As part of China’s socialist economy with Chinese characteristics, the reform of state-owned enterprises (SOEs), has never stopped for forty years. However, instead of shrinking SOEs and expanding private companies like what the reform initiator Deng Xiaoping advocated in the 1978 Open Door Policy, there are signs in recent years indicating China’s SOEs are decreasing by number but their GDP contribution is increasing remarkably.
My understanding of China’s SOEs deepens as I grow older. Partly because of my age, partly because of censorship in China, the latter was more to blame for my ignorance. I only witnessed the phenomenon as I described in my memoir Golden Orchid, my parents were victims of the SOE reforms in the 1990s, losing their jobs as their state-owned companies were closed. But I didn’t think deeper then why the SOE reforms were so crucial to China’s socialistic economy with Chinese characteristics.
The term “China’s socialist economy with Chinese characteristics” appears often in the Chinese political rhetoric. The phrase is no stranger to Chinese citizens. But smart people are not fools. The phrase means China has an authoritarian capitalism. Unlike the free market in the West, the Chinese authorities want to be the biggest winner from a capitalistic market. Not to mention that the Communist Party in China is no different from any other political party in the world. All political parties need money to survive. (All political parties say they are for the people. Don’t buy it.) The SOEs help realize this goal. As a result, much of the SOE profits go into the coffers of the party. And party members running these companies pocket high salaries. The SOE reforms become an immediate and necessary solution in the past forty years.
In China, SOEs are controlled not only by the Chinese central government, but also by local governments. The simple way to understand it as if the American federal government and the state governments owned business enterprises. (Unfortunately, there’s no perfect system. The US political system leads to a faulty corporate capitalism.) There are almost 100 thousand local SOEs in China, and many of them are highly indebted.
Therefore, in my opinion, the provincial and municipal-level SOE reforms are more active and “necessary” as the central government says. My parents’ former employers were local SOEs. There aren’t many central government SOEs, but they have made huge profits.
When Jack Ma, who had been a low-profile Communist Party member until the party mouthpiece People’s Daily exposed his party identity, holds the largest individual shares of the e-commerce giant Alibaba, how can I not laugh at the sugarcoated “socialist economy with Chinese characteristics”? When some beleaguered Chinese companies are found that they are fake SOEs to mislead creditors about their state connections, how can I not see it another phenomenon “with Chinese characteristics”?
According to multiple sources, China’s central government SOEs deliver strong performance. By the end of 2016, the revenues of more than 100 central SOEs reached 27 trillion yuan (approx. US$3.9 trillion at the time), making up 59 percent of the total revenues contributed by all SOEs in the country. (NOTE: the exchange rate between USD and CNY has been volatile since the US-China trade war began in 2018.) In the same year, 80 Chinese SOEs were listed in the world’s 500 largest companies.
Chinese authorities are proud of the invention of an economic system with Chinese characteristics. A reform doesn’t mean to dismantle SOEs but to take the most advantage of SOEs to serve the ruling party. They see the rapid economic growth as the result of the introduction of private companies in China in the early days of SOE reforms. Private companies and joint-ventures with foreign investors have been the miracle drivers for jobs, productivity and even innovation.
Look at the economic boom of e-commerce and 5G network in China. Almost every foreign IT brand and service in the West can find its Chinese equivalent, from WeChat to Douyin, from Didi Chuxing to Meituan-Dianping. These Chinese firms all have central government’s support. Their success drives Silicon Valley to envy and to simulate. If Donald Trump bans Chinese telecom giant Huawei from entering the US market on the ground of national security, he is copying China’s long-standing protectionist approach from foreign competition in the domestic market. Sad to say, today’s US-China trade war is part of the global technology race.
As much as Chinese leaders emphasizes deepening SOE reforms, they do not tell the public in plain language that the role of the SOEs not only cannot be diminished, but must be strengthened to protect Chinese economy from foreign pressure and risks.
A long time ago, Chinese leaders called on the people to “look ahead” —in Mandarin Chinese, xiàng qián kàn—for a bright future. I was amused that the locals made fun of the call with the pun for “look for money.” “Money” sounds the same as “ahead” in Mandarin Chinese. China today is money-oriented and so is its authoritarian leader. As the influence of China’s SOEs grows bigger, the SOE mindset is a must-have for the centralized government. The rivalry between the US and China under the hawkish American administration only strengthens it.