector and the private sector .................................. 22
IV. Sub]national SOEs ................................................................................................................. 26
V. Chinafs strategic and pillar SOEs ........................................................................................... 33
A. Strategic industries ............................................................................................................ 34
B. Pillar industries .................................................................................................................. 38
C. Is the banking sector strategic? ......................................................................................... 43
VI. State support for SOEs: evidence from U.S. regulatory filings ............................................. 44
VII. Support from state]owned banks ...................................................................................... 48
A. Regulatory and legal framework ........................................................................................ 48
B. Favorable treatment towards SOEs ................................................................................... 51
C. Less favorable access for the private sector ...................................................................... 52
D. Near]term prospects ...................................................................................................... 53
VIII. The role of SOEs in Chinese government procurement .................................................... 55
A. Issues in Chinafs procurement market .............................................................................. 55
B. Measuring the SOE share of government procurement in China ..................................... 58
C. SOE Procurement in the United States .............................................................................. 59
IX. The SOE role in Chinafs five]year development plans .......................................................... 61
X. The SOE role in technology transfers .................................................................................... 66
Capital Trade, Incorporated October 26, 2011
Page ii
A. Aviation .............................................................................................................................. 68
B. High speed rail ................................................................................................................... 70
XI. Are SOE leaders market driven or Party driven? .................................................................. 72
A. SOE reforms in China and the role of SASAC ..................................................................... 72
B. The role of the COD ........................................................................................................... 75
C. The market or the state? ................................................................................................... 76
XII. Effects of SOE institutional interests on market access norms in China ........................... 78
A. Key players ......................................................................................................................... 78
B. Impact on foreign access in China ..................................................................................... 82
XIII. SOEs as conduits for foreign policies ................................................................................. 85
XIV. Overall assessment of SOEs and state capitalism in China ................................................ 90
XV. Attachment 1: SASAC list of Central SOEs ......................................................................... 95
XVI. Attachment 2: Calculation of SOE share of Chinafs GDP ................................................... 99
XVII. Glossary of Terms ......................................................................................................... 102
XVIII. Bibliography.................................................................................................................. 105
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