Beijing’s consolidation of state-owned enterprises is picking up speed in its final stages. Experts say that this is a step backward and that the inefficient mega-state enterprises will only add to China’s economic decline.
On Oct. 31, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) held a restructuring contract signing ceremony with 20 large enterprises, including China National Cereals, Oils and Foodstuffs Corporation and China Baowu Steel Group. Those central enterprises will eventually be integrated into 11 groups, according to the Party’s official media outlet, Xinhua.
A similar move took place on July 12, when 23 central enterprises were merged into 13 groups of integration projects spanning digital technology, energy equipment, supply chain services, and other fields, accounting for about a quarter of the enterprises supervised by the SASAC.
Li Yanming, a U.S.-based China expert and current affairs commentator, told The Epoch Times that the Chinese Communist Party’s (CCP’s) efforts will do nothing but ramp up the process of self-destruction, citing its monopoly status as tantamount to going back to the way it was, because such mega-state enterprises are often rampant with corruption and drawbacks.
Central enterprises, or enterprises directly under the Central Committee, are state-owned enterprises in which the State Council or the SASAC performs the role of a financier and in which the capital is wholly owned or controlled. Currently, there are about 98 central enterprises managed by the SASAC, covering almost all economic sectors.
CCP’s Internal and External Woes
According to Li, the CCP accelerating the integration of central enterprises is a reaction to the internal economic crisis and the external international pressure to remain viable.China has been crippled by serious economic problems because of its lengthy “dynamic zero-COVID” anti-virus policy.
The real estate sector and its associated industries once made up about one-third of China’s gross domestic product.
Chinese tech giants are also facing an exodus of foreign investors because of regulatory clampdowns. For example, Japan’s SoftBank sold one-third of its stake in e-commerce company Alibaba this year, and tech giant Tencent’s major shareholder Naspers, a South African multimedia group, has been dramatically cutting its stake in Tencent.
In western countries, U.S. attitudes toward the CCP took the biggest turnaround in nearly half a century under the Trump presidency. The free world, led by the United States, has begun to disassociate itself from China and hound the country’s increasingly authoritarian Communist regime.
On Oct. 12, a new U.S. chip ban went into effect, stipulating that high-end chips below 14 nanometers in size are completely unavailable to Chinese companies, and U.S. experts in the field are no longer allowed to assist Chinese companies in developing or producing high-end chips—a nearly desperate prospect for Chinese semiconductor companies.
However, the CCP won’t stop hastening its rapid development plans in a bid to alleviate its economic and political woes and even reach its global expanding ambitions, Li said.
The purpose of promoting the consolidation of central enterprises is to concentrate resources on enterprises with advantages and main industries, enhance core competitiveness in the whole industrial chain, and benchmark against top international enterprises, as claimed by mouthpiece Xinhua on July 18.
On the other hand, Li believes that the consolidation of central enterprises can be seen as Xi’s reshuffling of interests and a vital purge in the economic and financial spheres, as state-owned enterprises and some large so-called private enterprises have long been dominated by family interests of former leaders Jiang Zemin and Zeng Qinghong.
Since Xi took control as the top power of the CCP in 2012, he carried out a raft of purges using the “barrel of a gun” (military system), “barrel of a pen” (propaganda system), and “barrel of a blade” (political and legal system) but didn’t make any move on the “bag of money” (financial system) until the stock market collapsed in Shanghai and Shenzhen from June to July 2015. Xi then looked to tighten his grip on the financial system and central enterprises, Li said.
Restructuring History of Central Enterprises
In addition to the consolidations, at least 26 groups of 47 central enterprises have undergone the so-called strategic reorganization and formed multiple 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 reported that these projects may be horizontal mergers of similar businesses, vertical integrations of upstream and downstream industrial chains between central enterprises, adjustments of similar businesses within central enterprises, or mergers of large central enterprises with local enterprises. Specific integration methods are an amalgam using any of reorganization, asset exchange, free transfer or equity cooperation, and strategic alliance.
Inefficiency of Central Enterprises
The CCP has been imposing a planned economy since it seized power in 1949 and carried out a “reform and opening up” policy in the late 1970s to renew itself.Zhang Weiying, a professor of economics at Peking University, pointed out in an article published in Hong Kong-based media outlet Ifeng Financial on Feb.14, 2014, that the problems with the Communist Party’s state-owned enterprises (SOE) affected the Chinese economy.
Zhang said that if the government grants SOEs more franchises, such as taxation, credit, land, licensing, and other preferential treatment, than it does private enterprises; if SOEs can receive government subsidies in the event of operation losses; and if SOE leaders have party official posts, there won’t be a level competitive environment. If the competitive environment isn’t fair, SOEs can outweigh private enterprises in all ways despite their poor performance—then the market isn’t workable.
He further said the practice in China proves that SOEs can only survive under the protection of the communist government because they’re so inefficient that the privileges aren’t enough to offset their inefficiency. Therefore, many local governments had to privatize their own state-owned enterprises in the 1990s.
But those lucrative state-owned industries are largely inaccessible to the private sector, Zhang said.
Even if private enterprises are eliminated in China, there still can be no fair competition in an economy with only state-owned enterprises.
“The reason is that different SOEs are owned by different levels and local governments, and it is impossible for any level of government to treat its own SOEs and other SOEs equally. The result is that each SOE enjoys privileges in its own administrative area and is discriminated against elsewhere,” Zhang said.
“No matter how strong the central authority is, it would be no way to solve this problem.”
