State-owned enterprises of China

A state-owned enterprise is a legal entity that undertakes commercial activities on behalf of an owner government. Their legal status varies from being a part of government to stock companies with a state as a regular or dominant stockholder. There is no standard definition of a government-owned corporation (GOC) or state-owned enterprise (SOE), although the two terms are often used interchangeably. The defining characteristics are that they have a distinct legal shape and they are established to operate in commercial affairs.

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.[1][2] 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.[3] As Jin et al wrote in 2022,[4]

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.[5]:14

Significance

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.[6]:84 Financial performance of SOEs was not a major concern until China's reform era.[6]:84–85

As of 2017, China has more SOEs than any other country, and the most SOEs among large national companies.[7] In 2018, half of the country's centrally-owned SOEs were among the world's 500 largest companies.[6]:95 As of the end of 2019, China's SOEs represented 4.5% of the global economy[8] and the total assets of all China's SOEs, including those operating in the financial sector, reached US$78.08 trillion.[9]

State-owned enterprises accounted for over 60% of China's market capitalization in 2019[10] and generated 40% of China's GDP of US$15.97 trillion (101.36 trillion yuan) in 2020, with domestic and foreign private businesses and investment accounting for the remaining 60%.[11][12] Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies.[13]

SOEs have a primary role in China's energy sector.[14]:24 Its five large state-owned power generation companies are: Datang, Guodian, Huadian, Huaneng, and China Power Investment Corporation.[14]:40 Its state-owned grid companies are State Grid Corporation of China (SGCC) and China Southern Power Grid Corporation.[14]:41

Most Chinese universities are SOEs.[14]:217

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.[15] State-owned banks are important sources of funding for port construction.[16]:272

In addition to their own operations, SOEs invest in private enterprises.[5]:217–218 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.[5]:21 Sometimes in investing in private enterprises, SOEs acquire enough shares to nationalize them.[5]:218 Over the period 2018-2020, 109 publicly traded enterprises with more than $100 billion in collective total assets were nationalized in this way.[5]:218

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."[7]:146

History of SOEs

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.[17]:36 By 1952, China's SOEs accounted for more than 40% of industrial production, and by 1956 nearly all large-scale commerce and industry had been nationalized.[17]:36

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.[18]:3

In 1984, the State Council issued a directive to expand the autonomy of SOEs.[19]:81 SOEs were also allowed to sell surplus goods on the market once they had met their quotas.[19]:81

With the goal of boosting innovation and efficiency, more than half of China's largest SOEs had established technical development centers by 1993.[14]:24 The same year, the CCP issued its "Decision on Issues Related to the Establishment of a Socialist Market Economy System."[20]:215 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.[20]:215

Consistent with President Jiang Zemin and Premier Zhu Rongji's strategy of "grasping the large, letting go of the small," major SOE reform occurred in 1997,[20]:215 which represented a change from the previously incremental reform efforts.[21]:96 The state was encouraged to preserve large SOEs and to allow weaker ones to be "let go" through closing or consolidating.[20]:215–216 Other major policies that were part of the 1997 reforms included management and employee buyouts and the inclusion of foreign strategic partners.[21]:96

SOE mergers have been routine since 2000.[7]:140 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.[5]:217 These efforts helped SOEs to crowd out foreign and domestic private sector competitors.[5]:217

As part of China's Great 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.[22]:220

SOEs were major beneficiaries of China's stimulus program following the 2008 global financial crisis, which began a period where the private sector withdrew and the state-owned sector expanded.[5]:216

Under Xi Jinping

The pace of SOE mergers has increased under Xi.[7]:140 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.[7]:140

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[7]:138 while taking some limited steps towards market liberalization, such as increasing mixed ownership of SOEs.[7]:141 Along with increased mergers, promotion of mixed ownership, and management of state capital have continued; results have been mixed.[7]:141

According to Xi, "[T]he dominant role of state ownership cannot be changed, and the leading role of the state-economy cannot be changed."[5]:217 In Xi Jinping Thought, the historical importance of state-owned enterprises is highlighted:[5]:217

[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.[5]:223

In 2023, several state-owned enterprises, including Shanghai Municipal Investment Group, established internal People’s Armed Forces departments run by the People's Liberation Army.[23]

State Council (Central Government)

China Investment Corporation

SASAC of the State Council

As of 2022, SASAC oversees 97 centrally owned companies.[7]:137 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.[24]

Ministry of Finance

Ministry of Education

Regional Governments

Governments below the national level operate portfolios of SOEs which operate both domestically and abroad.[7]:137

Anhui Province

Beijing Municipality

Chongqing Municipality

Gansu Province

Guangdong Province

Shenzhen City

Zhuhai City

Guangxi Zhuang Autonomous Region

Guizhou Province

Hebei Province

Heilongjiang Province

Hubei Province

Wuhan City

Liaoning Province

Shanghai Municipality

Shandong Province

Linfen City

Yantai City

As of 2019

Shanxi Province

Tianjin Municipality

Xinjiang Uyghur Autonomous Region

Zhejiang Province

Ningbo City

Hong Kong S.A.R.


See also

References

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  16. Shinn, David H.; Eisenman, Joshua (2023). China's Relations with Africa: a New Era of Strategic Engagement. New York: Columbia University Press. ISBN 978-0-231-21001-0.
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