China has about 150,000 absolute state-owned enterprises (SOEs), of which 50,000 are owned by the central government and the rest by local or provincial governments, according to the US government’s State Department.
State-owned enterprises, both central and local, account for 30-40% of total Gross Domestic Product (GDP) and about 20% of China’s total employment.
The assets of non-financial SOEs totaled approximately $ 30 trillion, says the State Department in its Report on the State of Investments in China 2020, released on Wednesday.
State-owned companies can be found in all sectors of the economy, from tourism to heavy industry.
In addition to wholly-owned companies, state funds are distributed throughout the economy, so that the state can also be the majority or majority shareholder of a nominally private company.
China‘s major state-owned enterprises benefit from preferential government policies aimed at developing bigger and stronger «national champions».
State-owned companies enjoy privileged access to essential economic inputs (land, hydrocarbons, finance, telecommunications, and electricity) and wield considerable power in markets such as steel and minerals.
Furthermore, state-owned companies have long enjoyed preferential access to credit and the ability to issue publicly traded debt and stocks. There is no complete and published list of all Chinese SOEs.
State enterprises
Officials from the People’s Republic of China have indicated that China intends to use the OECD guidelines to enhance the professionalism and independence of SOEs, including reliance on boards of directors that are independent of political influence.
Other recent reforms have included salary caps, limits on employee benefits, and attempts to create stock incentive programs for managers that have produced mixed results.
However, analysts believe that minor reforms will be ineffective if the management of state-owned enterprises and government policy remain intertwined, and Chinese officials have made minimal progress in fundamentally changing the regulation and business conduct of state-owned enterprises. .
At the same time, state-owned companies continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which can further restrict private investment in the economy.
Transparency and disputes
Among the central state-owned enterprises managed by the State-owned Assets Supervision and Administration Commission (SASAC), senior management positions are held mainly by high-level members of the Chinese Communist Party (CCP) who report directly to the CCP and who act as company party secretaries.
SOE executives outnumber regulators in the Chinese Communist Party’s rank structure, minimizing the effectiveness of regulators in implementing reforms.
According to the State Department report, the lack of managerial independence and the controlling participation of the state make state-owned companies de facto arms of the government, subject to government direction and interference.
State-owned companies are rarely charged in legal disputes, and when they are, they almost always prevail. American companies often complain about a lack of transparency and objectivity in business disputes with state-owned companies.
