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Ten years after China’s official emergence as a world economic super power with its joining the World Trade Organisation, Chinese state-owned industries are still as powerful and influential as ever. This heavy involvement on the part of the Chinese state in its economy is a source of criticism against the regime for many of its trading partners, chief among them the United States. Academic research focused on the problem of Chinese state capitalism notes the difficulty private firms have in breaking through in the Chinese market while preferences tend to be given to local companies. The State-owned Assets Supervision and Administration Commission is the controlling shareholder in more than 120 state companies controlling at least $3.7 trillion, an entity that the Economist quotes the Boston Consulting Group as saying is, “the most powerful entity you have never heard of.” Peter Williamson of Cambridge’s Judge Business School argues that the creation of large state-owned firms was actually the result of a modernization process that aimed to make small, inefficient regional factories part of larger concerns capable of competing on the world scene. The Economist states: “state-owned firms account for two-fifths of China’s non-agricultural GDP. If firms that benefit from state largesse (eg, subsidised credit) are included, that figure rises to half. Genuinely independent firms are starved of formal credit, so they rely on China’s shadow banking system. Fearing a credit bubble, the government is cracking down on this informal system, leaving China’s ‘bamboo capitalists‘ bereft.” The Hong Kong Institute for Monetary Research claims that if state-owned corporations were to lose their advantages enjoyed by being state entities, their profits would be wiped out by having to pay market interest rates. Economists argue that if China’s economy is to truly modernize it must allow its corporations to operate in a more or less free market. The facade of being a modern corporation, they argue, is not enough when the firm is ultimately in the ownership of the SASAC.

 

[Economist]