From January to July this year, among the top 10 real estate companies acquiring land in key cities in China, 80 percent are state-owned enterprises, according to the country’s official data. A similar trend was observed in other industries in China. Analysts believe that this is not only an indication that “the state advances, the private sector retreats”—a Chinese catchphrase describing the trend that state firms keep expanding while the private sector keeps shrinking—but also a possibility that the ruling Chinese Communist Party (CCP) will bring back a planned economy in the post-pandemic era.
State Companies Monopolize Housing Market
On July 30, the China Index Academy released the 2022 January–July Top 100 Ranking of Real Estate Enterprises in Land Acquisition, which shows that from January to July, the total land acquired by the Top 100 enterprises was worth 802.4 billion yuan ($117.7 billion), a 55.6 percent year-on-year decline. State-owned enterprises and local urban investment platforms became the main buyers of land auction transactions, with 80 percent of the top 10 buying land in key cities being state-owned enterprises. Chinese private enterprises, which used to be very active in land acquisition in the past, accounted for only 17 percent of sales in the first seven months of this year.
This is especially true in hot real estate markets such as Guangzhou, Shanghai, Beijing, Nanjing, and Chengdu, where state-own enterprises were predominant land buyers.
For example, in Shanghai, land acquired by state-run enterprises accounted for as much as 95 percent. In Beijing, a large-scale land auction was held on June 1. Of the 30 participating real estate companies, only three were private companies.
Forced Corporate Restructuring
The same trend is also observed in the steel industry.
For example, in 2009, Rizhao Steel, a private company and one of the top 10 steel enterprises in China, was acquired by and merged into state-owned Shandong Steel. According to China Newsweek, Chairman Du Shuanghua did not agree with the restructuring, but the Shandong provincial government acted as an authoritative coordinator to have the two companies sign a restructuring agreement. The purpose was to meet the government’s goal of concentrating 70 percent of steel production capacity in the province into Shandong Steel Group through mergers and acquisitions within five years.
The Plan for the Adjustment and Revitalization of the Steel Industry announced by the Chinese authorities in March 2009 stipulated that by 2011, 45 percent of China’s steel production capacity would be concentrated in the top five steel companies. This industry plan even laid out specific M&A and restructuring plans. For example, it included the specific operational procedures of “promoting cross-regional restructuring between Anben and Pansteel, Northeast Special Steel, Baosteel and Baosteel, Ningbo Steel, etc., and promoting intra-regional restructuring between Tianjin Steel and Tiantie, Tiansteel, Tianjin Metallurgical Company, and Taigang’s merger with other steel enterprises in the province.”
Tangshan, China’s top steelmaking city, underwent a steel de-capacity process in 2016, following directives from central authorities. China United Steel analyst Ma Qingfeng told business magazine Chinese Entrepreneur that all the steel plants that were shut down were private enterprises, while the remaining private steel mills had either stopped investing in new blast furnaces since 2011 or transferred management power to state-owned enterprises.
China Solid Waste Network discussed “state advances, private sector retreats” in the environmental industry in a 2018 article, pointing out that the deleveraging and de-capacity policies had the opposite impact on state-owned enterprises and private enterprises. State-owned enterprises have enjoyed the dual effects—output and price increases—due to the capacity contraction coupled with resilient demand, while private enterprises were seriously victimized.
Regression of Marketization
Bao Yujun, chairman of the China Private Sector Association, told Chinese media that he believes that a market saturated with state-owned enterprises means a regression in the process of marketization and that the future allocation of social and economic resources may be further distorted, leading to even lower efficiency in productivity.
Although state-owned enterprises in China possess a lot of resources, they are very inefficient. According to the statistics of the CCP’s National Development and Reform Commission, among industrial enterprises above a designated size, the industrial value and profits of state-run enterprises increased by 10.7 percent and 17.4 percent year-on-year respectively. In comparison, those of private enterprises increased by 25.3 percent and 47.3 percent respectively.
Moreover, of the 41.1 million enterprises in China, there are 368,000 enterprises above the designated size, accounting for only 0.9 percent, most of which are state-owned enterprises, while over 99 percent are below the designated size and are privately owned. Of China’s 750 million employed people, 73 million are employed by above-scale enterprises, and more than 90 percent of the rest are employed by below-scale enterprises, with private enterprises playing an important role in employment.
State-owned enterprises have almost monopolized China’s crude oil, natural gas, and ethylene production, as well as basic telecommunication services and other highly profitable services.
According to the plan of the State-owned Assets Supervision and Administration Commission, state-owned enterprises will further expand their dominance and eventually maintain “absolute control” over the seven basic industries—military industry, power grid, petroleum and petrochemicals, telecommunications, coal, civil aviation, and shipping—and “stronger control” over pillar industries such as equipment manufacturing, automobiles, electronic information, construction, steel, non-ferrous metals, chemicals, survey and design, and basic technology.
Writer Ding Liting wrote in China Newsweek that China must firmly stop the monopoly of state-owned enterprises and the trend of “state advances, private sector retreats.”
“The ongoing mergers and reorganizations that lead to ‘state advances, private sector retreats’ do not reflect the market orientation of the survival of the fittest, but rather are mergers and acquisitions by state-owned enterprises with government injection and preferential loans,” he wrote. “The expansion of state-owned companies and shrinking of the private sector is an objective fact, and it is inefficient, anti-market, with a clear tendency of monopolizing. If we analyze the national economy as a whole, the monopolistic harm brought by such humanly manipulated mergers and reorganizations do more harm than good.”
Professor Zhang Tianliang, a China expert, believes that the matter of concern goes beyond “state advances, private sector retreats.”
“There is a high possibility that the CCP authorities plan to resume the planned economy, that is, for state-owned enterprises to re-occupy half of China’s economy,” he told The Epoch Times. “This is a very serious situation that may occur in the post-pandemic era.”
David Cu contributed to this report.