Hong Kong

[Mercer]

 

[Mercer]

@One Man Bannedthis explains the connection between the two you were right that the two were connected. Doesn't explain the "elitists" comment, or how Taiwan is taking the demonstration as a slight against them. The law they're protesting against would have put Taiwanese traveling  in Hong Kong at risk of being sent to Chineses prison/labor camps. 

 

 

 

[Mercer]

[Guest]

Look at all those people

[Guest]

https://m.facebook.com/105259197447/posts/10157963740452448/

 

 

[Kults]

Not sure why but the crowds with the umbrellas give me anxiety

 

 

 

[Kults]

[misteraven]

I dedicate this post to @Kults and the people of Hong Kong. 

 

[Kults]

hehehe 

[Hua Guofang]

On 8/18/2019 at 4:35 AM, Mercer said:

 

China itself embraced the free market,

I've seen you say this a couple of times in different threads and it's simply not true.

 

China has a centrally commanded economy:

• It has massive state owned enterprises (which largely run at a massive loss, but are supported by lending through the state owned banks, which use the savings of average Chinese folk who have nowhere to invest that money in other than real estate or a stock market that is only a few years old and highly incredible due to corruption and numerous other issues)
• The govt sets price ceilings on many things, from milk, to petrol, to air fares, etc.
• Foreign investors have to have a local partner in most industries, they have to hand over IP and source codes to be able to operate in China, etc. etc.
• The judiciary and media are not free and independent, as per the constitution, they come under the guidance of the Party.

 

And that's just what I could be bothered typing right now but they are pretty fundamental points. I honestly don't understand how you've come to the decision that there's a free market in China.

[Mercer]

@Hua GuofangSince this discussion has turned towards semantics, how would you prefer I describe the recent  changes in Chinese economic policy?  Do you assert the CCP is moving away from free markets, or at least not in that direction. Perhaps you think it's operating exactly how it did in the 60's, 70's, and 80's in regards to economic policy?

 

There's practically no such thing as a 100% free economy operating in any country, free of taxation, and regulations (outside of a black markets). When I say they've embraced free market capitalism, I'm describing which end of the scale they're moving towards, not making any claims that it's absolute which you seem to be alluding to, or arguing against.

 

This is only a semantic argument, I agree with everything you've said, and can still assert Chinese Communist Party is going against traditional Communist, Socialist values and embracing free trade so much so that it's undeniable. Totalitarian, yes, but still worthy of what I consider a compliment using those words to describe the shift in policy.  This is the first time in a very long time China has actually improved the lives of some, probably most of it's citizens in comparison to the rest of the world which it usually trailed behind.

 

Going forward, how would you describe the changes in policy? Or do you assert there hasn't been a shift towards free(er) market policy in China?

[Hua Guofang]

Semantics? You serious? China is a socialist country with a majority command economy. Their most recent work plan explicitly states that there will be market influences but the Party makes the decisions regards the economy. 

 

There are mountains of writings on the matter and more added every day and I’m not overly interested in adding to that. I’m just telling you that China has not “embraced the free market”, it’s taken the parts of it that suits the Party’s purposes and the rest remains a socialist style command economy. 

[misteraven]

Unsure I’d reasonably consider China Socialist. No idea what they claim these days, but doesn’t seem to fit the political ideology considering how heavy handed and centralized government there is. Also, isn’t their flag a clear reference to Communism?

 

Obviously there’s a hybridization of some sort with some facets of capitalist tendencies, but yeah... Socialism would seem like a stretch as a main label for what they have. 

 

Haven't followed this thread closely to know if this label matters. 

[Hua Guofang]

6 minutes ago, misteraven said:

Unsure I’d reasonably consider China Socialist. No idea what they claim these days, but doesn’t seem to fit the political ideology considering how heavy handed and centralized government there is. Also, isn’t their flag a clear reference to Communism?

 

Obviously there’s a hybridization of some sort with some facets of capitalist tendencies, but yeah... Socialism would seem like a stretch as a main label for what they have. 

 

Haven't followed this thread closely to know if this label matters. 

Everything China does is with what they call "Chinese characteristics". They very much redistribute the wealth and the market is very heavily controlled.

 

They went full commie in the 50s, redistribution, communal living, pooled resources, work parties, the lot. That all fell apart with the great famine and Cultural Revolution. The words and signs of communism are just labels these days - the main element of communism they've kept is the authoritarianism and reification of Party cadres/elders. The upper echelons of the Party these days are the second generation of the revolution, the rich that know where their bread is buttered and hacks.

 

Since 79 when Deng took over they did a bunch of market reforms, which allowed private production (output no longer belonged to the work party). But they kept most of the SOEs, centralised banking (now protected due to WTO accession), they price set, they wage set, they have a massive pension scheme, the unions are run by the Party, etc etc. They call themselves socialist, but they twist language as well. It's most accurate to say that's it s hybrid system but with the fundamental aspect being a command economy as the Party has and often uses their reach into the economy to set things the way they want it - which is in whichever way supports their own power.

[misteraven]

I went out there just before the Olympics on behalf of one of our clients and was surprised by the huge chasm between the rich and poor. Felt very much like South America in that you had filthy rich and then dirt poor and barely anything in between. Vast majority of people I saw looked about the equivalent of barely above homeless in the USA. I saw armies of old men, dressed in clothes that didn’t fit, wearing cheap dress shoes with no socks and shoestrings to hold up pants that didn’t fit, toting wooden mallets to pound small paving stones into sidewalks in Beijing. You could see tent cities off to the side and people cooking outdoors using DIY fire pits that looked about as sophisticated as a hobo camp. Likewise, you’d see young men, dressed the same way except with an official looking hat (think police man type hat), that just stood at random spots facing the road and endlessly looking both ways like robots. Whole thing was super bizarre, but wondering if this is what you mean by redistribution of wealth? If so, the redistribution we have in the USA seems to either be more effective or they’re doing it on a larger scale because out in China it seemed that they truly didn’t value humans. There were just so many workers doing such utter meaningless *work* that it’s hard to not form that conclusion. Likewise, the standard of living, from what I saw, was abysmal at best. System like that could never work here, unless the people in it were either beaten or terrorized into submission or born into it after generations of the same. 

[Hua Guofang]

No shit, pity you didn't hit me up I was living in Beijing back then. Not sure what username I was at that time.

 

The guys banging pavement stones and construction are migrant workers from all over the country. The people in police-type looking hats are private security guards. The largest security companies, back then at least, were operated by cops who used them as private forces. They can be as useless as tits on a bull and can be gangs of thugs used for extortion/revenge/take your pick.

 

Redistribution of wealth is by numerous means, such as those that I mentioned such as massive pension schemes, minimum wages, gargantuan employment schemes through SOEs and prescribed employment rates, both floor and ceiling price setting, etc. etc. The biggest one is the SOEs that they keep propped up through the state owned banks, it's a massive employment system that runs at a loss based on the savings of the middle class who can't put their money anywhere else.

 

" the people in it were either beaten or terrorized into submission or born into it after generations of the same. "

 

Honestly, that's one of the best and most succinct ways of summing up why Chinese society is the way it is. Welcome to the social contract with Chinese characteristics.

[misteraven]

Crazy!

 

My schedule was pretty tight, but I'm sure we could have caught up. Basically a bunch of super fancy lunches and dinners at high end hotel restaurants. I'm an adventurous eater, but found the food terrible in those instances. Few times, we'd wander across the street and find a dimly lit open bay garage restaurant with a thousand bikes piled out front and we'd get the most amazing meals I've ever had for the equivalent of a few dollars for a group of like 4 or 5 people. Was always an interesting experience since they clearly weren't used to people like us eating, but really was the best experience. Also, we decided to break from the tour to see how the real people live in one of the few OG villages that wasn't razed yet. Saw a huge group of people standing near an open courtyard and had one of the guys in our group that could speak passable mandarin to offer then $20 if they'd let us see the courtyard and maybe let us tour their house. They were super skeptical at first and we knew enough to make sure one of those cops or whatever wasn't within eye sight and they finally took the cash and seemed happy to show us around. Was pretty incredible to see these guys living virtually the same as they were in feudal China hundreds of years ago. That and the private party at the Forbidden Palace (opposite end of the spectrum) were the highlights of the trip.

 

 

[Hua Guofang]

Get a load of this: https://news.google.com/articles/CAIiEOw-8Uv5cBWVIXTJHsVLgJEqFggEKg4IACoGCAow3vI9MPeaCDDciw4?hl=en-AU&gl=AU&ceid=AU%3Aen

 

I’d like to know if it was a person with a mainland China background who did this “prank”. 

[Mercer]

5 hours ago, Hua Guofang said:

Semantics? You serious? China is a socialist country with a majority command economy. Their most recent work plan explicitly states that there will be market influences

Are you implying China hasn't made any major economic reforms towards rewarding, as opposed to criminalizing entrepreneurialism?  That's why I say semantics, you have to realize they have shifted in this direction. You're constructing a straw man here where you say no silly, their economy/government policy is different from ours, when I never asserted they were the same. Again, a sliding scale and they've clearly moved towards the free market side even though the scale is still tipped towards communism.

 

 

5 hours ago, Hua Guofang said:

but the Party makes the decisions regards the economy.

 Federal Trade Commission, The Federal Reserve Bank, Congress, The Senate, they do the exact same thing here admittedly less heavy handed on the surface. Make no mistake, major decisions shaping my economy, and yours to a lesser extent are decided decided  by these agencies.

 

 

5 hours ago, Hua Guofang said:

There are mountains of writings on the matter and more added every day and I’m not overly interested in adding to that.

Why would you, that's way too much effort just to prove the strawman you've constructed (Mercer says both economies are run the same) wrong? As you've stated, there's an overwhelming amount of evidence to the contrary.

 

5 hours ago, Hua Guofang said:

I’m just telling you that China has not “embraced the free market”, it’s taken the parts of it that suits the Party’s purposes and the rest remains a socialist style command economy. 

OK, I'll admit it, "embraced" is too strong word, is a firm "handshake", or "stopped trying to murder" better?

 

 

Also, perhaps the follow I typed out was too much, but I never got your take on my original question:

 

7 hours ago, Mercer said:

@Hua GuofangSince this discussion has turned towards semantics, how would you prefer I describe the recent  changes in Chinese economic policy? 

...

[Hua Guofang]

16 minutes ago, Mercer said:

You're constructing a straw man here where you say no silly, their economy/government policy is different from ours,

#1 - I never said anything of the sort, show me where I did

#2 - I'm not an American, you and I don't share an economy

 

 

" Mercer says both economies are run the same " Where on earth did I say that?!!

 

 

I've already laid it out in my post to @misteraven- Deng Xiaoping introduced some market based reforms from 79 onwards, I'm not denying any of that. But as you've now said, that is pretty far from 'embracing the free market' - I've listed multiple reasons why that's not true. They put Party cadres in all boards of companies to ensure Party values are being adhered to, they have a thing called the Hukou that means you're technically not supposed to work outside of the district where you have your household registation - if you do your kids can't access education, you don't get any of the pensions/healthcare, etc. The landscape is DOMINATED by State Owned Corps and the Party funds the biggest players using the savings of the middle class which are forced to use the state owned banking system, which is then used to prop up loss making SOEs in order to keep millions of people employed (so they won't blame the govt for losing their jobs). The Party sets the exchange rate every day and only allows it to trade in a thin band, the protections they have on many sectors is mind boggling (Trump admin is right to be targeting them for this). I could go on for days on the Party's non-market practices, laws and structures.

 

What I'm saying is that yes, there have been some market based reforms and that is what has allowed China to start clawing its way out of poverty. However, they pale in comparison to the intrusion into and control over the market the govt has. If you'd said "stopped trying to murder the free market" I likely would have agreed with you in the first place.

 

But, I'm just hanging for you to show me where I constructed that straw man, accusing you of saying the CHinese econ was just like the US econ!!! !!!! !!!!!!!!!!!!

 

 

!!!!!!!!!!!!!!

[Hua Guofang]

News breaking now from multiple platforms - China is flooding social media with millions of fake accounts.

 

They hadn't really followed the Russian lead on these kinds of operations up until now. They had the WuMao brigade and human flesh search engines, but they were all real people.

 

The Party must feel seriously threatened. Every day there is a protest in HK it's a humiliation for the Party.

[Hua Guofang]

200k+ on Twitter:

 

 

Information operations directed at Hong Kong

By Twitter Safety

Monday, 19 August 2019

 

We are disclosing a significant state-backed information operation focused on the situation in Hong Kong, specifically the protest movement and their calls for political change.

What we are disclosing
This disclosure consists of 936 accounts originating from within the People’s Republic of China (PRC). Overall, these accounts were deliberately and specifically attempting to sow political discord in Hong Kong, including undermining the legitimacy and political positions of the protest movement on the ground. Based on our intensive investigations, we have reliable evidence to support that this is a coordinated state-backed operation. Specifically, we identified large clusters of accounts behaving in a coordinated manner to amplify messages related to the Hong Kong protests.

As Twitter is blocked in PRC, many of these accounts accessed Twitter using VPNs. However, some accounts accessed Twitter from specific unblocked IP addresses originating in mainland China. The accounts we are sharing today represent the most active portions of this campaign; a larger, spammy network of approximately 200,000 accounts — many created following our initial suspensions — were proactively suspended before they were substantially active on the service.

[Hua Guofang]

Whilst I eagerly await a quote where I made out that @Mercerwas trying to say that the US and Chinese economy are the same, here's some reading to show where the CHinese economy is at. It's massively complex but these pieces give you an idea on how China's economy is a hybrid of command, market, socialist, etc. etc (I've highlighted what I think is the key point in this piece about SOEs).:

 

Explained, the role of China's state-owned companies 

https://www.weforum.org/agenda/2019/05/why-chinas-state-owned-companies-still-have-a-key-role-to-play/

07 May 2019

China

Explore the latest strategic trends, research and analysis

Forty years have passed since Deng Xiaoping embarked on the liberal reforms which generated an average GDP growth of 10% and transformed China into a global manufacturing powerhouse with considerable political influence.

 

Ever since, the Communist Party of China (CPC) has been striving to gradually allow the markets to play a decisive role in resource allocation. The situation with China’s state-owned enterprises (SOE), however, is more complex than with the general economic picture.

 

In light of the changing global landscape and the Fourth Industrial Revolution, China is transitioning from an investment-driven export economy to an innovation-driven economy reliant on domestic consumption. The role of SOEs has become all the more important in these circumstances, as they have traditionally assisted the government in reforms - even though the new consumption-oriented economy requires a level of flexibility and responsiveness that publicly owned bodies generally lack.

 

China is home to 109 corporations listed on the Fortune Global 500 - but only 15% of those are privately owned. China’s SOEs are enormously bulky and therefore lack flexibility when responding to market demands.

 

Image: The Economist

It is evident from the charts above that SOEs are highly over-leveraged and structurally less efficient than their private peers. Stagnating growth throughout China’s public sector has led to a shrinkage in its overall asset holdings. SOEs are often criticised for abusing their preferential access to loans, and for lobbying for regulations which drive out competitive private companies. It is widely argued that the SOEs would not survive in an innovation-driven market environment without the perks they currently enjoy.

 

The inefficient management of government corporations has also worsened thanks to a high turnover rate among executives sparked by President Xi’s anti-corruption campaign. On one hand, the companies are relieved of corrupt executives - but on the other, SOEs are left with management who lack a coherent strategy.

 

While this has been happening, China’s private sector - which has been revving up since the global financial crisis - is now serving as the main driver of China’s economic growth. The combination of numbers 60/70/80/90 are frequently used to describe the private sector's contribution to the Chinese economy: they contribute 60% of China’s GDP, and are responsible for 70% of innovation, 80% of urban employment and provide 90% of new jobs. Private wealth is also responsible for 70% of investment and 90% of exports. The portion of exports from private enterprises might diminish as SOEs undertake more infrastructure projects in countries involved in the Belt and Road Initiative (BRI), increasing their public stakes in China’s exports.

 

The success of China’s private technology sector is also worth noting. Huawei is leading the global 5G revolution and the company is eager to spread its innovation globally.

 

Despite the above-mentioned factors, the Chinese government is still keen on supporting SOEs and is committed to making them bigger, stronger and more efficient. This is particularly relevant to certain strategic sectors where government oversight is essential - specifically in defense, energy, telecom, aviation and railway systems. Conversely the state is encouraged to divest from other industries by decreasing its ownership.

 

The State-owned Asset Supervision and Administration Commission (SASAC) is making great strides in implementing the government’s ‘zhuada fangxiao’ (grasp the big, release the small) policy, which has greatly reduced the number of SOEs through privatisation, asset sales, and mergers and acquisitions. The Commission, which was established in 2003, is currently concentrating on restructuring the remaining SOEs into modern profit-oriented corporations. Practically all of the entities overseen by SASAC are structured as corporations and are legally separate from the government with their own boards of directors, effectively delegating more authority to the executives.

 

There is also substantial work being done to improve SOEs through reorganisation, restructuring and enhancing their internal governance standards. The government went as far as introducing mixed ownership in telecoms company China Unicom, by selling shares worth around $11 billion to 14 private investors. This was done as a step towards making China Unicom more accountable and more focused on generating returns on equity, while retaining state control.

 

These efforts to make SOEs competitive while holding absolute control over their final decision-making reasserts the Chinese government’s commitment to consolidating state control while simultaneously allowing the market to be the ultimate resource allocator. In other words, the government wants to keep a close eye on market forces while reserving the ‘intervention option’ in critical situations.

 

China’s legal and regulatory systems are going through crucial transformations with regards to investment and intellectual property - but they are not yet prepared to regulate giant, strategically significant corporations, which is why the government has chosen to retain the option of direct control over its SOEs. Besides, once the property rights framework is brought to a certain level, the government could profit far more by privatising competitive enterprises rather than selling off distressed assets in the current legal environment.

 

Privatisation initiatives have been further delayed by the threat of an intensifying trade war. The CPC has been is forced to prioritise security over efficiency, which means a conservative stance of increased centralisation - in order to facilitate an immediate response to any economic threat - is gaining more traction. The arrest in Canada of Huawei’s CFO, Meng Wanzhou, was followed by tough rhetoric from President Xi, who stated: “No one is in a position to dictate to the Chinese people.” These types of action are increasing levels of mistrust between the parties involved and are forcing China towards increased centralisation.

 

[Hua Guofang]

State-Owned Enterprises Are a Hard Habit China Doesn't Want to Break

 

 

• Beijing's apparent favoritism for the state sector has contributed to the strain on the country's private sector, which is already suffering from a slowing economy.
• U.S. pressure on China to trim its support for state-owned enterprises (SOEs), along with Beijing's need to keep private businesses afloat, is pushing the government to deepen its SOE reforms.
• Beijing may gradually open some selected industries – finance, high-tech and telecom – to private and foreign capital, but it won't bend to outside pressure over easing support for key industries.

https://worldview.stratfor.com/article/state-owned-enterprises-are-hard-habit-china-doesnt-want-break

 

China is again looking toward its state-owned enterprises (SOE) to help it navigate its economic course. In the decade since the 2008 global financial crisis, Beijing has increasingly relied on these businesses to drive its economy. As it faced sweeping unemployment and scrambled to prop up growth after that meltdown, it saw no better option than to pump up its state-owned giants with infrastructure, transportation and real estate projects. The stimulus ended in the early 2010s, but Beijing has continued to turn to SOEs to lead the country's economic transition, raising fears of favoritism among its privately owned businesses.

 

Beijing has sought to strengthen the SOEs with moves to consolidate industries, reduce output capacity and shrink the amount of debt in the economy. But in doing so, it has strengthened government control over many private businesses and created additional uncertainty and anxiety in both the private sector and in society at large. The increasing SOE dominance over several domestic industries and their rapid expansion overseas has put them in the crosshairs of the Western world, particularly the United States. Despite those issues, if China should be hit by another economic downturn, the government could once again turn to these giants to keep the economy rolling.

 

The Big Picture

Reforming China's state-owned enterprises (SOEs) has been on Beijing's to-do list for decades, but the government’s key objective has been to strengthen, not weaken, them. Today, the country’s SOEs, which account for more than a third of public investment, dominate heavy and strategic industries underpinning China’s development path. Still, increased pressure from the United States and the economic strain on the private Chinese companies may compel Beijing to further reform the SOEs and open access wider to markets.

 

A Bit Smaller, But Still Powerful

While China's SOEs remain strong, decades of market reform have dramatically reduced their role in China's economy. Their share of the gross domestic product fell from more than 50 percent to 25 percent in just 15 years; and they account for only 5 percent of industrial enterprises today, compared with 18 percent in 2003. Nonetheless, the significance of the state sector has strengthened.

 

Despite their receding role in almost every industry they once dominated — raw materials, transportation and construction — 80 to 90 percent of SOEs are now concentrated in vital or high-profit industries such as finance, power, energy, telecommunications and defense manufacturing. And these enterprises — particularly the roughly 100 centrally administered SOEs — have grown much bigger. By 2017, the assets of these enterprises alone had reached 72 trillion yuan ($10.4 trillion), up more than tenfold from 2003 and almost equivalent to China's total GDP for that year. Thanks to easy loans and unfettered access to government funding and assistance, these giants have been able to amass assets in areas where their private and foreign partners were either restricted or found it harder to compete. Since 2013, SOEs have received more than 60 percent of all new loans in China each year, peaking at 78 percent in 2016.

 

In many ways, the expansion and growing strength of the SOEs are what Beijing sought with its reform strategy. Despite its push to eliminate ineffective enterprises and to introduce market competition in most areas, its objective wasn't to weaken the state sector. Instead, it sought to consolidate the businesses through painful and risky restructuring in order to keep them focused and strong. That objective has been particularly obvious over the past five years as the central government repeatedly stressed "stronger, better and bigger" SOEs in pushing its reform agenda. In part, it called for further reductions of centrally administered SOEs, forced thousands of local "zombie" companies into bankruptcy, and aggressively sought mergers among large SOEs to reinforce their domination. Its sweeping capacity cuts in the industries that process raw materials, such as the coal and steel sectors, helped stabilize prices and led to double-digit profits for those debt-laden giants over the past decade.

Strains on the Private Sector

At the same time, the country's private sector has been showing signs of increasing strain. Private enterprises often lack the capacity to weather the storms of reform, and they are also hit hardest by the dual threats of a slowing economy and an extended trade war. In comparison with the state-owned giants, many private companies — particularly those low-end manufacturers and service providers that operate on thin margins — lack the resources to withstand a slowdown. They also have less access to financing and don't have the advantage of preferential policies that their state sector and foreign competitors enjoy. Therefore, a large number of private companies rely on investments in property and fixed assets to support their businesses, or they seek shadow loans that have higher financing costs.

 

After property values flattened and investment returns peaked during 2014-15, these companies have struggled with loan costs, and Beijing's push to reduce debt in the economy worsened the problem. To make matters worse, more than 90 percent of the businesses hurt by Beijing's push to cut industrial capacity and add pollution controls are private coal, steel and chemical companies. They are being forced to close or to submit to acquisition by the state giants. Indeed, as state-owned industries overall reported record profit growth of 30 to 40 percent in the past two years, profit growth in private industries slowed to roughly 10 percent — among the lowest levels in a decade.

 

This part of the sharp divergence between the state and private sectors has more to do with the unintended consequences of policy goals and the ongoing economic slowdown and transition than any intentional aims. Forcing the Chinese economy higher up the value chain of production — a key objective for Beijing — has led to suffering among smaller or weaker businesses, including some local SOEs. With the private sector contributing 60 percent of GDP, 70 percent of technological innovation and 80 percent of employment, the central authorities in Beijing can no longer afford to be perceived as favoring the state sector over the private. This apparent favoritism is reinforced by its policy priorities toward state-led initiatives such as the Made in China 2025 program and its overseas infrastructure development. In addition, the government has combined a financial crackdown with a push for political conformity to ensure that large private businesses toe the state and Communist Party line.

Stumbling Reform and a Backlash

This state-private conflict has led to intense debates within China, prompting the central authorities to try to clarify the country's economic course. In recent weeks, several top leaders have delivered messages trying to appease private business. This push culminated in President Xi Jinping's speech on Nov. 1; he reiterated the Party's continued support and called for better policy execution to help finance and protect private businesses as well as ease their burdens. Many of these speeches simply reflected Beijing's long-standing policy positions. The actual improvements for private business continue to hinge on substantial reform of the financial system, the tax structure and more. And work on those policies has either slowed or stalled since last year. More importantly, the call to revitalize private business is pushing the central authorities to further loosen the regulations controlling SOEs, but that reform process has been stumbling.

 

 

To make SOEs more competitive, the government has been pushing for public-private ownership in the power, energy and railway sectors. But that proposal met resistance from state interests that wanted to maintain controlling shares and reluctance from private and foreign investors. Reform has also been hindered by the government’s strong preference for SOEs as leaders of key development initiatives. It has repeatedly turned to the politically loyal and capital-rich state-owned giants over other choices for a host of massive industrial, technological and infrastructure initiatives at home and abroad. According to official estimates, centrally administered SOEs alone accounted for over 70 percent of the total value of infrastructure projects in the Belt and Road Initiative.

 

In the meantime, SOEs have continued to aggressively campaign for railway, road and port projects overseas, as well as to acquire high-tech and strategic assets. This drive has fed suspicions and led to accusations about their unfair competitive advantage from foreign businesses and governments, and it has reinforced criticism of the country's restrictive market access. This advantage included subsidies and support for industries in the Made in China 2025 program and has taken center stage in the ongoing China-U.S. trade war and economic competition. Washington also sought to strengthen trade rules — from its initial draft of the Trans-Pacific Partnership (TPP) treaty (before it withdrew from the pact) to its current push for World Trade Organization reforms — in part to isolate China's state-led system.

Chinese-Style Competitive Neutrality

The combined internal and external pressure on China's SOEs will likely push Beijing to extend reforms that offer greater market access and boost competitiveness. Indeed, policy debates in recent months have intensified, and officials are increasingly speaking of "competitive neutrality" when hinting at the next stage of reforms. The term is used by the Organization for Economic Cooperation and Development and was included in the TPP deal to broadly refer to a level playing field. Of course, it may be unrealistic to expect Western-style competitive neutrality within a Chinese social-capitalist system. The country lacks even basic neutrality in finance, subsidies, debt responsibility and supervision. But altering one of those areas comes at the expense of the others and of Beijing's objective to keep the state sector strong.

 

While Beijing aims to assure both domestic and foreign private businesses of its commitment to reform, any changes will likely be used to defend the practices of its overseas SOEs from foreign governments. Still, Beijing may be compelled to gradually create more access for foreign and private capital in selected industries, such as finance, high-tech, telecom and energy, and to widen SOE ownership to lessen the influence of state capital. But it is unlikely to reduce state support in key sectors, such as semiconductors and aviation, where China is racing to gain greater independence. Furthermore, as the economy slows and the trade war continues, Beijing may again find its resolve tested, and it may once again be forced to turn to the SOEs to help salvage the economy — as it did during the financial crisis a decade ago.

[Hua Guofang]

Interesting though, PRC seems to have turned the public sector around to being profitable. I recall them starting on this reform of consolidation and the purchase of private firms, but I wasn't aware that things had become profitable: https://www.scmp.com/economy/china-economy/article/2182552/chinas-state-owned-companies-enjoy-record-profits-even-private

 

Of course, preferential policy and lending practices as well as hand-in-glove connection to govt doesnt' hurt!

[Hua Guofang]

Why China’s subsidised state-owned enterprises anger US, Europe – and its own private companies

• The electric car sector across the world relies on government support, but the help for state-owned firms to dominate Chinese market has met hostility
• Revamping WTO agreement could address subsidies and disclosure, but China would have demands too – and may be unable to give up ideological attachment to SOEs

https://www.scmp.com/news/china/diplomacy/article/2184707/why-chinas-subsidised-state-owned-enterprises-anger-us-europe

 

China’s electric carmakers have been heavily subsidised to encourage alternatives to pollution-producing petrol vehicles.

On a bitter winter’s day in the central Chinese province of Henan, Song Zehou flushed with pride as he presented a sample car made by his company. Having waited more than eight years for the licences needed, the vice-president of electric carmaker Henan Suda Electric Vehicle Technology was finally able to tell gathered journalists that Suda was ready to produce its first batch.

The private company’s battle to obtain the licences had been a prolonged one. Unlike most of its rivals, Suda had no experience of making traditional cars or batteries. It started from scratch in 2010 with a founder’s innovation: devices that the company claimed could improve engine performance.

 

It is now competing with American maker Tesla, which is building a car plant in Shanghai – the first in China to be wholly owned by a foreign company. And it reached this point thanks in part to the government subsidies it received.

And it’s those subsidies and other Chinese government support for domestic firms that are at the heart of the trade war with the United States. Critics say the funding and incentives give those companies an unfair advantage in the race to dominate the technology of the future, particularly in the case of the heavily-favoured giants of the Chinese economy: state-owned enterprises.

“Subsidies have risen to the top of the policy agenda because they are central to industrial policy, which is the new fault line in Sino-Western relations – perhaps bigger than trade itself,” said George Magnus, associate at Oxford University’s China Centre and research associate at SOAS, London.

“It is not only subsidies to state-owned enterprises [SOEs] or other preferred companies,” Magnus said. “It is also the principle of the state extending privileges and advantages to local companies, including SOEs, in vital sectors, especially tech, with implications for security and military matters.”

 

With China and the United States in talks during their 90-day tariffs truce, the American Chamber of Commerce in China and the US Chamber of Commerce recently issued a joint report calling on Washington to address structural challenges in China’s economic practices, which the groups say are unfair and restrictive for US companies.

“Developing and owning indigenous innovation and intellectual property is a primary goal” and regional governments have been actively developing and promoting their own plans in line with Beijing’s “

Made in China 2025

” (MIC2025) strategy, with state support, the US Chamber of Commerce said.

 

“Any solution must address systemic challenges at all levels of the Chinese government.”

 

 

 

In 2015, when Beijing unveiled MIC2025, it announced US$350 billion in subsidies to 10 industries – such as robotics, chips and new energy vehicles (NEVs) – that were being prioritised in its pursuit of self-sufficiency and global prowess in core technologies.

The US and European Union have criticised the programme, saying it is unfair and will lead to market distortions. China has suggested it could adjust the initiative, but the West remains unconvinced.

In the NEV sector alone, half of the US$16 billion in subsidies offered to electric carmakers globally in the past decade have been provided by China. It has been showering manufacturers with subsidies to encourage alternatives to pollution-producing petrol vehicles.

Subsidies have provided a lifeline for companies like Suda. Since it started in 2010, the company has received at least 20 million yuan (US$3 million) from Henan’s provincial government in research and development funding.

 

 

The city government of Sanmenxia, in Henan, borrowed 100 million yuan to re-lend to the company, according to local media reports. It set aside more than 230 hectares (568 acres) of land for Suda to set up production, testing and logistics facilities.

It also ordered utility companies to upgrade the electricity grid and install charging stations for a then non-existent fleet of battery-powered cars.

In 2011, the city government had ramped up its ambitions and published an ambitious electric car plan, with an annual production target of 100,000 vehicles by 2015. Even when progress was slow in producing test cars in the years that followed, local governments kept faith in the industry because the gold, bauxite and coal mines that their economy depended on had a limited lifespan and there were no other strong candidates to replace them.

“Without various kinds of government support, it was impossible for us to make it,” said Song after receiving the green light in early January from the Ministry of Industry and Information Technology (MIIT) to begin mass production, making it the 11th company to gain a production licence.

The NEV industry remains reliant – not only in China but in the US and Europe – on government support, in the form of state procurement, production and consumer subsidies, tax deductions, regulation, financing of charging infrastructure and so on, according to Dan Prud’homme, associate professor at Pôle Universitaire Léonard De Vinci in Paris.

“China’s state approach to supporting its NEVs industry has been controversial,” Prud’homme said.

The MIIT stipulated in 2009 that foreign firms seeking manufacturing licences and subsidies for NEVs had to first master one of three core NEV technologies in a joint venture with a local Chinese partner.

From 2017, even more controversially, those foreign firms were required to master all – not just one – of the three core technologies.

“Firms that didn’t meet these requirements couldn’t produce NEVs in China, instead having to import NEVs – which was a costly exercise – and didn’t benefit from the state financial support needed to make NEVs more competitively produced and priced compared with traditional autos,” Prud’homme said.

“The same requirements do not exist in major markets such as the US or Europe.”

Last year, the requirement that foreign firms enter a joint venture in China to be allowed to make NEVs there was removed, reducing the impact of the 2017 MIIT regulation.

Still, Suda’s Song said the government support his company received paled in comparison with the subsidies given to SOEs.

 

“The whole system is designed for state-owned enterprises,” he said. “Our existence is only allowed for the sake of stimulating the vitality of SOEs.

“Luckily we succeeded, and recently MIIT officials asked us to do better and use the indigenous innovation to conquer the world market.”

China’s NEV sector is largely dominated by government-backed companies – a dominance mirrored in other MIC2025 sectors, such as chips, telecoms, shipbuilding and high-end machinery.

 

With the US and the EU continuing to question its state-subsidised industrial strategy, Beijing is expected to agree to discuss the subsidy issue within the framework of the World Trade Organisation (WTO), according to He Weiwen, a former economic and commercial diplomat at the Chinese embassies in New York and San Francisco.

“China will honour the rules of the WTO on subsidy and probably agree to improve disclosure in a case-by-case manner,” said He, now a senior fellow at the Centre for China and Globalisation, a think tank in Beijing.

WTO rules prohibit subsidies to specific companies because of the competitive advantage they confer, but countries cannot use remedies such as duties to offset such subsidies without hard evidence of them.

Akihiko Tamura, professor with the National Graduate School for Policy Studies in Japan, said greater transparency was key to addressing subsidies and a proposal submitted to the WTO by seven members was an important step in this direction.

That proposal – sponsored by the US, Argentina, Australia, Costa Rica, the European Union, Chinese Taipei and Japan – was discussed by the WTO Goods Council in November. It was a revised proposal on improving members’ transparency and strengthening notification requirements.

But He Weiwen said hard evidence would be difficult to find because subsidies were not detailed in China’s publicly available documents.

“As for more detailed disclosure of government-backed companies – in terms of their shareholding structure, senior executives and subsidy information – it will not work, because leeway can always be easily found,” he said.

Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, said subsidies were a difficult issue, since most countries were wedded to their own subsidies and repulsed by those of others.

“This makes life particularly difficult at a consensus-based organisation such as the WTO,” he said. “Nonetheless, it would be ideal to reach new rules under the WTO – which requires a new agreement.

“For practical reasons, that would probably include more than just subsidies. The WTO has been trying unsuccessfully to reach a major new agreement for more than two decades. Perhaps the current trade tensions will provide the necessary urgency.”

China might consider a package that contained new subsidy rules if it was “even-handed” and offer assurances on other trade matters that addressed China’s concerns, Levy said.

“This is unlikely to be acceptable if it’s simply a one-sided demand for China to stop supporting SOEs and stop pursuing industrial policies.”

Many experts are pessimistic about how much China will agree to change, with President Xi Jinping having emphasised the pursuit of a “bigger and stronger” SOE sector. Although Beijing has touted the idea of “competitive neutrality”, saying SOEs and other companies would be able to compete on equal terms, observers remain sceptical.

Derek Scissors, a resident scholar of the Washington-based American Enterprise Institute, said competitive neutrality was largely a “fake idea”. “If a country, any country, really wanted an SOE to act like a private company, why would they set up an SOE in the first place?” he said.

“In China’s case, competitive neutrality is entirely fake. Perhaps the most important part of competition is that private firms can go out of business at any time. Will SOEs?”

Revenues and profits at China’s SOEs hit historic highs last year, even as the country’s private firms fought for survival during the slowest economic growth in a decade, according to the State-owned Assets Supervision and Administration Commission, which manages various SOEs.

Last year, companies owned by the central government booked revenues of 29.1 trillion yuan, up 10.1 per cent from 2017, while net profits reached 1.2 trillion yuan, a rise of 15.7 per cent from the previous year, according to the figures.

State-owned firms were able to achieve this because of relatively stable growth in the domestic economy and supporting measures by the government, according to Sasac spokesman Peng Huagang.

A research note by Hong Kong consultancy Gavekal Dragonomics last August found the total interest-bearing liabilities of SOEs to be about 52 trillion yuan. When it came to bank loans, it was likely that SOE privileges had more to do with superior access than radically lower borrowing costs, analyst Thomas Gatley wrote in the report.

SOEs enjoy not only explicit subsidies but also hidden benefits such as implicit government guarantees for debts and lower interest for bank loans.

Pang Zhongying, a Beijing-based international affairs expert, said: “Subsidies and SOEs are issues concerning the political system and regime. It is regarded as a cornerstone for the rule of the Communist Party, which Beijing would never risk undermining, and cannot be solved by negotiations.”

Patrick Mendis, an associate in research at the Fairbank Centre for Chinese Studies at Harvard University, said the WTO’s “market economy” status may be used as a bargaining chip. China has argued it should be granted the status but the US has formally told the WTO it opposes that because of what it sees as unfair trade practices that include its state subsidies.

“The revival of the WTO applying pressure through ‘market economy’ status may modify the behaviour of China,” Mendis said. “However, Xi is unwilling to change the primacy of SOEs, because these are the economic agents that put the Communist Party in power.

“Pressure from WTO members may lead to economic reform in state capitalism, which I think is a better option for China’s domestic competition and the development of the private sector for greater innovation of its own.”

[Hua Guofang]

More to come on political control over private industry.

[Hua Guofang]

Even when this dude argues that China's model has been pro-market, his examples are exactly the opposite.

 

Is China’s growth model a threat to free-market economics?

Government involvement has been pro-market, says Zhu Ning of Tsinghua University

Jun 13th 2018

by By Zhu Ning

https://www.economist.com/open-future/2018/06/13/is-chinas-growth-model-a-threat-to-free-market-economics

China has delivered some of the most outstanding economic growth the world has seen in the past half-century. Not only has it successfully increased its GDP per person more than 20-fold and lifted hundreds of millions of its citizens out of poverty since it launched its reform-and-opening policy some four decades ago, China has also managed to become a global leader in new technologies such as big data, artificial intelligence and mobile internet applications.

 

Now that China appears set to overtake the US as the largest economy in the world in the coming decade, it seems inevitable that more countries and global leaders will debate whether China has established a new model of economic development. They will ask whether this new model will challenge or even topple the traditional model of free-market economics, which hitherto has been widely regarded as the underpinning of economic growth elsewhere. China’s GDP per person is still below $12,000, which is commonly regarded as the minimum for a high-income country. But hardly anybody disputes that China has done a fantastic job with growing its economy.

It seems inevitable that more countries and global leaders will debate whether China has established a new model of economic development

 

Some people attribute China’s success partly to its extensive geographical area and the homogeneity of its language, culture and values—assets which are conducive to forming a giant domestic market that can propel economic growth. However, this does not explain why China’s economy faced considerable challenges before the launch of the reform-and-opening policy in the late 1970s. Even though most agree that this policy has played a vital role in the delivery of China’s growth miracle, opinions diverge as to which aspects of the policy have proved most effective.

 

The prevailing view before 2000 was that China’s success mainly resulted from the encouragement it gave to market forces. Starting in the agricultural sector, the allocation of labour gradually became determined by the market rather than by government central-planners. This transition put the right people into the right jobs, unleashed entrepreneurial initiative and made workers more productive. After initial success with labour reform, other important inputs such as land and capital were also gradually exposed to market forces. This encouraged China’s economy to perform more like a market one.

 

More recently, however, especially in the wake of the global financial crisis in 2008, some have contended that China is unique in terms of the resourcefulness and determination of its government in the pursuit of economic growth. Somewhat controversially, one method used by the government to promote growth has been through the planning and guidance of industrial development. By designating certain industries as strategic and giving them priority in the allocation of resources, China has successfully established competitive advantages in many sectors. This has helped the growth of exports and the economy as a whole.

 

In addition, China has used counter-cyclical monetary and fiscal policies to provide much-needed capital whenever economic growth slows down and investment slumps. This has played a critical role in maintaining the speed of economic growth, as well as in reinforcing the confidence of investors in the government’s willingness to intervene in the market. So households and entrepreneurs have faith that growth will continue, which has encouraged capital formation.

 

Of course, some argue that such active interference by the state is neither unique to China, nor is it sustainable. Almost all countries in East Asia have followed, to varying degrees, the so called “East Asia model” established by Japan. This involves the use of government power to promote a nation’s competitive advantage, such as by helping labour-intensive industries at the outset of development and later using fiscal subsides to sustain fast economic growth and achieve global dominance.

 

China’s growth before the global financial crisis of 2008 did bear some resemblance to the East Asian model. But China’s political system, including the way its civil service is run, sets it apart from countries such as Japan or South Korea. The performance of local government officials is assessed on the basis of the speed of economic growth within the officials’ jurisdiction. This gives officials a strong incentive to ensure that growth in their area is as fast as possible. This system is very effective in ensuring the implementation of the government’s “growth priority” policy nationwide.

 

[HG - the system described above also promotes the inflation of provincial level GDP reporting. Every quarter when Beijing collects the GDP figures it adds up to well above the national GDP. This is a characteristic of the Chinese system and was one of the major factors that brought about the great famine in the 1950s - the over-reporting of agricultural yield to please the Politburo and Mao. I was under the impression that Beijing had actually ceased the practice of judging performance on provincial level GDP growth]

 

Even though it is common among emerging economies for governments to intervene to ensure economic growth, China’s ability to make this work is probably unmatched elsewhere. Not only can the central government mobilise huge resources to boost growth and guide industrial development, it can also control prices in order to avoid inflation and asset bubbles. China’s financial system remains segregated from the rest of the global financial system, which has helped it to mitigate the impact of the financial tsunami resulting from the global crisis of 2008.

 

But it is critical to bear in mind that most of China’s economic policies during the past decades have been pro-market and pro-efficiency. If anything, China’s economic reforms have demonstrated the vitality of free-market liberalism. There is a growing body of research confirming that a pro-market environment at the local level has been instrumental in delivering economic growth, as well as in boosting the efficiency of companies, promoting consumption and reducing the risk of asset bubbles.

 

So maybe China’s model does not pose a challenge. Rather, it may be in harmony with the free-market-based paradigm of neo-classical economics. China’s government has proved that it can provide important and sometimes indispensable remedies when the market fails—an ability that economic theory had failed to predict it could master. With such involvement by the government, it is possible that economies elsewhere might perform better, even if they become less “free”.

 

It could be argued that China’s success does not raise questions about the correctness of market-based economics, but only about the best way to perfect the market. It may be that China’s experience will eventually provide an answer to the hitherto unresolved question of how to ensure sustained high-quality growth while integrating more closely with the global economic and financial system and opening up domestic markets in service and financial industries.

 

Zhu Ning is the deputy dean at the National Institute of Financial Research at Tsinghua University and a professor at the Shanghai Advanced Institute of Finance. He is also a faculty fellow at Yale University’s International Center for Finance. He is the author of several books, including China’s Guaranteed Bubble (McGraw-Hill; 2016).

[Hua Guofang]

https://www.ft.com/content/3e37af94-17f8-11e9-b191-175523b59d1d

Xi Jinping’s turn away from the market puts Chinese growth at risk

 

 

Credit is flowing to state-owned companies, not more productive private ones

 

Nicholas Lardy

 

President Xi Jinping has rolled back the market-oriented reforms that served China so well for 35 years. It used to be said that when the US sneezes Canada catches a cold. Now China is sneezing and many economists fear that its weaknesses are contagious for the rest of the world.

 

China’s problems are variously attributed to weak domestic demand, to a natural maturing of its economy, and, of course, to its tariff war with America. These factors appear to be eroding China’s previous outsized contribution to global growth, rattling markets, and leading some multinational companies to downgrade their earnings forecasts. But even if the trade dispute with the US is solved, China’s role as the locomotive of global economic growth is threatened by a far more fundamental factor — President Xi Jinping’s rollback of the market-oriented reforms that served China so well for 35 years.

 

The adoption of market-oriented reforms under Deng Xiaoping and other leaders, starting in 1978, allowed private companies to flourish. Initially such businesses were illegal, but they were soon legitimised and later recognised as an essential element of a mixed economy. As a consequence, they gained increased credit over time from a state-dominated banking system. These reforms allowed private companies to make a disproportionately large contribution to China’s stellar output, employment and export growth. This enabled it, in time, to become an economic superpower.

 

When Mr Xi became general secretary of the Chinese Communist party in the autumn of 2012, many analysts expected him to build on this impressive legacy. Indeed, only a year later, he presided over an important party meeting that endorsed a far-reaching reform programme. This stated that “the market must become the decisive force in the allocation of resources”.

 

However, Mr Xi has since largely abandoned this approach in favour of concentrating on his anti-corruption campaign. He has also repeatedly emphasised the role of state industrial policy and state-owned companies, despite overwhelming evidence that the latter are inefficient. Even after receiving various direct subsidies, the Chinese ministry of finance acknowledges that more than two-fifths of these state companies persistently rack up losses. They are kept afloat with massive increases in bank credit that are almost entirely responsible for the increase to record levels of leverage in China’s corporate sector.

 

Because of Mr Xi’s repeated admonition that state-owned companies should be bigger, the government has organised multiple mergers of large enterprises in particular industries. This ill-advised consolidation has reduced competition, weakening the incentive for innovation and cost control. Predictably, the return on assets of the largest state-owned companies has fallen by more than half since the merger mania began.

 

At the same time, the productivity of private companies has increased, and in the industrial sector is now almost three times that of their state-owned counterparts.

 

While these unwieldy state behemoths soak up a larger and larger share of bank credit, they are doing so mostly at the expense of more productive private companies. The share of bank lending to the private sector has shrunk by 80 per cent since 2013. Despite the rapid growth in credit overall, the absolute amount of bank lending to private companies has also fallen sharply. This has reversed a long-term trend — the share of investment undertaken by private companies first plateaued and then fell in recent years. Similarly, whereas private industrial companies had previously expanded their output at twice the pace of their counterparts in the state-owned sector for more than a decade, since 2017 the situation has reversed. This reflects both the squeeze on the bank credit accessible by private companies and the more recent crackdown on the shadow banking system, which had previously been a source of credit as bank loans started to dry up.

 

[HG - note the mention of the shadow banking system - this was a system set up to get around govt restrictions on where and how SOEs could sell their products. The oil companies were not allowed to export and were forced to sell to the domestic market at reduced prices. So they kept exporting and put the profits into the underground banking sector instead. That's just one example of the multi-layered economies that exist in China]

 

The failure of the state to protect private property rights has also played a significant role, undermining the trust and confidence that many entrepreneurs have in the system. The combination of the precipitous decline in the return on assets of state-owned enterprises, which control about $30tn in assets (the equivalent of well over twice last year’s gross domestic product), and declining investment by private companies is dragging down China’s average annual growth by an estimated two percentage points.

 

Perhaps Mr Xi accepts this as the price of maintaining a state sector that he believes is an important element in sustaining political control. But without a return to a more marketed-oriented economic policy, even if bilateral trade disputes with the US are resolved, the likelihood is that China’s growth will slow further — with unpleasant consequences for the global economy.

 

The writer is senior fellow at the Peterson Institute for International Economics and the author of ‘The State Strikes Back: The End of Economic Reform in China?’

[Hua Guofang]

 

China’s “Socialist Market Economy”: A Systemic Trade Issue

 

https://www.ceps.eu/wp-content/uploads/2018/09/268-273-Forum Pelkmans.pdf

 

[excepts from pdf]

 

China’s industrial tariff protection, though on average only about double the EU rates, is fi ne-tuned to restrict the imports of many EU comparative advan-tage goods at six and eight-digit levels. Regulatory aspects of trade, e.g. technical barriers to trade, food and feed rules and inspections (SPS), intellectual property rights (IPRs) – in particular their effective enforcement, etc. – have a chill-ing or outright restrictive effect on EU exports. EU exported services (aside from retail, which is largely a matter of FDI) are either banned or severely restricted and/or face markets dominated by local State-Owned Enterprises (SOEs) such as insurance and banking.2 Additionally, China’s incoming FDI policies have largely retained their overly restrictive character despite the switch to a negative list.

 

 

17 years after China joined the World Trade Organization (WTO), it is a necessary but in-suffi cient provision for healthy, future trade and investment relations with China. It should be complemented by addressing the profound systemic issues of the “socialist market economy with Chinese characteristics”.

 

 

China repeatedly promised bilateral and multilateral reforms and even produced domestic reform plans, time and again, to little effect other than buying time. In the meantime, China introduced new forms of subtle yet massive interventionism, undermining the credibility of the aforementioned promises

 

 

The system of plans is crucial, still today. It is allowing or even imposing many interventionist tools that are binding – something that goes against the very nature of a market economy, but is frequently ignored outside China. It is enforced quite effectively via incentives (and party promotions), tight monitoring and informal or financial sanctions. Even more worrying is the strict control the CCP exercises over the top appointments in the larger SOEs.4 Under Xi Jinping, CCP representatives serve as observers or members of the board in both SOEs and private firms, in order to check and promote the implementation of the relevant segments of the planning. There are hundreds of sectoral and horizontal plans in addition to those at provincial and local levels

 

 

private firms cannot easily exercise their rights as courts capable of taking such action do not exist.5This also means, of course, that foreign investors have no genuine recourse on state-driven or plan-inspired interventions, even when seen as unfair or damaging policy reversals. The constitution is clear in stressing that public ownership is dominant (Article 6). Even in the interesting reform strategy of November 2013 (3rd Plenum) with 60 reform proposals (‘let the market play the decisive role’), the decision affirms that ‘public ownership plays a dominant role’ and ‘is the foundation of the socialist market economy’.

 

 

The position of SOEs is powerful and their influence is enormous. They are used as essential tools for a range of policy interventions whilst there are many indications that motives such as profit-seeking and productivity increases over time are secondary at best. Where SOEs (e.g. in steel and aluminium, and some other sectors) are making losses or even turn into ‘zombie firms’, they rarely go bankrupt; instead, the state (at central, provincial and local levels) explicitly encourages and supports mergers. The state then absorbs the losses, managing the shedding of labour and only eventually raising productivity.