Massive concentration of state-owned companies seen as way to escape pressure on Chinese policymakers


News analysis

Beijing’s consolidation of state-owned enterprises is accelerating in its final phase. Experts say this is a step backwards and inefficient state-owned mega-enterprises will only worsen China’s economic decline.

On October 31, the State Council Public Assets Supervision and Administration Commission (SASAC) held a restructuring contract signing ceremony with 20 major enterprises, including China National Cereals, Oils and Foodstuffs Corporation ( COFCO) and China Baowu Steel Group. These central enterprises will eventually be integrated into 11 groups, according to the official Party media, Xinhua.

A similar move took place on July 12, when 23 core enterprises were merged into 13 integration project groups covering digital technology, energy equipment, supply chain services and other areas, accounting for about a quarter of companies supervised by SASAC.

Li Yanming, a U.S.-based China expert and current affairs commentator, told The Epoch Times that the efforts of the Chinese Communist Party (CCP) will only accelerate the process of self-destruction, citing that its status monopoly is tantamount to going back to how it was, because these mega state enterprises are often plagued by corruption and inconvenience.

Central enterprises, or enterprises reporting directly to the Central Committee, are public enterprises in which the Council of State or SASAC plays the role of financier and whose capital is wholly owned or controlled. Currently, there are about 98 central enterprises managed by SASAC, covering almost all economic sectors.

A health worker wears protective gear as he performs a throat swab for a nucleic acid test to detect COVID-19 at a mass testing site after new cases were found in the area, the April 6, 2022 in Beijing, China. (Kevin Frayer/Getty Images)

The Internal and External Misfortunes of the CCP

According to Li, the CCP accelerating the integration of central enterprises is a reaction to the internal economic crisis and external international pressure to remain viable.

China has been crippled by serious economic problems due to its long “dynamic zero-COVID” anti-virus policy.

The real estate market has been one of the hardest hit. A large number of property developers have been under enormous pressure due to default following the bankruptcy of the sector’s pioneering group, Evergrande. In addition, millions of pre-sold buildings, left unfinished by property developers, force buyers to withhold mortgage payments, which exacerbates financial and banking risks.

The real estate sector and its associated industries once accounted for about a third of China’s GDP.

Chinese tech giants also face the exodus of foreign investors due to regulatory repression. For example, Japan’s SoftBank sold a third of its stake in e-commerce firm Alibaba this year, and tech giant Tencent’s largest shareholder, Naspers, a South African media group, significantly reduced its stake in Tencent.

In Western countries, the attitude of the United States towards the CCP has seen the biggest turnaround in nearly half a century under the Trump presidency. The free world, led by the United States, began to disassociate itself from China and hunt down the increasingly authoritarian communist regime.

On October 12, a new U.S. chip ban went into effect, stating that high-end chips under 14 nanometers are completely unavailable to Chinese companies, and U.S. experts in the field are no longer allowed to help Chinese enterprises to develop or produce. high-end chips – an almost hopeless prospect for Chinese semiconductor companies.

However, the CPC will not stop accelerating its rapid development plans in a bid to alleviate its economic and political woes, and even achieve its global expansion ambitions, Li said.

The purpose of promoting the consolidation of central enterprises is to concentrate resources on enterprises with advantages and major industries, improve core competitiveness in the whole industrial chain, and compare with the best enterprises international organizations, as the Xinhua spokesperson stated on July 18.

On the other hand, Li believes that the consolidation of central enterprises can be seen as a reshuffling of Xi’s interests and a vital purge in the economic and financial spheres, since state-owned enterprises and some large so-called private enterprises have long been dominated by interests. families of former leaders Jiang Zemin and Zeng Qinghong.

Since Xi took control as the first power of the CCP in 2012, he has carried out a series of purges using the “barrel of a gun” (military system), the “barrel of a pen” (system of propaganda) and the “barrel of a gun”. blade” (political and legal system) but made no move on the “money bag” (financial system) until the stock market crashed in Shanghai and Shenzhen from June to July 2015. Xi then sought to tighten its grip on the financial system and central enterprises, Li said.

Epoch Times Photo
Smoke rises from steel slag at a steel plant in Chongqing March 1, 2007 in Chongqing Municipality, China. (China Photos/Getty Images)

History of central enterprise restructuring

Besides the consolidations, at least 26 groups of 47 central enterprises underwent the so-called strategic reorganization and formed several supergiant enterprises, such as Ansteel Group, China Sinochem Holdings, China State Shipbuilding Group, Baowu Steel Group and China Ocean. Shipping Group according to Xinhua on July 18.

The Chinese government has indicated that these projects could be horizontal mergers of similar enterprises, vertical integrations of upstream and downstream industrial chains between central enterprises, adjustments of similar enterprises within central enterprises or mergers of large central companies with local companies. The specific methods of integration are an amalgam using reorganization, asset exchange, free transfer or capital cooperation and strategic alliance.

Meanwhile, the authorities have also established ten new central enterprises, including Sinomine Resource Group, China Satellite Network Group, China Electrical Equipment Group, China Logistics Group and China Rare Earth Group.

The size of the reorganized central enterprises is appallingly gigantic. In 2016, for example, the restructuring of China Ocean Shipping Group and China Overseas Holdings includes eight listed companies, 118,000 employees and total assets of 610 billion yuan (about $84.4 billion), a deal described as the most complex in history. of the capital market and which both parties had been planning for at least six months. This is only one case among 50 central enterprise groups to be integrated, according to a report by Chinese financial media Yicai on February 18, 2016.

Weng Jieming, deputy director of SASAC said at a meeting on September 1, that more enterprises would form a new “one enterprise for one industry and one enterprise for one industry” model, which means that each industry should be monopolized by a central enterprise controlled by the CCP, and each of these central enterprises should focus on a single industry.

Inefficiency of central enterprises

The CCP imposed planned planning economy since taking power in 1949 and pursuing a policy of “reform and opening up” in the late 1970s to renew itself.

Zhang Weiying, a professor of economics at Peking University, pointed out in an article published in the Hong Kong-based newspaper Ifeng Financial on Feb. 14, 2014, that problems with Communist Party state-owned enterprises affect Chinese people. economy.

Zhang said that if the government gives state-owned enterprises more franchises, such as tax, credit, land, licensing and other preferential treatment, than private enterprises, whether state-owned enterprises can receive government subsidies. in case of operating losses and if the leaders of public enterprises have official party position, there will not be a level competitive environment. If the competitive environment is not fair, state enterprises can outperform private enterprises in all respects despite their poor performance, then the market is not viable.

He added that the practice in China proves that state-owned enterprises can only survive under the protection of the communist government because they are so inefficient that privileges are not enough to compensate for their inefficiency. Consequently, many local governments had to privatize their own public enterprises in the 1990s.

But these lucrative state industries are largely inaccessible to the private sector, Zhang said.

Even if private enterprises are eliminated in China, there still cannot be fair competition in an economy made up entirely of state-owned enterprises. “The reason is that different SOEs belong to different levels and local governments, and it is impossible for one level of government to treat its own SOEs and other SOEs equally. The result is that each state-owned company enjoys privileges in its own administrative area and is discriminated against elsewhere,” Zhang said.

“No matter how strong the central authority is, that would be no way to solve this problem,” Zhang added.

The opinions expressed in this article are the opinions of the author and do not necessarily reflect the opinions of The Epoch Times.

Shawn Lin

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Shawn Lin is a Chinese expat living in New Zealand. He has contributed to The Epoch Times since 2009, with a focus on China-related topics.

Lynn Xu

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