Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
October26,2011
AnAnalysisofStateownedEnterprisesandState CapitalisminChina
By AndrewSzamosszegiandColeKyle
__________________________________________________
PreparedbyCapitalTrade,Incorporated
Washington,DC
I. II.
B. Comparisonoftheobservablestatesectorandtheprivatesector..................................22 IV. SubnationalSOEs.................................................................................................................26 V. ChinasstrategicandpillarSOEs...........................................................................................33 A. Strategicindustries............................................................................................................34 B. Pillarindustries..................................................................................................................38 C. Isthebankingsectorstrategic?.........................................................................................43 VI. StatesupportforSOEs:evidencefromU.S.regulatoryfilings.............................................44 VII. Supportfromstateownedbanks......................................................................................48
CapitalTrade,Incorporated
October26,2011
Pageii
CapitalTrade,Incorporated
October26,2011
TableofFigures TableIII1:BusinessregistrationcategoriesdefinedinCSY2010 .................................................8 . TableIII2:StateownershipdatainCSY2010:specifiedandunspecifieddataonenterprises....8 TableIII3:VariousindicatorsofthesizeofChina'sprivatesector .............................................23 . TableIII4:VariousindicatorsofthesizeofChina'sprivatesector,basedonanexpanded definition,2009.............................................................................................................................23 TableIII5:Comparisonoftheprivatesectorandtheobservablestatesector...........................24 TableIV1:SOEemploymentbyurbanarea,levelsandshares,2009.........................................27 TableIV2:SOEfixedinvestmentbyurbanarea,levelsandshares,2009...................................28 TableIV3:TheSOEandSHEshareofvalueadded,businessandothertaxesandchargesby region,2009..................................................................................................................................29 TableIV4:NumberofindustrialSOEsandSHEsandthenumberconstructionSOEs,byregion30 TableV1:RevenuesofkeydefenseorientedSOEs,2010...........................................................35 TableV2:TopSOEshareofrevenuesinChinascoalindustry,2010.........................................35 TableV3:TopSOEshareofrevenuesinChinasairtransportationsector,2009......................36 . TableV4:TopSOEshareofrevenuesinChinaspowersector,2010.........................................36 TableV5:TopSOEshareofrevenuesinChinaspetroleumandpetrochemicalindustry,201037 TableV6:TopSOEshareofrevenuesinChinasshippingindustry,2010..................................37 TableV7:TopSOEshareofrevenuesinChinastelecomservicesindustry,2010.....................38 TableV8:TopSOEmarketshareinChinasautomobileindustry,2010.....................................39 TableV9:TopSOEshareofcrudesteelproductioninChina,2010............................................39 TableV10:TopSOErevenueshareinChinasconstructionindustry,2010...............................40 TableV11:TopSOErevenuesharesinChinasnonferrousmetalsindustry,2010...................41 TableV12:TopSOErevenuesinthemachineryandequipmentindustries,2010.....................42 TableV13:TopSOErevenuesintheinformationtechnologyandscienceandtechnologyfields, 2010..............................................................................................................................................43 TableV14:AssetsheldbystatecontrolledbanksandotherbanksinChina,2009...................44 TableVI1:CentralSOEsandownershipsharesofselectedcompaniesraisingcapitalinU.S. financialmarkets,2010.................................................................................................................45 TableVIII1:EstimatedSOEshareofChina'sprocurementexpenditures,2009.........................59 TableXIII1:SectoralcompositionofChinasrecentforeigninvestments,July2009June201186 TableXIII2:SectoralcompositionofChinasforeigninvestmentsasofJune2011....................87 TableXVI1:CalculationofSOEshareofGDPwithadjustmentforstateholdingenterprise participationinconstruction,2007..............................................................................................99 TableXVI2:CalculationofSOEshareofGDPwithoutadjustmentforstateholdingenterprise participationinconstruction,2007..............................................................................................99 TableXVI3:Worksheet1Calculationofconstructionindustryvalueadded,without adjustmentforstateholdingenterpriseshare,2007................................................................100 Pageiii
CapitalTrade,Incorporated
October26,2011
TableXVI4:Worksheet2Incorporationofstateholdingenterprisevalueaddedinthe constructionindustry,2007........................................................................................................100 TableXVI5:Worksheet3CalculationofSOEvalueaddedforservicesindustries,2007.......101 FigureIII1:StructureofrelationshipsamongSOEs,SASACsandcentralandlocalgovernments6 FigureIII2:BreakdownoflistedChinesenonfinancialfirmsbyidentityofthelargest shareholders,2004.......................................................................................................................10 FigureIII3:Grossindustrialoutputvaluebystatusofregistration,2009...................................13 FigureIII4:ValueaddedofindustrialSOEsandSHEsasashareoftotalindustrialvalueadded, 2007..............................................................................................................................................14 FigureIII5:Domesticallyfundedfixedinvestmentbystatusofregistration,2009....................15 FigureIII6:SOEandSHEsharesofdomesticallyfundedfixedinvestmentsinurbanareas,by sector,2009..................................................................................................................................16 FigureIII7:Employmentofurbanworkers,bystatusofregistration,2009...............................17 FigureIII8:UrbanemploymentbySOEsbyindustry,levelandpercent,2009...........................18 FigureIII9:UrbanemploymentbySOEs,levelsandshares,19782009.....................................18 FigureIII10:TotalwagespaidbySOEstourbanemployees,levelsandshares,19952009......19 FigureIII11:TheSOEandSHEshareofvalueadded,businessandothertaxesandcharges....20 FigureIII12:EstimatedSOEandSHEshareofChina'snonagriculturalGDP,2007....................21 FigureIII13:Privatesectorvalueaddedandgrossoutput,19982007/09.................................24 FigureIV1:Fixedinvestmentbyindustryandsharemanagedbylocalgovernment,2009.......33 FigureVII1:RelationshipsbetweenChina'sSOEbanksandtheirownersandregulators .........49 . FigureXI1:OwnershipandcontrolstructureoflistedSOEsubsidiaries.....................................77 FigureXIII1:ForeignassetsofChinasmainnonbankingSOEs,2010........................................88
Pageiv
CapitalTrade,Incorporated
October26,2011
Disclaimer: This research report was prepared at the request of the Commission to support its deliberations. Posting of the Report to the Commission's website is intended to promote greater public understanding of the issues addressed by the Commission in its ongoing assessment of U.S.China economic relations and their implications for U.S. security, as mandated by Public Law 106-398 and Public Law 108-7. However, it does not necessarily imply an endorsement by the Commission or any individual Commissioner of the views or conclusions expressed in this commissioned research report. Pagev
CapitalTrade,Incorporated I. ExecutiveSummary
October26,2011
Chinaseconomyhasbeenundergoingahistorictransformationsince1978,whenprivate enterprisewasfrownedupon,capitalistswereconsideredclassenemies,andtheeconomywas virtuallyclosedtoforeigntradeandinvestment. Sincethattime,marketorientedreformshaveproducedaneconomythatwouldhavebeen unthinkableinthemid1970s.Chinaseconomyistheworldssecondlargestnational economy,apowerhouseininternationaltrade,andamajordestinationforforeigninvestors. Chinanotonlyhasaprivatesector,butprivateentrepreneursareallowedtojointheChinese CommunistParty(CCP).Chinahasnotonestockexchangebuttwo,andChinesefirms, includingfirmsownedbythegovernment,raisefundsininternationalcapitalmarkets.Chinas stateownedenterprises(SOEs)haverestructuredandseveralareamongtheworldslargest companies. SOEsarethesubjectofthisstudy,whichwasconductedfortheU.S.ChinaEconomicand SecurityReviewCommission.Theconclusionsbelowarebasedonanextensivereviewofdata, books,andarticlesabouttheChineseeconomyandSOEs.Backgroundinterviewsand discussionswithindividualsknowledgeableaboutSOEsinChinaalsoinformtheresults.The keyconclusionsofthisstudyareasfollows. ThestatesectorinChinaconsistsofthreemaincomponents.First,thereare enterprisesfullyownedbythestatethroughtheStateownedAssetsandSupervision andAdministrationCommission(SASAC)oftheStateCouncilandbySASACsof provincial,municipal,andcountygovernments.Second,thereareSOEsthatare majorityownersofenterprisesthatarenotofficiallyconsideredSOEsbutareeffectively controlledbytheirSOEowners.Finally,thereisagroupofentities,ownedand controlledindirectlythroughSOEsubsidiariesbasedinsideandoutsideofChina.The actualsizeofthisthirdgroupisunknown.Urbancollectiveenterprisesand governmentownedtownshipandvillageenterprises(TVEs)alsobelongtothestate sectorbutarenotconsideredSOEs. ThestateownedandcontrolledportionoftheChineseeconomyislarge.Basedon reasonableassumptions,itappearsthatthevisiblestatesectorSOEsandentities directlycontrolledbySOEs,accountedformorethan40percentofChinasnon agriculturalGDP.Ifthecontributionsofindirectlycontrolledentities,urbancollectives, andpublicTVEsareconsidered,theshareofGDPownedandcontrolledbythestateis approximately50percent. Page1
CapitalTrade,Incorporated
October26,2011
TheflipsideofthisaccountingisthattheshareofGDPaccountedforbythenonstate sector,includingforeigninvestedfirmswithouttiestothegovernmentofChina,isalso approximately50percent.Thisislowerthanotherestimates,butstillrepresents explosivegrowthbytheprivatesectorandothernonstateenterprisessincethelate 1970s. Basedonthecurrentdirectionofeconomicpolicymaking,thestatesectorinChinawill continuetoplayanimportantrole,evenifthestatesshareofGDPshrinksfurther. Thereareseveralfactorsunderlyingthisconclusion.First,therulingCCPhasnot expressedaninterestinbecomingabastionoffreemarketcapitalism.Itispursuing socialismwithChinesecharacteristics,whichmandatesaprominentroleforstate ownership.Second,SASAChasarticulatedanumberofindustriesthatareimportantto Chinaseconomicandnationalsecurityandindicatedthatthesestrategicindustrieswill remainwhollyorlargelyunderthegovernmentscontrol.Inotherimportantsocalled pillarindustries,thestatewillremainamajorplayer,withsignificant,thoughnot majority,ownership.Third,Chinaslatestfiveyearplanindicatesitispursuinga nationalchampionstrategyforcertainindustriesthatthegovernmentviewsas important.Theseincludenotonlystrategicindustries,butalsocuttingedge,emerging industries.GiventhecurrentmakeupofChinaseconomy,thesenationalchampions arelikelytobeSOEsorentitiestheydirectlycontrol.Inthesteelindustry,forexample, thisconsolidationhasinvolvedanSOEabsorbingprivatefirms.Fourth,SOEsappearto beakeyenablerinthegovernmentsplanstoencourageindigenousinnovationinChina sothatthecountryrelieslessonforeigntechnologies.Inthepast(e.g.,highspeedrail), thegovernmentusedSOEstoacquireforeigntechnologiesthroughjointventuresand licensingagreementswithforeignfirms.Thegovernmentappearstobeusingthesame approachwithcurrenteffortstodevelopacivilaviationindustry. ChinasSOEsarepotentiallyformidablecompetitorsbecausetheybenefitfroma numberofgovernmentpreferencesinChina.BasedonrecentU.S.regulatoryfilingsby SOEownedentities,SOEsandtheirsubsidiariesbenefitfrompreferredaccesstobank capital,belowmarketinterestratesonloansfromstateownedbanks,favorabletax treatment,policiesthatcreateafavorablecompetitiveenvironmentforSOEsrelativeto otherfirms,andlargecapitalinjectionswhenneeded.Further,ChineseSOEsalso appeartodominateChinasexpandinggovernmentprocurementmarket. Asidefromtheindicationsprovidedbygovernmentpolicies,thereareinstitutional reasonswhyChinasSOEsarelikelytoremainimportanteconomicplayers.First,bank lendingremainsthemostimportantformofformalfinanceintheChineseeconomy. Page2
CapitalTrade,Incorporated
October26,2011
ThestatebankingsectordominatesthelandscapeinChinaandtendstofavorSOEsat theexpenseofprivatesectorfirms.Second,SOEsareingeneralanimportant instrumentofgovernmentpolicy.ThegovernmentusesSOEstofacilitatestructural changeintheChineseeconomy,toacquiretechnologyfromforeignfirms,andtosecure rawmaterialsourcesfrombeyondChinasborders.Forexample,in2009,the governmentturnedtoitsSOEsandstateownedbankstoprovidestimulustothe domesticeconomy.Third,theCCPandSASACmaintainimportantinfluenceoverthe executivesofSOEs.Theseexecutivesfacetwosetsofincentives.Ontheonehand,the entitiestheycontrolaresupposedtobeprofitable,andSOEexecutivesarenow rewardedbasedonfinancialperformance.Ontheotherhand,theappointmentsoftop executivestoSOEmanagementandtheirfuturecareerpathsuponleavingtheSOEare determinedbytheCentralOrganizationDepartmentoftheCCP.Thus,SOEexecutives haveanincentivetofollowthegovernmentspolicyguidance.Recentexamples,aswell asfinancialdisclosuredocuments,indicatethatifmaximizingshareholdervalueconflicts withstategoals,SOEsandtheirwhollyownedsubsidiariesarelikelytopursuethegoals ofthestate. WhenitjoinedtheWTOin2001,Chinapromisedthatthegovernmentwouldnot influence,directlyorindirectly,thecommercialdecisionsofSOEs.Chinadoesnot appeartobekeepingthiscommitment.Thestatedoesinfluencethecommercial decisionsofSOEsandthemostrecentfiveyearguidancedoesnotheraldachangein thisregard.Ifanything,ChinaisdoublingdownandgivingSOEsamoreprominentrole inachievingthestatesmostimportanteconomicgoals.ForsomeU.S.firmswhose participationinChinaseconomyfacilitatesthegovernmentsgoals,Chinawillcontinue tobeaprofitablemarket.Forothers,especiallythoseinstrategicandemerging industriesthatthegovernmentistargeting,theChinesemarketmaybecomefarless hospitable.
Page3
October26,2011
Chinasbreathtakingeconomicreform,includingtheriseofprivateenterprise,hasoftenled observerstoassumethatthecountryseconomicsystemhasbeentransformedintoacapitalist economydominatedbyprivateenterprise.1Anumberofeconomic,politicalandpolicytrends demonstratethattheChineseeconomyhasbecomemoremarketoriented.Chinesestatistics showadramaticriseinthenumberofostensiblyprivateenterprisessincethelate1970s.China nowhasstockexchangesintwocitiesandhundredsofChinesefirmsnowhavelistingsin exchangesbeyondthemainland.In1978,capitalistsinChinawereofficialclassenemiesbut in2001theywerewelcomedintotheChineseCommunistParty(CCP).2Chinasonceinsular economyimportsin1978wereonly$10.5billionnowimportsmorethanonetrilliondollars annuallyandisoneofthetopdestinationsforforeigninvestments.Chinesefirms,including privatelyownedfirms,arenowmajorcompetitorsinadvancedcountryexportmarketsand majorforeigninvestors. Inaworldinwhichcentralplanninghasbeensoutterlydiscredited,itwouldbenaturalto concludethattheChinesegovernmentand,byextension,theChineseCommunistPartyhave beenabandoningtheinstitutionsassociatedwiththecommunisteconomicsystem,suchas relianceonstateownedenterprises(SOEs),asfastaspossible.Suchconclusionwouldbe wrong.AlthoughChinasrelianceonprivateenterpriseandmarketbasedincentiveshasbeen growing,andtheCCPstreatmentofprivateenterprisesandentrepreneurshasbeenchanging, itwouldbeamistaketowriteoffthecountrysSOEsasdyingvestigesofChinasMaoistpastor tominimizethecurrentroleofthestateandtheCCPinshapingeconomicoutcomesinChina andbeyond. True,theprivatesectornominallyisresponsibleforagrowingshareofeconomicactivityin China.Still,theChinesegovernmentandSOEsremainpotenteconomicforces.Indeed,some ofChinasSOEsareamongthelargestfirmsinChinaandtheworld.Theyaremajorinvestorsin foreigncountries.Theyhavebeeninvolvedinsomeofthelargestinitialpublicofferingsin recentyearsandremainthecontrollingownersofmanymajorfirmslistedonChineseand foreignstockexchanges.Inshort,SOEsstillmatter. Thisstudy,preparedfortheUnitedStatesChinaEconomicandSecurityReviewCommission, seekstoansweranumberofquestionsaboutSOEsandtheroletheyplayinChinaseconomy, politics,andforeignpolicy.Thesequestionscanbebroadlygroupedasfollows:1)Whatare SOEsandhowimportantaretheytoChinaseconomy?2)HowdoesthestateandtheCCP influenceSOEs,theirsubsidiaries,andothereconomicentitiesthatitdoesnotfullyown?3)
1 2
(Engardio2005). (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)44.
Page4
CapitalTrade,Incorporated
October26,2011
WhatisthenatureoftherelationshipbetweenSOEsandtheChinesegovernment?4)Whatare theeconomicramificationsofChinesestatecapitalism?Eachsectionbelowcorrespondsto theindividualissuesandquestionsaddressedbytheCommissioninitsRFPdataFebruary7, 2011. ThesourcesconsultedincluderecentbooksandarticlesthatdescribeChinaseconomic transformation;variousU.S.governmentdocumentsthatdescribeeconomicreforms,the policymakingprocessinChina,andtheroleofSOEs;documentsrelatedtoChinapublishedby multilateralorganizationssuchastheWorldTradeOrganization,theInternationalMonetary Fund,andtheOrganizationforEconomicCooperationandDevelopment;andChinasfiveyear plans.MostofthedataonSOEswereobtainedfromtheChinaStatisticalYearbook2010, whichcontainsextensivedatathrough2009onSOEsandstateholdingenterprises.Certain industryrelateddatawerealsoobtainedfromChineseindustryassociationsthroughHaver Analytics.FinancialinformationonSOEswasobtainedfromtheChinesewebsitesoftheSOEs inquestionandfromdisclosuredocumentssubmittedbySOEsubsidiariestotheU.S.Securities andExchangeCommission.Interviewsandinformaldiscussionswithindividualsfromthepublic andprivatesectorsknowledgeableabouttheChineseeconomyalsoinformedtheanalysis herein.Wedonotbelievethatanyinformationinthisreportwouldbeconsideredastate secretbutweneverthelesshavechosennottoidentifytheseindividualsbyname. III. OverviewofstatecapitalisminChina
ChinasstatesectorconsistsofSOEsreportingtocentral,provincial,andlocallevelsof government.TheChinesegovernmentdefinesSOEsasenterprisesinwhichallassetsare ownedbythestate.3SOEsareeithercentrallyownedorownedbyprovincialorlocal governments.CentrallyownedSOEsincludeentitiesmanagedbytheStateownedAssets SupervisionandAdministrationCommissionoftheStateCouncil(SASAC);stateownedfinancial institutionssupervisedbytheChinaBankingRegulatoryCommission(CBRC),ChinaInsurance RegulatoryCommission(CIRC),andChinaSecuritiesRegulatoryCommission(CSRC);andentities managedbyothercentralgovernmentministriessuchastheMinistryofCommerce,Ministryof Education,MinistryofScienceandTechnology,andothersministries.4CentralSOEshavebeen increasinginimportancerelativetolocalSOEs.5 TheSASACsareanalogoustoholdingcompanies;theyholdthesharesofSOEsthatpreviously werehelddirectlybythestate.TheSASACswerecreatedbytheStateCouncilinMarch2003 viaDecree378(2003).Amendedlegislationin2009formallyassignedSASACsthelegal
3 4
Page5
CapitalTrade,Incorporated
October26,2011
Ministries
SASAC
Local Governments
LocalSASACs
CentralSOEs
LocalSOEs
Subsidiariesor Departments
Source:Deng,MorckandWu.
Subsidiariesor Departments
(Deng,etal.2011)11. (Deng,etal.2011)48.
Page6
CapitalTrade,Incorporated
October26,2011
sectorremainsapotentforceintheChineseeconomy.Itusesthesedatatoestimatetheshare ofGDPaccountedforbyentitiesdirectlyownedorcontrolled(throughsufficientshareholdings) bythestate.Thesedataarealsocomparedwithdataindicatingthesizeoftheprivatesectorin China.Butbeforeturningtothedata,itishelpfultoreviewthedifferenttypesofbusiness entitiesthatexistinChina. Stateownedenterprisesarebusinessentitiesestablishedbycentralandlocalgovernments, andwhosesupervisoryofficialsarefromthegovernment.8Inofficialstatistics,thiscategoryof firmsincludesonlywhollystatefundedfirms.Thisdefinitionexcludesshareholding cooperativeenterprises,jointoperationenterprises,limitedliabilitycorporations,or shareholdingcorporationswhosemajoritysharesareownedbythegovernment,public organizations,ortheSOEsthemselves.Amoreencompassingcategoryisstateownedand stateholdingenterprises.Thiscategoryincludesstateownedenterprisesplusthosefirms whosemajoritysharesbelongtothegovernmentorotherSOE.9Thislattercategory,also referredtoasstatecontrolledenterprises(SCEs),canalsoincludefirmsinwhichthestateor SOEownedshareislessthan50percent,aslongasthestateorSOEhascontrollinginfluence overmanagementandoperation.10 DefinitionsofthevarioustypesofbusinessregistrationcategoriesareshowninTableIII1. ChinasNationalBureauofStatistics(NBS)providesdataintwobroadcategoriesforindustrial enterprises:domesticallyfundedenterprisesandforeignfundedenterprises.Industrial enterprisesincludeextraction;agriculturalprocessing(e.g.,husking,flourmilling,winemaking, oilpressing,silkreeling,spinningandweaving,andleathermaking);manufacturing;andrepairs ofindustrialproduct.11BasedonthedefinitionsprovidedbyNBS,allentitieswithforeignfunds areexcludedfromthecategoryofdomesticallyfundedenterprises.Thestateholding enterprise(SHE)designationcutsacrossotherregistrationcategories.TheNBSsChina StatisticalYearbookfor2010(CSY2010)providesinformationonstateparticipationinother ownershipcategories,suchasjointownershipenterprisesandlimitedliabilitycompanies,but doesnotspecifyalltheentitiesforwhichthestatehasadirectorindirectcontrollingshare.As showninTableIII2,thespecifiedcategoriesintheCSY2010forindustrialfirmsleaveatleast halfoftheindustrialSOEuniverseunaccountedfor.
8 9
Page7
CapitalTrade,Incorporated TableIII1:BusinessregistrationcategoriesdefinedinCSY2010
October26,2011
Registrationstatus Definition DomesticallyFundedEnterprises Stateownedenterprises Noncorporateeconomicentities,whereallassetsareownedbythestate. Enterpriseswherethepercentageofstateassets(orsharesbythestate)is Stateholdingenterprises largerthananyothersingleshareholderofthesameenterprise. Collectiveowned Economicentitieswhereassetsareownedcollectively.Ownershipis enterprises consideredtobepublic. Economicunitssetuponacooperativebasis,withfundingpartlyfrom employeesoftheenterpriseandpartlyfromoutsideinvestment,where Cooperativeenterprises theoperationandmanagementisdecidedbyallthememberswhoalso participateintheproduction. Jointownership Economicunitsestablishedbyjointinvestmentbytwoormorecorporate enterprises enterprisesorinstitutionsofthesameordifferenttypesofownership. Economicunitswithcapitalfrom2to49investors.Limitedliability Limitedliability corporationsincludestatesolefundedcorporationsandotherlimited corporations liabilitycorporations. Shareholding Economicunitswithtotalregisteredcapitaldividedintoequalsharesand corporationsLtd. raisedthroughissuingstocks. Economicunitsinvestedorcontrolled(byholdingthemajorityofthe shares)bynaturalpersonswhohireworkersforprofitmakingactivities. Privateenterprises Includedinthiscategoryareprivatelimitedliabilitycorporations,private shareholdingcorporationsLtd.,privatepartnershipenterprisesand privatesoleinvestmententerprises. ForeignFundedEnterprises EnterpriseswithFunds Allindustrialenterprisesregisteredasthejointventure,cooperative,sole fromHongKong,Macao (exclusive)investmentindustrialenterprisesandlimitedliability andTaiwan corporationswithfundsfromHongKong,MacaoandTaiwan. Allindustrialenterprisesregisteredasthejointventure,cooperative,sole Foreignfunded (exclusive)investmentindustrialenterprisesandlimitedliability enterprises corporationswithforeignfunds.
Source:NationalBureauofStatisticsofChina.
TableIII2:StateownershipdatainCSY2010:specifiedandunspecifieddataonenterprises
SOE+SHE SOE ImpliedSHE Statejointownershipenterprises Jointstatecollectiveenterprises Statesolefundedlimitedliabilitycorporations MinimumnumberofenterprisesforwhichSOEownershipis notspecified
Source:NationalBureauofStatisticsofChina.
1 2 3=12 4 5 6 7=3456
Page8
CapitalTrade,Incorporated
October26,2011
ItturnsoutthatahighproportionofshareholdingcompaniesarecontrolledbySOEs.For example,areviewofdatafromtheChinaSecuritiesRegulationCommission,summarizedinan OECDstudyofChineseSOEs,indicatesthatstateownednontradablesharesaccountedfor aboutonefifthofallsharesofSOEswhohadfloatedsharesindomesticmarkets.12Inaddition, centralandlocalSOEsownsharesthroughlegalentities.13Indeed,accordingtotheOECD study,whentheultimateownersoflistedfirmsaretraced,SOEsaccountedforaveryhigh proportionoflistedfirms,asshowninFigureIII2.14Asimilarpointcanbemadeaboutlimited liabilitycorporations(LLCs).15Officialdatadohaveaseparatecategoryforstatesolefunded LLCs16butotherLLCscanbepartiallyownedbySOEsorbySOEownedsubsidiaries.17 BasedonanupdatedversionoftheCSMARdatabaserelieduponbytheOECDstudy,itappears thatSOEscontinuetomaintainamajorpresenceinlistedfirmsaftertradesthatresultin changesinequitystructure.From2005to2009,themedianstatesharefollowingsuchtrades was51percent.Andwhilethemajorityoftradesledtothestatesharedeclining,nearlyone fifthoftradesledtoanincreaseinthecombinedstateshare. Unfortunately,thebreakdownbetweenSOEsandnonSOEentitiesislesscompleteinother majoreconomicsectors.Dataontheconstructionindustry,forexample,includeinformation aboutSOEs,butdonotincludedataonSHEsinconstruction.DataontheSOEroleinservices areevenlessdetailed. Inshort,asidefrompure100percentSOEs,thereareanumberofentitiesinChinawithmixed ownershipinwhichSOEs,andthereforethegovernment,playacontrollingorprominentrole. Someoftheseentitiesarecapturedinofficialeconomicstatisticsbutsomearenot.
(Lee2009)16.ThedenominatorincludesA,B,andHshares. AccordingtoanOECDstudyofChineseSOEs,consistentdatasetsthatdistinguishbetweenstateownedand nonstateownedlegalentitysharesaredifficulttofind.(Lee2009)18. 14 Seealso,(J.Wang2010)25.Toensurestatecontrol,thegovernmentlimitsindividualsharestolessthanone thirdofthetotal.Inotherwords,thestatestillcontrolsmorethantwothirdsofmostlistedcompanies,either throughtheholdingofstatesharesby{governmentagencies}andSOEs,orindirectlythroughlegalpersonshares. 15 (StateownedEnterprisesinChina:TestimonyofDerekLScissors2011). 16 Forexample,areviewoftheform20Ffor2010fortheChinaTelecomCorporationLimited,whichisfullyowned bytheSOEChinaTelecommunicationsCorporation,indicatesthatthefirmhas5whollyownedsubsidiariesin China,eachofwhichisajointstockcompanywithlimitedliability. 17 Forexample,areviewoftheform20Ffor2010ofAluminumCorporationofChinaLimited,whichisfullyowned bytheSOEAluminumCorporationofChina,indicatesthatthefirmhas10partiallyownedsubsidiaries,eachof whichisajointstockcompanywithlimitedliability.
13 12
Page9
CapitalTrade,Incorporated
October26,2011
FigureIII2:BreakdownoflistedChinesenonfinancialfirmsbyidentityofthelargest shareholders,2004
Collective 3% Foreign 1%
Private 26%
SOEs 70%
1/FirmsareclassifiedasSOEiftheshareofstateownershipexceeds10percent.
Source:Lee.
WhatconstitutestheprivatesectorinChina?AsshowninTableIII1,thedefinitionofthe privatesectorisspecific.Itconsistsofeconomicunitsinvestedorcontrolledbynaturalpersons whohirelaborforprofitmakingactivities. AcommonmistakeistoassumethatanyentitythatisnotanSOEbelongstotheprivate sector.18AsnotedbyoneChinaexpert,ShareholdingSOEsaremanifestlynotprivateactors andassessmentsofthecorporatesectorthatassumesoarefatallyflawedfromtheoutset.19 Thereisastatesector,whichconsistsofSOEs,andanonstatesector,whichconsistsoffirms withotherformsofownership,includingpureprivateownershipbydomesticandforeign naturalpersonsandmixedownershipentitiesinwhichSOEsarepartownersand/or controlling.ThispointisunderscoredbyFigureIII2.TheproliferationoffirmsinChinathat raisecapitalindomesticstockexchangesevidentlyleadssometoassumethatalllistedfirmsin Chinahavenotiestothestate.However,forthevastmajorityoftheselistedfirms,thelargest shareholdersareSOEs.
18 19
(StateownedEnterprisesinChina:TestimonyofDerekLScissors2011). (StateownedEnterprisesinChina:TestimonyofDerekLScissors2011).
Page10
CapitalTrade,Incorporated
October26,2011
InadditiontothepurelydomesticprivateenterprisesdefinedinTableIII1,amoreinclusive definitionoftheprivatesectorshouldincludepurelyforeignownedfirms.SomeNBSstatistics distinguishbetweenfullyandpartiallyforeignownedenterprises.However,statisticsonvalue added,themostimportantstatisticformeasuringtheeconomicfootprintoftheprivatesector, donotmakethisdistinction. A. EconomicfootprintofSOEs GiventhegrowingroleofprivateenterpriseinChina,thereisanaturalinterestin benchmarkingthegrowthoftheprivatesectorversusSOEs.Themostnaturalmetricforthis typeofanalysiswouldbetheshareofGDPoftheprivatesectorversustheshareofGDPby SOEs.Unfortunately,giventhecomplicationsdescribedabove,thereisnopublishedvaluefor SOEs,onlyestimatesandconjectures.AnOECDstudyusingdatafrom2006estimatedtheSOE shareofGDPtobe29.7percent,implyingthatthenonstatesectorisabout70percentofthe economy.20Otherestimatesofthestatessharearehigher.Inrecenttestimonybeforethe USCC,DerekScissorsoftheHeritageFoundationimpliedthatthestatesectoraccountsfor30 to40percentofChinaseconomy.21AlawyerworkingforawesternfirminChinaestimated theSOEshareofGDPtobeintherangeof40to50percent.22Below,Chinesestatisticson SOEsandthebroaderSCEcategoryarereviewedandanestimateismadeofthestate controlledshareofGDP. TheChinesegovernmentpublishesseveralstatisticalmeasureswhichcanbeusedtoassessthe sizeofstateownedenterprisesrelativetootherformsofownershipaccordingtovarious dimensions.Inmanycases,themeasuresofSOEactivityconsideronlywhollyownedSOEs. Thatis,theseSOEmeasuresdonottreatentitiesinwhichthestateownershipshareislessthan 100percent,butgreaterthan50percent,asbeingstateowned.Further,theofficialestimates oftendonottrackultimateownership,therebyignoringenterprisesthatarenotregisteredas SOEsorstatecontrolledenterprisesevenwhenindirectstateownershipispresent. Inaddition,despitethefactthatforeigninvestedenterprises(FIEs)haveformedjointventure operationswithstateandcollectivesectorfirms,theyhavebeenofficiallycategorizedasFIEs, theimplicationbeingthattheyareprivateenterprises.Stateentitieshavedivertedfunds
Page11
CapitalTrade,Incorporated
October26,2011
offshoretoqualifyasFIEs.23Althoughoperationalinfluencebygoverningauthoritiesislimited inFIEs,thisinfluencevariesconsiderablybytypeoffirm,sector,anddegreeofgovernment ownership. Below,statisticsarepresentedforgrossoutputvalue,valueadded,investment,employment, wages,andtaxrevenues.Eachmeasureincludesdataforthemostrecentavailableyearatthe timeofthiswritingaswellastimeseriesdataifavailable.Afterwards,aneffortismadeto estimatethetrueeconomicfootprintofthestatesector,takingintoaccounttheissues describedabove. 1. Outputandvalueadded Chinapresentsavarietyofeconomicdatabyregistrationstatusandbybroadindustrysector.24 Thebroadindustrysectorsareprimaryindustries,secondaryindustries,andtertiaryindustries. Primaryindustriesareagricultural.Secondaryindustriesareenergy,manufacturing,and construction.Tertiaryindustriesareserviceproducingindustries. TheGOCreportsthreemeasuresofoutput,principalbusinessrevenues,grossindustryoutput value(GIOV),andvalueadded.Principalbusinessrevenuesreflecttherevenuesearnedby businessesforsalesoftheirmainproducts,whileGIOVreflectsthetotalvolumeoffinal industrialproductsproducedandindustrialservicesprovidedduringagivenperiod.Itis analogoustorevenueorgrossoutputaspublishedbytheU.S.BureauofEconomicAnalysis. ValueaddedisalsousedintheU.S.industryoutputaccounts.InChineseaccounts,it representsgrossindustrialoutputvalueminusintermediateinputsplusvalueaddedtaxes. Thus,itrepresentstheamountofvalueaddedbyafirmtoitspurchasedinputs.Valueadded hastwousefulcharacteristics.First,unlikegrossoutput,valueaddedavoidsdoublecounting outputsusedasinputsbyotherfirms.Second,valueaddedcanbecompareddirectlytoGDP. BecausethereislittlestatisticaldifferencebetweenprincipalbusinessrevenueandGIOV,only dataongrossindustryoutputvaluearepresented.OfficialdataontheGIOVofindustrial enterprises,whichincludemining,powergeneration,andmanufacturingbyregistrationstatus, areshowninFigureIII3.Basedonthesedata,SOEsaccountforapproximatelyoneeighthof industryoutputbydomesticallyfundedfirms.
TobeestablishedasanFIE,25%ofinvestedfundsmustcomefromoverseas.Formanyyears,Chinesefirms, includingSOEsatalllevels,divertedinvestmentthroughshellcompaniesinHongKonginordertoregisterasan FIE.Domesticfirmsdidsoinordertotakeadvantageofpreferentialtaxratesandcovetedimportexportlicenses. Whilethegovernmentchangedthelawin2008toeliminatethisloophole,anyfirmalreadyregisteredinthis mannerreceivedagrandfatheredexemptionfromthenewlaw.ThesefakeFIEsaresignificantandtherefore skewanymeasureofstateownershipthatseparatelycategorizesforeigninvestedcompaniesanddoesnottrace ultimateownership. 24 SeeTableIII1.
23
Page12
CapitalTrade,Incorporated FigureIII3:Grossindustrialoutputvaluebystatusofregistration,2009
October26,2011
Shareholding Corporations Limited 13% Stateowned Enterprises LimitedLiability 11% Corporations 31%
Collectiveowned Enterprises 2%
Cooperative Enterprises 1%
OtherEnterprises 1%
JointOwnership Enterprises 0.3%
Source:NationalBureauofStatisticsofChina.
However,thesedatadramaticallyunderstatetheroleofSOEsandthestatebecausetheydo nottakeintoaccountthedramaticrestructuringofSOEsthathastakenplaceoverthepast decade.Aswillbediscussedbelow,theChinesegovernmenthasrestructuredSOEs, particularlyintheindustrialsphere,tomixstateownedandprivatecapital.Thus,thepureSOE measureexaggeratestheroleofnonstateentitiesintheChineseeconomy. ChinasNationalBureauofStatisticsprovidesasomewhatbettermeasureofthestatesrolein Chinasindustry:valueaddedbystateownedenterprisesandstateholdingenterprises(SHEs). Asnotedabove,SHEsincludeenterprisesforwhichtheChinesegovernmentholdsamajorityof sharesormoresharesthananyotherentity.FigureIII4showsthatwhilevalueaddedofthis broadermeasureofthestatesectorhascontinuedtoexpand,itsoverallshareofindustrial outputhasdeclinedfrom57percentto34percentoverthepastdecade.
Page13
CapitalTrade,Incorporated
October26,2011
FigureIII4:ValueaddedofindustrialSOEsandSHEsasashareoftotalindustrialvalue added,2007
4,500 4,000 3,500
34%
36%
3,000
Billionyuan
38%
2,500 2,000 1,500 1,000 500 0 1996 1998 2000 2002 2004 2006 2008 2010
57%
Source:NationalBureauofStatisticsofChina.
ThoughbetterthandatathatexcludetheoutputofSHEs,thisdataseriesisnotbelievedto capturefullytheSOEsroleintheeconomyeither.Inparticular,thesedatawouldseemto excludevalueaddedbyentitiesofmixedownershipwhoseprimaryownersaresubsidiariesof SOEs,includingroundtrippedFIEswithstatecapital. 2. Fixedinvestment WhilestatisticsonvalueaddedareappropriateforcomparisonswithGDP,ithasbeenargued thatChinesedataonfixedassetinvestmentsaremoreimportantforassessingthepolicytiltof theChinesegovernment.25Thisisbecausefixedassetinvestments,whetherbystateactorsor privateactors,mustgenerallygaingovernmentapproval.26ThispointisdrivenhomebyFigure IV1,whichshowstheshareoffixedassetinvestmentsmanagedbylocalgovernments.Fixed assetdataarealsousefulbecausetheycoverbothruralandurbaninvestment,andarenot confinedtoindustrialentities;serviceproducingsectorsarealsoincluded.Theinvestment datashowninFigureIII5indicatethattheSOEsaccountedforonethirdoftotalinvestmentin fixedassetsin2009.TheshareoffixedassetinvestmentbySOEsandSHEsinruralareaswas 45percentin2009.
25 26
(Huang2008)2022. (Huang2008)20.
Page14
CapitalTrade,Incorporated
October26,2011
FigureIII5:Domesticallyfundedfixedinvestmentbystatusofregistration,2009
Private 22%
Others 3%
LimitedLiability 26%
Stateowned 33%
Cooperative 1% Joint 0%
Source:NationalBureauofStatisticsofChina.
FigureIII6providesaviewofthestatesinvestmentsharesinurbanareasbyindustry.Inthe majorityofindustries,theSOE/SHEshareexceeds50percent,asdoesthemedianshare.The weightedaverage,whichincorporatesthevalueofsectoralinvestments,is48percent.The moststrikingfeatureofFigureIII6isthatobservablestateentities(SOEsplusSHEs)accounted foramajorityofinvestmentinsomanysectors.Anothersurprisingresultisthatthestate shareinthemanufacturingsectorisonly20percent.Inpart,thisresultreflectsthefailureof thedataonregistrationtocapturefullythestatesparticipationinventureswithmixed ownership.Ontheotherhand,thisoutcomealsoreflectsthestatespolicyofzhuada,fang xiao,graspthebigandletgoofthesmall,whichhasledtothedivestmentofthestatefrom lessstrategicmanufacturingindustries,suchastextilesandapparel,leathergoods,andmetal productfabrication.Evendespitethedownwardbiasinthedata,thestatesharesinmore strategicmanufacturingindustries,suchaspetroleumandcoalprocessing,ferrousmetals,and transportequipment,aremuchhigherthan20percent.
Page15
CapitalTrade,Incorporated
October26,2011
FigureIII6:SOEandSHEsharesofdomesticallyfundedfixedinvestmentsinurbanareas,by sector,2009
InformationTrans.,ComputerServices&Software Transport,StorageandPost Mgmt.ofWaterConservancy,Env.&PublicFacilities Education ProductionandSupplyofElectricity,GasandWater Health,SocialSecurityandSocialWelfare PublicManagementandSocialOrganization FinancialIntermediation ScientificRsch.,TechnicalSrvc.&GeologicProspecting Culture,SportsandEntertainment Mining Construction LeasingandBusinessServices Agriculture,Forestry,AnimalHusbandryandFishery ServicestoHouseholdsandOtherServices RealEstate Manufacturing HotelsandCateringServices WholesaleandRetailTrades
96% 90% 87% 84% 83% 82% 78% 73% 68% 61% 59% 56% 54% 51% 28% 22% 20% 16% 14%
Source:NationalBureauofStatisticsofChina.
Inshort,Chinasdataonfixedinvestmentsshowthatthestatesectorremainsanimportant focusofnationalpolicy.TheSOEshareofChineseinvestment,anindicatorthatexcludes investmentsbymixedownershipentities,was33percentin2009.Undertheconservative assumptionthathalfoftheinvestmentofbyshareholdingandlimitedliabilityenterprisescan beattributedtostateentities,roughlyhalfofurbanfixedinvestmentsin2009weremadeby SOEsorentitieswithsignificant(directorindirect)stateownershiplevels.Whendataare analyzedbysector,itbecomesclearthatSOEsandSHEsaccountforthemajorityof investmentsinmostmajorsectorsintheChineseeconomy.Ironically,themanufacturing sectorarguablythesectorofmostconcerntotheU.S.governmenthasamongthelowest stateinvestmentsharesaccordingtoofficialdata.Butthisispreciselythesectorinwhich restructuringhasproducedmanyentitieswithmixedownership,andinwhichtheofficialdata underestimatethetrueweightofthestate. 3. Employmentandwages TheNBSpublishesemploymentdatabyregistrationstatusforallofChina,disaggregatedinto urbanandruralcomponents.Wagedataarealsoprovided.Aswithoutput,valueaddedand fixedassetinvestment,theSOEvalueunderstatestheroleofthestateintheChineseeconomy. Still,thedatadovetailwithotherindicatorsinshowingthattheSOEsectorremainsasignificant componentoftheChineseeconomy.AccordingtoFigureIII7,pureSOEsaccountsfornearly30 Page16
CapitalTrade,Incorporated
October26,2011
CooperativeUnits 0.7%
JointOwnershipUnits 0.2%
Source:NationalBureauofStatisticsofChina.
Page17
CapitalTrade,Incorporated FigureIII8:UrbanemploymentbySOEsbyindustry,levelandpercent,2009
Employeesatstate ownedunits Thousands 3,561 2,437 4,378 1,986 2,627 4,139 646 1,442 552 1,460 435 1,254 2,094 1,783 283 14,906 5,299 1,119 13,800
October26,2011
Agriculture,Forestry,AnimalHusbandryandFishery Mining Manufacturing ProductionandDistributionofElectricity,GasandWater Construction Traffic,Transport,StorageandPost InformationTransmission,ComputerServicesandSoftware WholesaleandRetailTrades HotelsandCateringServices FinancialIntermediation RealEstate LeasingandBusinessServices ScientificResearch,TechnicalService,andGeologicalProspecting ManagementofWaterConservancy,Environment ServicestoHouseholdsandOtherServices Education Health,SocialSecurityandSocialWelfare Culture,SportsandEntertainment PublicManagementandSocialOrganization Source:NationalBureauofStatisticsofChina.
SOEshareofindustry employment Percent 95% 44% 13% 65% 22% 65% 37% 28% 27% 33% 23% 43% 77% 87% 48% 96% 89% 86% 99%
FigureIII9:UrbanemploymentbySOEs,levelsandshares,19782009
140 120 59% 100 70% 80 76% 61% 35% 24% 21%
Millions
78%
2005
2010
Source:NationalBureauofStatisticsofChina.
Page18
CapitalTrade,Incorporated
October26,2011
54% 2,000
1,500
Billionyuan
0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source:NationalBureauofStatisticsofChina.
Page19
CapitalTrade,Incorporated
October26,2011
FigureIII11:TheSOEandSHEshareofvalueadded,businessandothertaxesandcharges
1,600 1,400 1,200 1,000
Billionyuan
Source:NationalBureauofStatisticsofChina.
5. TheobservableSOEshareofoutput ThoughChinesedataonSOEsandstateholdingenterprisesaresubstantial,thereisnoofficial announcementoftheweightofSOEsintheChineseeconomy.The2010versionoftheWTOs TradePolicyReviewofChinadrylymakesthispoint.27However,theOECDstudyofChinese SOEssuggestsamethodologythatisadoptedhere.Specifically,theSOEshareofvalueadded (oroutput,ifvalueaddeddataarenotavailable)foreachmajorsectorismultipliedbythat sectorsshareofGDP.28TheOECDstudyestimatedthatSOEsandSHEsaccountedfor29.7 percentofGDPin2006.Thisestimateislikelytoolow,foratleasttworeasons.First,the governmentsdataonconstructionSOEsdonotincludethevalueaddedofstateholding enterprises.IncludingSHEsmakesasignificantdifferencewithmanufacturingandwouldlikely increasetheconstructionshareaswell.AreviewoftheD&BFamilyTreefortheChinaState ConstructionEngineeringCorporation(CSCEC)indicatesthatthefirmhas116subsidiariesin Chinaalone,themajorityofwhichareinconstructionandconstructionrelatedindustries.29As
(WorldTradeOrganization2010)54(par.122).TheshareofSOEs'outputinGDPisnotavailabletothe Secretariat. 28 (Lee2009)6andfn.10. 29 (D&BFamilyTreeforChinaStateConstructionEngineeringCorporation(Beijing,BeijingChina)2011)2729.
27
Page20
CapitalTrade,Incorporated
October26,2011
such,itseemsreasonabletoadjustthegovernmentsconstructiondataonvalueaddedto incorporatestatecontrolledentities.30 Second,theOECDsestimateoftertiarysectorvalueaddedwasbasedonlimiteddatathat understatedtheSOEcontributioninservices.Analternativemethodologythattakesinto accountexistingemploymentandinvestmentdataseemstosuggestthatSOEsaccountfor abouthalfofservicessectorvalueadded. ThismethodologysuggeststhatSOEsandSHEswereresponsiblefor40percentofChinasGDP and45percentofnonagriculturalGDPin2007,thelastyearforwhichdatarequiredforthis typeofanalysisareavailable. FigureIII12:EstimatedSOEandSHEshareofChina'snonagriculturalGDP,2007
SOEM&E 17%
SOE/SHE 45%
SOEConstruction 3%
OtherM&E 30%
SOEServices 25%
Source:NationalBureauofStatisticsofChina;authorscalculations.SeeAttachment2:CalculationofSOEshareof ChinasGDP.
Page21
CapitalTrade,Incorporated
October26,2011
forallfirmsthatareindirectlycontrolledbythestatethroughdomesticandforeignaffiliates. Forexample,muchforeigninvestmentfromHongKong,Macauandseveralwellknowntax havens,consistsofChinesefundsroundtrippedinordertogarnerfavorabletaxtreatment, whichwasavailabletoFIEsuntil2008,andforotherreasons.31Accordingtooneestimate,up to50percentofinwardFDIinChinacanbeattributedtoroundtripping.32 TheamountofthisroundtrippingthatcanbeattributedtoSOEsisnotknown.Whatisknown isthattheforeignsubsidiariesofSOEsdoinvestinChinaandthatFIEsaremajorcontributorsto ChinasGDP.AccordingtoChinesestatistics,enterprisesfundedbyHongKong,Macauand TaiwaneseinvestmentsaccountedforvalueaddedofRMB3.2trillion,roughlyonefourthof industrialvalueaddedin2007.Atleastsomeofthisoutputcanreasonablybeattributedto roundtrippedstatefunds. B. Comparisonoftheobservablestatesectorandtheprivatesector Chinaseconomyhasundergonedramaticreformssincethelate1970s.Themostdramaticof thesechangeshasbeentheintroductionofprivateenterpriseintowhathadbeenacentrally plannedeconomycompletelydominatedbySOEs.Thegenerallyacceptedviewisthatmarket orientedreformsbeganinthelate1970s,afterthelastleaderloyaltoChairmanMaoZedong relinquishedpowerandDengXiaopingwaselevatedtoparamountleader.33Initialeconomic reformswereconcentratedinthecountryside.34Duringthe1990s,thefocusshiftedtourban areasandtoarestructuringofthestateownedsector,whichincludedselectiveprivatizations, theintroductionofmarketpricing,andthemovetoamodernenterprisesystem. TheexpansionoftheprivatesectorinChinasincethelate1970sisindisputable.IntheCSY, statisticsontheactivitiesoftheprivatesectoronlygobackto1998.AsnotedinTableIII1 above,theChinesedefinitionoftheprivatesectorisveryspecific:itincludesprivatelimited liabilitycorporations,privateshareholdingcorporations,privatepartnershipenterprisesand privatesoleinvestmententerprises.Thereisnoofficialaccountingofvalueaddedforthe privatesectoracrossallindustriesinChina,sothisreportreliesonstatisticsforgrossindustrial outputvalue,valueaddedbyindustrialenterprises,investmentinfixedassets,employmentin urbanareas,andtaxespaidbyindustrialenterprises.Asshowninthetablebelow,whichis basedonthestrictdefinitionoftheprivatesectorappliedintheCSY,theprivatesectorshares rangefrom11to30percent.
31 32
Page22
CapitalTrade,Incorporated TableIII3:VariousindicatorsofthesizeofChina'sprivatesector
Measure(year) Grossindustrialoutputvalue(2009)1/ Industrialvalueadded(2007)1/ Domesticallyfundedinvestmentinfixedassets(2009) Employmentofruralandurbanworkers(2009) VATandotherbusinesstaxesandcharges(2009)1/ Privatesectorshare 29.6% 22.5% 22.4% 11.0% 22.1%
October26,2011
1/Thedenominatorforthesesharescoversindustrialenterprisesaboveadesignatedsize. Source:NationalBureauofStatisticsofChina.
ThetableaboveconsiderstheprivatesectorasitisdefinedbyChineseauthorities,butit excludesotherenterprisesthatalmostcertainlyarenotstateowned.Intestimonybeforethe USCC,DerekScissorsoftheHeritageFoundationcombinedprivatewithsoleforeignowned enterprisestoestimatetheprivateshareoffixedurbaninvestment.35TableIII4belowapplies asimilarapproachforoutput,totalfixedinvestment,andemployment.Theseexpanded privatesharesrangefrom20to39percent.Thesemeasuresarealsoimperfect;forexample, thereareknowntobesoleforeigninvestedfirmsthataresubsidiariesofSOEinvestedfirms incorporatedintheBritishVirginIslandsbutatleastthesemeasuresgobeyondwhattheGOC definesasprivate. TableIII4:VariousindicatorsofthesizeofChina'sprivatesector,basedonanexpanded definition,2009
Measure Grossindustrialoutput value1/ Domesticallyfunded investmentinfixedassets Employmentofruraland urbanworkers Includedindicators Privateplussoleinvestedforeign Privatesector share 38.5%
(StateownedEnterprisesinChina:TestimonyofDerekLScissors2011).
Page23
CapitalTrade,Incorporated FigureIII13:Privatesectorvalueaddedandgrossoutput,19982007/09
35% 30% 25%
Shareoftotal
October26,2011
29.6%
20% 15% 10% 5% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006
22.5%
Privateshareofgrossoutput Privateshareofvalueadded
2007
2008
2009
Source:NationalBureauofStatisticsofChina.
Page24
CapitalTrade,Incorporated
October26,2011
Inshort,theexpansionoftheprivatesectorhasbeenrobust,andintheareaofindustry,the privatesectorinChinaisapproachingthesizeofthemeasureablestatesectorinmany respects.Atthesametime,itwouldbeamistaketoviewtheseincompletedataandconclude thatthepureprivatesectoraccountsforthemajorityofChinaseconomy.TheobservableSOE sectorunderreasonableassumptionsaccountsfornearly40percentofChinaseconomy. GivenadditionalinformationontheprevalenceofSOEownershipinChinascapitalmarkets, anecdotalandobserveddataontheprevalenceofSOEownershipamongLLCsandother ownershipcategories,andtheSOEroleinroundtrippedFDI,itisreasonabletoconcludethat by2009nearlyhalfofChinaseconomicoutputcouldbeattributabletoeitherSOEs,SHEs,and othertypesofenterprisescontrolledbytheSOEsindirectly.Iftheoutputofurbancollective enterprisesandthegovernmentrunproportionofTVEsareconsidered,thebroadlydefined statesectorlikelysurpasses50percent. Thisconclusiongoesbeyondallthepublishedestimateswehavereviewed,butisconsistent withtheopinionsofknowledgeableindividualscurrentlydealingwithChineseenterprisesin policyandbusinesssettings.Thisconclusionislikelystartlinginviewofpriorestimatesthatthe privatesectorinChinaaccountsfor70percentofGDP.Butsuchadominantprivateroleis inconsistentwithsocialismwithChinesecharacteristicsasarticulatedbytheCCP.Forexample, thegovernmentrunPeoplesDailyprovidesthisdefinitionofsocialismwithChinese characteristicsasusedin17thPeoplesCongress:Onitseconomicfronts,Chinastickstoa multiownershiporientedbasicmarketeconomicsystem,withthepublicownershipinthe dominance.36ThisthinkingisalsomemorializedinChinasfiveyearplans.37Through2009,at least,thesizeofthepublicsectordovetailswiththeCCPsvision. Still,asingularfocusoncalculatingthetrueSOEshareofGDPmissestheforestforthetrees. ThegrowthoftheprivatesectorinChinahasbeenduetoreformsthatwererequiredto reinvigorateChinasruraleconomyinthe1980sandrestructurethestateownedsector thereaftertomakeitmoreefficientandlessexpensiveforthestatetomaintain.Whilethis processundeniablyhasledtoanexpansionoftheprivatesectorandanincreasedrolefor marketmechanismsinChina,thePartyandstatecontinuetomaintainsignificantcontrolover stateandnonstatesectorsalike.Thedynamicsofthiscontrol,anditseffectiveness,aremore relevantforunderstandingChinaseconomy,anditsimpactontheU.S.economy,thanisthe outputshareofChinasSOEs.
Page25
October26,2011
Thereareasofthiswriting120centralSOEs.YetChinesestatisticsindicatethatstateowned entitiesexceed100,000.38Howisthispossible?Theansweristwofold.First,centralSOEs frequentlycontainnumeroussubsidiaries.Second,subnationalgovernmentsinChinaalso directlyownSOEs,andthoseSOEsinturnhavenumeroussubsidiaries. Thissectionrespondstoquestion2oftheCommissionsRFP.TheCommissionisinterestedin differentiatingtheeconomicfootprintofSOEsbetweenthe120centralSOEsandthesub nationalSOEs,whetherthereareanybroaddistinctionsbetweenthebusinessandinvestment activitiesoftheseSOEs,andanydifferencesintheresponsivenessofnationalandsubnational SOEstocentralgovernmentplanninganddirection. AreasonableestimateofthesesubnationalSOEsisthattheyapproach100,000.Asdiscussed below,areviewoftheD&BFamilyTreeforasinglecentralSOEfound116subsidiariesinChina alone.Thisisaveryhighnumberandmayoverstatethenumberofsubsidiariesheldbyeach SOE.StillifeachcentralSOEhas100subsidiaries,thenumberofentitiesassociatedwithall centralSOEswouldtotal12,000.Thisisalongwayfromthe100,000120,000SOEsthat currentlyexistinChina.Thus,itappearsthatthevastmajorityofSOEsinChinaareownedby subnationalgovernments.Ontheotherhand,thecentralSOEstendtobemuchlarger,on average,thansubnationalSOEs. ThoughNBSstatisticsdonotprovidethenecessarydetailstopreciselyanswerthe Commissionsquestions,theydoprovideSOEdatabyurbanareaandbyindustrythatindicate thattheSOEpresencevariessignificantlybyregion.TableIV1,TableIV2,andTableIV3 presentthelevelandshareofurbanemployment,fixedassetinvestment,andtaxesinChina. Thereisawidedisparityacrossthevariousareas.Thisvariationexistsbecausesomeregions embracedmarketorientedreformsinthe1980smorequicklythanothers.Forexample,the SOEshareofemploymentandtaxationintheGuangdongandZhejiangareasarerelativelylow. ThispatternreflectstheimportantrolesplayedbyFIEsinGuangdongandtheprivatesectorin Zhejiang,respectively.Incontrast,Shanghaiisabastionofthestatesector.ManySOEshave headquartersinShanghai,andCCPleadersfromShanghaiinthepasthavebeenpredisposed towardurbancentered,SOEdevelopment.39ThisSOEfocusismanifestinrelativelyhighSOE sharesfortaxpaymentsandinvestmentsinShanghai.
38 39
(Mattlin,ChineseStateownedEnterprisesandOwnershipControl2010)9. (Huang2008)159.
Page26
CapitalTrade,Incorporated
October26,2011
AnindustryandregionalbreakdownforSOEsintheconstructionandmanufacturingindustries isshowninTableIV4.Thereweremorethan25,000oftheseSOEsin2009,20,000ofwhich operatedinmanufacturingindustries. TableIV1:SOEemploymentbyurbanarea,levelsandshares,2009 Employeesatstate SOEshareofurban ownedunits employment Thousands Percent Shandong 4,281 29% Guangdong 3,892 17% Henan 3,806 36% Heilongjiang 3,344 47% Hebei 3,288 34% Sichuan 3,288 33% Hubei 2,838 31% Liaoning 2,817 28% Jiangsu 2,788 15% Hunan 2,645 32% Shanxi 2,467 48% Shaanxi 2,439 53% Zhejiang 2,073 14% Anhui 2,021 32% Jiangxi 1,991 38% Guangxi 1,970 38% Yunnan 1,878 32% Beijing 1,857 20% Xinjiang 1,813 48% InnerMongolia 1,667 38% Jilin 1,646 36% Fujian 1,515 19% Guizhou 1,508 49% Gansu 1,472 49% Shanghai 1,418 20% Chongqing 1,198 24% Tianjin 812 26% Hainan 545 36% Qinghai 368 41% Ningxia 360 33% Tibet 197 40%
Source:NationalBureauofStatisticsofChina.
Page27
CapitalTrade,Incorporated TableIV2:SOEfixedinvestmentbyurbanarea,levelsandshares,2009 Fixedinvestmentat SOEshareofurban stateownedunits fixedinvestment BillionYuan Percent Sichuan 436 40% Guangdong 355 33% Jiangsu 338 21% Shaanxi 293 48% Shandong 288 16% InnerMongolia 283 40% Hunan 276 37% Hebei 263 22% Hubei 262 35% Liaoning 255 23% Zhejiang 255 26% Henan 246 18% Anhui 242 28% Shanghai 237 54% Shanxi 227 47% Yunnan 208 47% Fujian 207 38% Heilongjiang 206 42% Jilin 177 29% Tianjin 176 40% Chongqing 174 35% Jiangxi 171 28% Guangxi 165 33% Beijing 155 37% Gansu 126 54% Xinjiang 125 47% Guizhou 109 47% Qinghai 40 50% Ningxia 37 35% Hainan 32 37% Tibet 27 71%
Source:NationalBureauofStatisticsofChina.
October26,2011
Page28
CapitalTrade,Incorporated
October26,2011
TableIV3:TheSOEandSHEshareofvalueadded,businessandothertaxesandchargesby region,2009 SOEandSHEshareof VATandother VATandother business business taxes/charges taxes/charges BillionYuan Percent Shandong 1,000 34% Guangdong 886 34% Shanghai 765 69% Liaoning 726 54% Jiangsu 654 24% Yunnan 630 86% Hunan 548 52% Hubei 533 60% Shaanxi 515 74% Zhejiang 513 34% Henan 513 37% Heilongjiang 464 77% Hebei 451 45% Anhui 439 58% Shanxi 428 65% Jilin 425 68% Tianjin 423 69% Sichuan 408 42% Beijing 340 66% Xinjiang 327 88% Gansu 294 91% InnerMongolia 280 44% Guangxi 208 56% Fujian 205 32% Guizhou 204 73% Jiangxi 202 40% Chongqing 199 56% Ningxia 56 70% Qinghai 51 63% Hainan 19 16% Tibet 2 45%
Source:NationalBureauofStatisticsofChina.
Page29
CapitalTrade,Incorporated
October26,2011
TableIV4:NumberofindustrialSOEsandSHEsandthenumberconstructionSOEs,byregion Industrial Construction Total Numberofenterprises Shandong 1,287 434 1,721 Guangdong 1,264 410 1,674 Shanghai 1,116 147 1,263 Beijing 1,058 175 1,233 Sichuan 972 245 1,217 Liaoning 883 289 1,172 Hubei 864 306 1,170 Jiangsu 839 279 1,118 Tianjin 974 126 1,100 Hunan 823 248 1,071 Henan 804 211 1,015 Hebei 794 172 966 Anhui 729 172 901 Zhejiang 728 117 845 Shanxi 647 178 825 Shaanxi 695 128 823 Guangxi 615 144 759 Jiangxi 538 177 715 Heilongjiang 505 181 686 Chongqing 518 134 652 Yunnan 551 94 645 Guizhou 523 107 630 Fujian 532 89 621 Xinjiang 495 83 578 Gansu 452 100 552 InnerMongolia 515 17 532 Jilin 407 70 477 Qinghai 137 59 196 Ningxia 110 61 171 Hainan 102 33 135 23 56 33 Tibet TOTAL 20,510 5,009 25,519
Source:NationalBureauofStatisticsofChina.
Page30
CapitalTrade,Incorporated
October26,2011
ThesubnationalgovernmentsinChinadonotalwaysmoveinlockstepwiththeaimsofthe centralgovernment.Fromthedaysofreform,decentralizationandautonomyhelped encouragelocaldevelopmentbyprovidingincentivesforlocalmanagementwhohadthebest onthegroundinformationinordertoimproveperformanceoftheirSOEs.However,these policiesalsocausedadivergenceoflocalandcentralinterests.Localgovernmentsprotected theirprimaryrevenuesources,theSOEsundertheircontrol,throughadministrativemeasures (suchasbarrierstointerprovincialinvestmentandmergerandacquisitions)andthroughtheir controloverbanklending.Asonescholarnotes,{l}ocalgovernmentspromotedthe developmentoflocalfirmsbothwhenitwasappropriateandwhenitwasnot.40 U.S.governmentofficialshavecomeacrossthisissueintraderemedycasesandother interactionswithChina,findinginstancesinwhichlocalofficialscloselyfollowedcentral policies,andothersinwhichlocalofficialsworkedatcrosspurposeswiththecentral government.Forexample,thecentralgovernmentsindustrialpolicysupporteddevelopment ofcertainkindsofcornbasedchemicals,suchascitricacid.41Duringthe1990s,China experiencedaboomintheconstructionofcitricacidproduction,asvariousprovincialSOEsset uporexpandedproductionfacilities.42Bythetimethisboomsubsided,Chinahadenough capacitytosupplytwothirdsoftheglobalmarketforcitricacid.43Chinesecitricacidflooded worldmarketsatlowprices,andseveralnonChineseforeignfirmssubsequentlyceased productionofcitricacid.44Thecentralgovernmentbegantomodifyitspoliciesduringthe 2000sundertheauspicesofenvironmentalreforms,butcapacitycontinuedtoexpandonanet basis,45reflectinglocalprerogatives. Localgovernmentstendtoopposethecenterwhenthecentralgovernment,uponfindingits policieswerealltoosuccessful,reversescourseandcallsforconsolidationandcapacity reductions.Insuchcases,localgovernmentsarepronetoresistthecentralgovernments prescriptions,orfollowpolicesthatpreservelocalcapacityasmuchaspossible.Thisisanall toofamiliaroccurrenceinChina.AccordingtooneU.S.officialknowledgeableofthesituation inChina,thisdynamicisplayingoutincertainsegmentsofChinaspowersector.46Local officials,SOEs,andlocalbankbranchesalsoconspiretomodifylocalSOEfinancialstatements tomeetlendingrequirementsemanatingfromBeijing.
40 41
Page31
CapitalTrade,Incorporated
October26,2011
Thesteelindustryprovidesatellingrecentexampleoflocalofficialsinteractionswithcentral governmentpolicyguidance.Thecentralgovernmentconsiderssteelapillarindustry.Current policyaimstorationalizethesteelindustryandproducenationalchampionswithhigher levelsofcapacityand,intheory,greaterresponsivenesstothecentralgovernmentseffortsto reducevariousemissions.Asnotedbelow,therearecurrentlythreecentralSOEsamongthe worldstopsteelproducers.Butasidefromthesegiants,productionofsteelinChinaisquite dispersedandareasofChinawithmanysteelenterprisesalsoconsiderthesteelindustrytobe ofspecialimportance.Baosteel,oneofthethreesteelmakerscurrentlyownedbythecentral SASAC,hasexploredmergerswithanumberofSOEsownedbysubnationalSASACs,buthas frequentlymetwithresistance.47In2009,thegovernmentofHebeiprovinceanditsSASAC pursuedamajorconsolidationofSOEsintheregionthatsuddenlyvaultedtheresulting producer,HebeiIronandSteel,tobeamongtheworldstopproducers.48Sincethat consolidation,thenewlyenlargedfirmhastakenownershipstakesinadozenprivatelocalsteel producers.49Theseactionsareconsistentwiththecentralgovernmentsconsolidationaimsbut theyalsoaregearedtowardexpandingtheprofileofthelocalSOEandpreventing encroachmentbyBaosteel. Theautonomyexhibitedbysubnationalofficialsisextremelyimportantbecauseinmost instances,itisthelocalofficialswhoapprovethevastmajorityofinvestmentsinChina.50 FigureIV1containsCSYdataoninvestmentinfixedassetsmanagedbylocalgovernments. Localgovernmentsareresponsibleforundertaking,throughSOEs,oroverseeingand permitting,95percentoffixedinvestmentsinmanufacturingindustriesandamajorityof investmentinmostotherindustries.Notably,thelowerlocalsharestendtoparallelthe strategicindustriesthatwillbediscussedbelow.
Page32
CapitalTrade,Incorporated
October26,2011
FigureIV1:Fixedinvestmentbyindustryandsharemanagedbylocalgovernment,2009
Billionyuan/percent
Manufacturing RealEstate Transport,StorageandPost Mgmt.ofWaterConservancy,Env.&PublicFacilities ProductionandSupplyofElectricity,GasandWater Mining WholesaleandRetailTrades PublicManagementandSocialOrganization Agriculture,Forestry,AnimalHusbandryandFishery Education InformationTrans.,ComputerServices&Software HotelsandCateringServices Culture,SportsandEntertainment LeasingandBusinessServices Health,SocialSecurityandSocialWelfare Construction ScientificRsch.,TechnicalSrvc.&GeologicProspecting ServicestoHouseholdsandOtherServices FinancialIntermediation
5,871/95% 4,313/98% 2,327/71% 1,788/98% 1,355/66% 817/68% 449/99% 403/97% 336/99% 324/95% 254/48% 233/98% 213/97% 188/98% 170/96% 157/92% 108/78% 52/99% 35/77%
Source:NationalBureauofStatisticsofChina.
Page33
CapitalTrade,Incorporated
October26,2011
industries,andequipmentmanufacturing,auto,informationtechnology,construction,ironand steel,nonferrousmetals,chemicals,andsurveyinganddesigntobepillarindustries.53The statewouldmaintainsoleownershiporabsolutecontroloverthestrategicindustriesanda strongcontrolpositionoverthepillarindustries.54 TheCommissionrequestedmarketshareinformationforstrategicandheavyweightSOEsby sector.ThereisnosinglesourceofdataonSOEmarketsharesbysectorforcentralorlocal SOEsthatpreciselyalignswithallthestrategicandpillarindustriesidentifiedbySASAC.Asan alternative,thisstudyprovidesrevenueshares.55Revenuewasgenerallyobtainedfrom auditingreportsandfinancialstatementsofkeySOEsavailableontheirChinesewebsites.In mostcases,thedatacover2010,thoughinsomecasesearlierdatawererequired.Therevenue sharesareaugmentedbyreferringtoCSYdataonfixedassetsandotherinformationfromNBS orindustryassociationsobtainedfromdataproviderHaverAnalytics.Thissectionalso considersthebankingsector,whichwasnotincludedinSASACspronouncement.
A. Strategicindustries
(China'sIndustrialPolicyandItsImpactonU.S.Companies,Workers,andtheAmericanEconomy:Testimonyof TerrenceP.Stewart2009). 54 Absolutecontrolisgenerallyunderstoodtobemajorityownershipwhilestrongcontrolreflectsanownership shareof30to50percent.See(China'sIndustrialPolicyandItsImpactonU.S.Companies,Workers,andthe AmericanEconomy:TestimonyofTerrenceP.Stewart2009). 55 BecausetheCSYpublishedbyNBScontaineddatathrough2009atthetimeofthiswriting,yeartodatadata publishedbyNBSorindustryassociationsinChinawereusedfor2010.Insomecases,YTDdataforDecember werenotyetpublished.Inthosecases,percentchangesofYTDfiguresfrom2009to2010throughNovember wereusedtoestimatefullyearrevenues. 56 (GuidingOpiniononPromotingtheAdjustmentofStateOwnedCapitalandtheReorganizationofStateOwned Enterprises2006). 57 Oneareawhereofficialinformationislackingisinthearmamentsindustry.Thereisinformationaboutthe revenuesofindividualSOEsbuttheNBSdoesnotpublishanydataforthearmamentsindustry.However,given theimportanceofthisindustrytoChinasnationalsecurity,onecanassumethatthatthestatesshareinthis sectorislikelyveryhigh.
53
Page34
CapitalTrade,Incorporated
TableV1:RevenuesofkeydefenseorientedSOEs,2010
SalesRevenue Bil.RMB 210 200 143 90 90 84 817
October26,2011
Sources:Financialstatementsand/orauditingreportsofnamedSOEs.
Page35
CapitalTrade,Incorporated
October26,2011
TableV3:TopSOEshareofrevenuesinChinasairtransportationsector,2009
Salesrevenue Bil.RMB 57 52 42 3 2 156 49 205 Shareof revenue 27.7% 25.4% 20.6% 1.5% 1.0% 76.2% 23.8% 100.0%
Sources:Financialstatementsand/orauditingreportsofnamedSOEs;andChinaMinistryofCommunicationsvia HaverAnalytics.
StateGridCorporationofChina ChinaSouthernPowerGridCorporation ChinaHuanengGroup ChinaDatangCorporation ChinaGuodianGroup ChinaHuadianCorporation ChinaPowerInvestmentCorporation SinohydroCorporation TopSOEsubtotal OtherSCE(est.) TotalSCE(est.) Others TotalIndustry(est.)
Sources:Financialstatementsand/orauditingreportsofnamedSOEs;andNationalBureauofStatisticsviaHaver Analytics.
Page36
CapitalTrade,Incorporated
October26,2011
fixedinvestmentarebroadlyconsistentwiththesecalculations,withthestateaccountingfor 78percentoffixedassetinvestmentin2009.
TableV5:TopSOEshareofrevenuesinChinaspetroleumandpetrochemicalindustry,2010
Salesrevenue Bil.RMB 1,913 1,721 355 61 4,050 2,794 6,844 2,087 8,931 Shareof Revenue 21.4% 19.3% 4.0% 0.7% 45.3% 31.3% 76.6% 23.4% 100.0%
Source:Financialstatementsand/orauditingreportsofnamedSOEs;NationalBureauofStatistics;andChina PetroleumandChemicalIndustryAssociationviaHaverAnalytics.
1/SinotransandCSCmergedin2009. Sources:Financialstatementsand/orauditingreportsofnamedSOEs;andDatamonitor.
Page37
CapitalTrade,Incorporated
October26,2011
TableV7:TopSOEshareofrevenuesinChinastelecomservicesindustry,2010
Salesrevenue Bil.RMB 485 260 177 922 36 958 Shareof revenue 50.6% 27.1% 18.5% 96.2% 3.8% 100.0%
Sources:Financialstatementsand/orauditingreportsofnamedSOEs;andNationalBureauofStatistics.
AccordingtotheDecember5,2006SASACGuidingOpinion,thestatemustmaintaina controllingstakeinkeyenterprisesinthisindustrygrouping.However,thestatemaytakea minorityshare,ornoshareatall,insomefirms.58Thismakestheassessmentofpillarindustry marketshareslessstraightforwardwhencomparedtostrategicindustries. Theidentifiedsectors,suchasmachineryandequipment,arelesspreciselydefinedthanthe strategicsectorsandcanoverlap.Forexample,themachineryandequipmentindustryalso includesautomobiles,whichisseparatelyenumeratedasapillarindustry.Thereare,frankly, alsomachineryindustriesthataregenerallynotconsideredstrategicorpillar,suchasthe generalmachinerybasiccomponentsandfoodprocessingandpackagingmachinery industries,twoofthesubsectorsenumeratedbytheChinaMachineryIndustryFederation. Partofthisconfusionisthattheinclusionofpillarindustriesappearstohavebeenadhoc.59 Ingeneral,thestatesroleinpillarindustriesisnotablysmallerthanitsroleinstrategic industries,astheSASACdirectivedictates.Theautomotive,steel,andrailwaysectorsare notableexceptions.ThetopSOEsaccountedforapproximatelythreequartersofChinas automotiveproductionin2010accordingtodatafromtheChinaAssociationofAutomobile Manufacturers.PrivatelyownedfirmsandimportsalsocompeteintheChinesevehiclemarket,
(GuidingOpiniononPromotingtheAdjustmentofStateOwnedCapitalandtheReorganizationofStateOwned Enterprises2006). 59 (StateownedEnterprisesinChina:TestimonyofBarryNaughton2011).
58
Page38
CapitalTrade,Incorporated
October26,2011
buttheshareofimportedvehiclesisbelievedtoaccountforlessthanfivepercentofChinese demand.60
TableV8:TopSOEmarketshareinChinasautomobileindustry,2010
ShanghaiAutoIndustryGroup DongfengAutomobileCo.,Ltd ChinaFAWGroupCorporation ChanganAutomobile(Group)Co.Ltd BeijingAutoIndustryGroup GuangzhouAutoIndustryGroup TopSOEsubtotal Others Totalmarket Mil.units 3.6 2.6 2.6 2.4 1.5 0.7 13.4 4.7 18.0 Marketshare 19.7% 14.7% 14.2% 13.2% 8.3% 4.0% 74.0% 26.0% 100.0%
Source:ChinaAssociationofAutomobileManufacturersviaHaverAnalytics.
1/EstimatedHebeihasbeengrowingduetorestructuring,mergers,andacquisitions. Source:WorldSteelAssociation.
60
(Chinatopromoteautoimportsinnextfiveyears:official2010).
Page39
CapitalTrade,Incorporated
October26,2011
Source:Financialstatementsand/orauditingreportsofnamedSOEs;andNationalBureauofStatisticsviaHaver Analytics.
61
(Lim2011).
Page40
CapitalTrade,Incorporated
October26,2011
TableV11:TopSOErevenuesharesinChinasnonferrousmetalsindustry,2010
Revenue Bil.RMB 254 195 51 45 22 567 2,343 2,910 Shareof revenue 8.7% 6.7% 1.8% 1.6% 0.8% 19.5% 80.5% 100.0%
Sources:Financialstatementsand/orauditingreportsofnamedSOEs;andChinaNonFerrousMetalIndustry Association.
Intheoverallmachineryandequipmentsector,62thevisibleroleofthestateisrelativelysmall incomparisonwithotherstrategicandpillarindustries.BasedonCSY,thestateshareofgross outputinthevariousmachineryindustrieswasacombined21percentin2009.Butabsentthe transportsector,wherethestatessharewas46percent,thesharewasmuchlower,ranging fromnineto24percent.Urbaninvestmentdataaregenerallyconsistentwiththispicture.In 2009,stateownedandcontrolledentitiesaccountedfor17percentofurbaninvestmentin fixedassets,thoughfortransportequipmentthestatessharewas30percent.Someofthe majorSOEsinthissector(excludingautomakers)andtheirrevenuedataareshowninthetable below.Clearly,therearesomelargestateownedequipmentproducersinChina,most prominentlyintherailwaysector.
Page41
CapitalTrade,Incorporated
October26,2011
TableV12:TopSOErevenuesinthemachineryandequipmentindustries,2010
Revenue Bil.RMB ChinaRailwayEngineeringGroupCorporation ChinaRailwayConstructionCorporationGroup ChinaNationalMachineryIndustryCorporation ChinaRailwayMaterialsCommercialCorporation ShanghaiElectricGroupCo.Ltd ChinaSouthernLocomotive&RollingStockIndustry(Group)Corporation DongfangElectricCorporation ChinaNorthernLocomotive&RollingStockIndustry(Group)Corporation HarbinElectricCorporation ChinaHitechGroupCorporation ChinaXDGroup ChinaFirstHeavyIndustriesGroupCorporation ChinaRailwaySignal&CommunicationCorporationGroup ChinaNationalErzhongGroupCo. TopSOErevenue
Sources:Financialstatementsand/orauditingreportsofnamedSOEs.
TheinformationtechnologysectorinChinaisnotspecifiedinChinesestatistics,butisgenerally consideredtoincludebothhightechnologygoods,aswellasservices.Thetablebelow presentsdataonSOEsintheinformationtechnologyindustry,aswellasSOEsthatarefocused onscienceandtechnology.Muchinformationtechnologyproductionoccurswithinthe electronicsindustry,whichincludescommunicationequipment,computersandother electronicequipment.InformationinCSYindicatesthatthestatesroleinthissectorisnotvery large.Forexample,SOEsandSHEsaccountedforonlyninepercentofgrossoutputand11 percentoffixedinvestmentinthisindustrysegmentduring2009. However,thefirmHuaweiisamajorplayerinthissector,bothinsideandoutsideofChina. Huaweiclaimstobeaprivatefirm,butobservershavelongbelievedthefirmtohavemilitary ties.63Expertsbelievethatthefirmis,ataminimum,dominatedbythestateoraprivately ownedfirmthatbehaveslikeastateownedone.64Eitherway,itiswellknownthatthefirmis receivingsignificantlevelsofassistancefromtheChinesegovernmenttopenetrate internationalmarketsinrecentyears.65ThefirmisalsobelievedtohaveadvancedChinese foreignpolicyinterestsinIraq,Iran,andAfghanistan.66ThecaseofHuaweivividlyillustrates
(Hille2011). See(StateownedEnterprisesinChina:TestimonyofDerekLScissors2011)and(StateownedEnterprisesin China:TestimonyofBarryNaughton2011),respectively. 65 (Raice2010). 66 (Kyl,etal.2011).
64 63
Page42
CapitalTrade,Incorporated
October26,2011
thatthestatesownershipsharealonedoesnotalwaysdictatetheextenttowhichafirmin Chinaissensitivetothestatespolicydirectives.
TableV13:TopSOErevenuesintheinformationtechnologyandscienceandtechnology fields,2010
Revenue Bil.RMB ChinaElectronicsCorporation LegendHoldingsLimited ChinaGeneralTechnology(Group)Holding,Limited HisenseCorporation FounderGroup PotevioCorporation ChinaEnergyConservationandEnvironmentalProtectionGroup ChinaInternationalIntellectechCorporation IRICOCorporationGroup ChinaNationalBiotechGroup ChinaHualuGroupCo.Ltd TopSOEtotal
Sources:Financialstatementsand/orauditingreportsofnamedSOEs.
(Deng,etal.2011)23.
Page43
CapitalTrade,Incorporated
October26,2011
Assets Tril.RMB 6.95 39.04 12.59 58.58 16.36 2.70 1.55 1.35 21.96 80.53
Share 8.6% 48.5% 15.6% 72.7% 20.3% 3.4% 1.9% 1.7% 27.3% 100.0%
VI.
StatesupportforSOEs:evidencefromU.S.regulatoryfilings
NumerousfirmscontrolledbySOEsraisemoneyoninternationalcapitalmarkets.Firmsthat listonstockexchangeshavespecificreportingrequirements,andsubmissionstomarket authoritiestypicallycontaininformationaboutthecontrollingshareholders,grantsreceived fromthegovernment,officialcapitalinjections,amountsborrowedfromstateownedbanks, financialguaranteesreceivedandoffered,preferentialtaxrates,etc.Otherstudieshaveused suchdatafromtheHongKongStockExchangetoassessthebenefitsreceivedbythelisted subsidiariesofSOEs.69 ThissectionrespondstotheseventhquestionposedintheCommissionsRFP,whichrequests informationonthesupportprovidedbytheChinesegovernmenttoSOEsbasedonananalysis ofU.S.publicdisclosureforms. AreviewofdocumentssubmittedtotheU.S.SecuritiesandExchangeCommission(SEC) confirmsthatSOEownedfirmsthatraisecapitalininternationalcapitalmarketscontinueto benefitfromanumberofsubsidiesandotherformsofpreferentialtreatment.Foreignowned
(Deng,etal.2011)24. (Szamosszegi,AndersonandKyle,AnAssessmentofChinasSubsidiestoStrategicandHeavyweightIndustries 2009)3384.
69 68
Page44
CapitalTrade,Incorporated
October26,2011
Sources:Form20F(2010)forthelistedU.S.entities.
TheChinesegovernmenthaslongusedlowertaxratestorewardfirmsforundertaking investments,procuringgoodsandservices,andperformingotheractivitiesthatmarket incentivesalonewouldnotsupport.Foranumberofyears,theGOCencouragedinward investmentsbyforeigncompanieswithfavorabletaxrates.70Thegovernmentalsoapplied favorabletaxratestoencourageinvestmentsincertainregionsofChina.Asof2008,tax reforms,inpartmotivatedbyfilingsattheWTO,createdaunifiedcorporateincometaxrateof 25percentinChina.ManySOEsandsubsidiarieswerebeneficiariesofpreferentialtaxrates, andareviewoftheSECfilingsofthefivefirmsaboveindicatesthattheycontinuedtobenefit fromthesetaxpreferencesin2010,thoughthebenefitisbeingphasedout.Chalcosbalance sheet,forexample,indicatesthatthefirmsavedRMB37millionin2010.71In2008,Chalcoalso benefittedfromaRMB92.4milliontaxcreditforpurchasingcertaindomesticequipment, thoughthisprogramwasdiscontinuedinresponsetoaWTOinvestigationintoChinastax regime.72TaxsavingsforSinopecCorp.andChinaTelecomin2010wereRMB1.5billionand RMB47million,respectively.73
Page45
CapitalTrade,Incorporated
October26,2011
AnotherformofbenefitconferreduponSOEsubsidiariesisthedirecttransferoffundsthrough grantsorcapitalinjections.74Governmentgrants,typicallytreatedasotherrevenueinthe incomestatements,arenotalwayslarge.OneexceptionisSinopecCorp,whichreceiveda subsidyofRMB50.9billionin2008tocoverlossescausedbytheGOCspricecontrolsonfuels, whichpreventedSinopecfromraisingretailpricestoreflectrisingglobalcrudeoilprices.75 Althoughthisistechnicallyagrant,thissubsidywasthedirectresultoftheGovernments decisiontokeepdomesticfuelpricesfromincreasinginlockstepwithglobalprices.Amuch largerinflowwasreceivedbyChinaSouthern,thoughintheformofacapitalinjectionbyits SOEparent.ChinaSouthern,aswellasChinaEastern,hasbeenincreasingdebtaspartofits rapidexpansion.Debtlevelswereexacerbatedbythefinancialcrisisandsubsequentglobal (thoughnotChinese)recession.Inearly2010,ChinaSouthernannouncedthatitwasgoingto receivea$1.5billioncapitalinjectionfromitsparentSOE,theChinaSouthernAirlinesHolding Corporation.76AccordingtoChinaSoutherns20Fform,thetransactionstookplaceduringthe autumnof2010,withsharepurchasesmadebytheSOEparentandbyanotherfullyowned subsidiaryoftheSOEparent.77 TheSECsubmissionspointtoseveralotherwaysinwhichtheGOCassistsSOEsandtheir subsidiaries.Forexample,theGOClimitscompetitiontofavornationalchampions.Thisis mostclearlyevidentinthe20FformsofChinaTelecomandSinopecCorporation.China Telecomnotesthatalthoughforeignoperatorshavegraduallyincreasedtheirinvestmentssince ChinasWTOaccession,theirinvestmentsarelegallylimited,includinga49percentlimitation onforeignownershipinbasictelecommunications.78Sinopecs20Findicatesthatdecisions aboutlicensingofpetroleumexplorationandproductioninChinaaremadebytheStateCouncil itself,andthatonlyfourcompaniesinChina,includingSinopecandCNOOC,havesuch licenses.79 ThegovernmentalsoprovidescertainSOEswithpreferentialaccesstoproductioninputsand capital.ChalcoclaimsthattheGOCiscurrentlypushingapolicythatfavorslargesmeltersover smallerones,whichbenefitsChalcobygrantingpreferentialtreatment,includingpriorityin theallocationofrawmaterialsandelectricitysupplies.80Chalcobelievesthatthese preferenceswillhelpittocompetewithforeignproducersthatmayexporttoChinaorinvestin Chinabypartneringwithotherdomesticproducers.Chalcoacknowledgesthatthegovernment
TheSOEsthemselvesarepartofthegovernment,soinformationaboutthetransferstheyreceiveisnotreadily available. 75 (ChinaPetroelum&ChemicalCorporation2011)37. 76 (ChinaSouthernAirlineslikelytoreceive1.5blnyuancapitalinjection2010). 77 (ChinaSouthernAirlineCorporationLimited2011)10. 78 (ChinaTelecomCorporationLimited2011)27. 79 (ChinaPetroelum&ChemicalCorporation2011)26. 80 (AluminumCorporationofChinaLimited2011)34.
74
Page46
CapitalTrade,Incorporated
October26,2011
hasbeenprovidingaluminumproducerswithaccesstocheapelectricity,butnotesthatthese pricepreferencesarebeingeliminated.81Toreplacethesepricebenefits,theGOChasselected certaindomesticproducers,includingChalco,topurchasedirectlyfromelectricityproducersat reducedprices. TheSECsubmissionsalsoconfirmtheroleplayedbystateownedbanksandtheSOEparentsin providingaccesstolowcostcapital.AccordingtotheChinaInformationCenter,theaverageof monthlyprimelendingratesinChinafromDecember2009toDecember2010was5.36 percent.Sinopecsweightedaverageinterestrateonshorttermloans(i.e.,loanswithduration ofoneyearorless)was2.7percentin2010.82ChinaSouthern,afirmwithdebtlevelshigh enoughtowarrantapremiumovertheprimerate,reportedaneffectiveinterestrateof1.13to 1.97percentin2010.83Thoughnotmentionedinits20Fin2010,ChinaSouthernhasacredit linewiththegovernmentownedAgriculturalBankofChina.84ChinaTelecomLimitedobtains nearlyallofitsRMB20.7billionshorttermborrowingsin2010fromstatecontrolledbanksor fromitsstatecontrolledparent.ChinaTelecomsshorttermborrowingratesfromstate controlledbanksrangedfrom3.5percentto5.8percent,whiletheborrowingratefromitsSOE parentwasaslowas3.9percent.85CNOOCsweightedaverageinterestratefor2010was3.4 percent.86 AnotherpointthatstandsoutfromanexaminationofSECsubmissionsisthatSOEsubsidiaries frequentlymakesignificantpurchasesfrom,andsalesto,relatedentities.Thisvariesby industry,buttendstobelargerintheenergysectorandinverticallyintegratedoperations, suchasChalco.Forinstance,12percentofSinopecCorp.ssalesand7percentofitspurchases in2010involvedrelatedparties.87 So,althoughthesubsidiariesofChineseSOEsraisecapitalintheUnitedStatesandother marketeconomycapitalmarkets,thosesamecompaniescontinuetoreceivesupportfromthe GOC.TheofficialsubmissionsdocontainsomeevidencethatChinasgovernmentisreducing distortionsincertainareas(e.g.,electricitypricestothealuminumsector),butthe overwhelmingimpressiononegetsfromreviewingthesedocumentsisthatthesefirms continuetobenefitfromsubsidiesandotherpreferences,andthatcontroloftheseenterprises continuestorestwiththestate.Inotherwords,whiletheactofraisingcapitalinstockmarkets inChinaandbeyondisadramaticbreakfromChinascommunistpast,controlofthese
81 82
Page47
CapitalTrade,Incorporated
October26,2011
InGoodCapitalism,BadCapitalism,Baumol,Litan,andSchrammdescribefourtypesof capitalism,whichtheyrefertoasthefourfacesofcapitalism:stateguidedcapitalism, oligarchiccapitalism,bigfirmcapitalism,andentrepreneurialcapitalism.88Inthe1980s,the Chinesecountrysidewasanexampleofentrepreneurialcapitalism.89Today,withitspresent mixofstatecontrolledandprivateenterprisesandovertgovernmentguidance,Chinais arguablymostsimilartostateguidedcapitalism,inwhichthegovernmenttriestoguidethe marketmostoftenbysupportingparticularindustriesthatitexpectstobecomewinners.90 Traditionally,bankfinancinghasplayedamajorroleinsucheconomies(e.g.,inJapanand Korea)andthatremainsthecasewithChinatoday.AselaboratedinTableV14,stateowned andcontrolledbanksremainthedominantforceinChina. ThissectionrespondstotheeighthquestionposedbytheCommissionbyanalyzingthe relationshipbetweenthestateownedbanksandChinasSOEs,andwhetherprivateenterprises facedisadvantageswhentryingtoobtainloans.
A. Regulatoryandlegalframework
Page48
CapitalTrade,Incorporated
October26,2011
ChinaInvestment Corporation
CBRC
Ministryof Finance
CentralHuijin InvestmentLtd.
SOE Banks
LocalBranches
LocalSASAC
SourcesBasedonDeng,MorckandWu;andMartin.
BankmanagementmustberesponsivetotheMinistryofFinance,whichtendstovalue institutionalperformance,andtheCCP,whichvaluesobediencetotheneedsofthestate. UltimatelyitistheOrganizationDepartmentoftheCCPthatdeterminesthecareerpathofthe corebankexecutives.93 Thebankingsectorhasbeenthesubjectofreformsincethelate1970s.Until1979,the PeoplesBankofChina(PBOC)functionedasChinassolebank,dispersingfundstoSOEssolely onthebasisofgovernmentplansanddirectives.94Followingtheinitiationofmarketreformsin 1979,thegovernmentseparatedfourofPBOCsdivisionsandsetupfourcommercialbanks: theBankofChina(BOC),theChinaConstructionBank(CCB),theAgriculturalBankofChina (ABC),andtheIndustrialandCommercialBankofChina(ICBC),(collectively,theBigFour).In theearly1980s,thegovernmentformallyestablishedatwotieredcommercialbankingsystem, withthePBOCasthecentralbankandtheBigFourascommercialbanks.
93 94
(Deng,etal.2011)2223. (Barth2004)78.
Page49
CapitalTrade,Incorporated
October26,2011
Asaresultofcountrywideeconomicreformsandgovernmentbudgetaryconsiderations,SOEs becameincreasinglyreliantonbankloanstofinancetheiroperationalandinvestmentneeds. Asbanklendinggrew,theBigFourenjoyedsignificantdominanceintermsofbothdepositsand assets.95Atthesametime,however,neithertheBigFournorSOEsoperatedonatruly commercialbasis.96 Theseproblemspromptedanewroundofbankingreformsin1994.Thegovernmentcreated threepolicybanks,theStateDevelopmentBank,theAgriculturalDevelopmentBank,andthe ImportExportBank,toseparatepolicylendingfromthecommerciallendingfunctionsoftheBig Four.97Atthesametime,theBigFourwereencouragedtolendstrictlyonacommercialbasis. The1995CommercialBankLawformalizedthe1994governmentpolicytomakethebanking systemmoremarketbased,andthe1996GeneralRulesonLendingreinforcedtheCommercial BankLawobjectiveofmakingbankslendstrictlyonacommercialbasis. Attheendof1997,thegovernmenttookanumberofstepstoincreasethecommercial orientationofitsbanks.Despitetheseefforts,creditcontinuedtobeallocatedonanon commercialbasis.Nonperformingloans(NPLs)accumulated,andtheBigFouressentially becameinsolvent.Asaresult,in1998,thegovernmentinjected$33billionintotheBigFour, andin19992000,fourstateownedassetmanagementcompanies(AMCs)purchased$169 billioninNPLsatfacevalue.98Thegovernmentbegananotherwaveofbailoutsin20032004 whenitinjected$22.5billionintoCCBandBOCandsoldoff$33billionoftheirNPLstoAMCs. In2005,thegovernmentinjected$15billionintoICBCandsoldoffanother$85.5billionofbank debt.99 Today,fivebasiclawsgovernthebankingsectorinChina:the1995CommercialBankLaw,the 1995LawonPBOC,the2002ForeignFundedFinancialInstitutionsRegulations(FFIs),the2002 ProceduresfortheAdministrationofRepresentativeOfficesofFFIs,andthe1996GeneralRules onLending.100 The1995CommercialBankLaw,whichintroducedprudentregulationstandards,definesa commercialbankasanautonomousentitywithlegalpersonstatusthatissufficiently capitalizedtoengageinbankingservices.101Underthislaw,commercialbanksareresponsible fortheirownprofitsandlosses,mustprotecttheinterestsoftheirdepositors,andare
95 96
Page50
CapitalTrade,Incorporated
October26,2011
Chinahasthehighestlevelofstateownershipofbanksofanymajoreconomyintheworld.102 Thesectorsassetsareextremelylargerelativetothesizeoftheeconomy.103Asof2008,the BigFourwereamongtheworldslargestbanksintermsofassets.104Accordingto2009figures, theyrepresentedapproximately50percentoftheformalsectorsassetsanddeposits.105As notedabove,foreignbanksaccountforonlyabouttwopercentoftotalassets.106Because Chinasequityandbondmarketsremainunderdeveloped,107theBigFourcarryoutthemajority offinancialintermediationandplayacriticalroleintheallocationofresources. Despitechangesinthelegalframeworkostensiblyaimedatpushingthestateowned commercialbanks(SOCB)towardmorecommerciallyorientedlendingpatterns,theycontinue tofavorstateownedfirms.ThispreferenceforSOEshaspersisteddespitegenerallylowlevels ofprofitabilityandmorerapidgrowthinothersegmentsoftheChineseeconomy.108Asone commentatornotes,Chinasbankingsectorhasfallenshortinitstaskofallocatingcreditto themostproductiveplayersintheeconomy.109 Anumberofobserversattributethispatterntocontinuedgovernmentinterventioninbank operations,particularlybylocalgovernments.110Chinaslargebankshavethousandsofbranch offices.111Traditionally,localgovernmentshaveutilizedSOCBbranchofficesasthemain sourceofcapitaltofundinvestmentprojectsandsupportlocalSOEs,whichinturnprovided
(McKinseyGlobalInstitute2006)35. (EconomicSurveyofChina2005)139.ThisisinpartanoutcomeofChinascapitalcontrolsandChinashigh savingsrate.(China'sGrowthandIntegrationintotheWorldEconomy,ProspectsandChallenges2004)44;(China andtheWTO2003)182;(McKinseyGlobalInstitute2006)27. 104 (WalterandHowe2011)42. 105 (EconomicSurveyofChina2005)139;andTableV14. 106 (EconomicSurveyofChina2005)139,151andTableV14. 107 (McKinseyGlobalInstitute2006)29. 108 (EconomicSurveyofChina2005)19and40. 109 (McKinseyGlobalInstitute2006)9. 110 See,forexample,(Tsai,BackAlleyBanking:PrivateEntrepreneursinChina2002)8.{A}uthoritiespressure bankstosubsidizepoliticallyimportantenterprises. 111 (ProgressinChina'sBankingSectorReforms:HasBankBehaviorChanged?2006)35.
103 102
Page51
CapitalTrade,Incorporated
October26,2011
AccesstoborrowedfundsatfavorableinterestratesAsdemonstratedaboveabovein sectionVI,centrallyownedSOEsinstrategicindustriesborrowfromstateownedbanks atbelowmarketrates.SincetheU.S.DepartmentofCommercehasbeguninvestigating Chinesesubsidies,preferentialloansfrequentlyhavebeenfoundtoconferafinancial contributionintheformoflowinterestratestoChineseenterprisesoperatingin favoredindustries.114 DebtforgivenessTheSOCBshaveforgivendebtstoSOEsunabletopaytheirloans.115 Thestatebanksimplywritesofftheloansorcontinuouslyrollsovertheprincipal.In somecases,theloansaresimplyforgotten. LoanstouncreditworthyenterprisesThenortheasternrevitalizationprogramwas meanttoenhancethecompetitivenessofailingSOEs,whichdominateindustryinthe region.116Inadditiontootherbenefits,firmsintheregionhaveenjoyeda disproportionateshareofaccesstofinancialresources,despitehavingthehighestshare ofNPLsinthenation.
C. Lessfavorableaccessfortheprivatesector
Page52
CapitalTrade,Incorporated
October26,2011
CommunistPartyandtheirfamilies.118AsaresultofthebiastowardSOEsinbanklending,the privatesectorreceivedarelativelysmallshareofcreditfromtheformalfinancialsectorin Chinaandcametorelyonprivatefinancingmechanismsresidingbeyondthescopeof permissibleeconomicactivity.119 TheironyofthissituationisthattheprivatesectorinChinahasbeenmoreproductivethanthe stateownedsectorandhasbeengrowingmorerapidly.Forexample,privateenterprisesare morethantwiceasproductiveaswhollyownedSOEs.Indeed,productivityincreaseswitheach formofownershipthatmovesprogressivelyawayfromdirectstateownership.120Private companies,whetherforeignowned,domesticowned,orjointventures,havegrownfasterthan SOEs(andGDP)inthelasttenyearsbutaccountforadisproportionatelylowshareof outstandingloans.121AnOECDstudynotedthattotalfactorproductivityofprivatelycontrolled enterprisesisapproximatelytwicethatofSOEs.122Nevertheless,whollyandpartiallyowned SOEscontinuetoreceiveadisproportionalshareofcredit.123
D. Neartermprospects
(Tsai,BackAlleyBanking:PrivateEntrepreneursinChina2002)131. (Tsai,BackAlleyBanking:PrivateEntrepreneursinChina2002)10. 120 (McKinseyGlobalInstitute2006)61;(EconomicSurveyofChina2005).Corporatizedenterpriseswithmajority stateownershipare46percentmoreproductivethanwhollystateownedenterprises;corporatizedenterprises withminoritystateownershipare70percentmoreproductive;and,collectiveenterprisesarenearlyasproductive asprivateenterprises. 121 (McKinseyGlobalInstitute2006)11.Incontrast,accordingtooneestimate,SOEswhollyownedbythe governmentaccountfor23percentofGDPbut35percentofcorporateloansoutstanding,corporatizedSOEs accountfor19percentofGDPbut27percentofloans,andcollectiveenterprisesaccountfor6percentofGDPbut 11percentofloans. 122 (EconomicSurveyofChina2005)86. 123 (McKinseyGlobalInstitute2006)11;(ChinaintheGlobalEconomy:GovernanceinChina2005)140. 124 (AGreatBigBankingGamble:China'sBankingIndustry2005). 125 (ProgressinChina'sBankingSectorReforms:HasBankBehaviorChanged?2006)4,13,and18.Thestudyfound thatloanpricingremainedundifferentiated,despiteliberalizationoflendingcaps,thatmostnewloanswere grantedatorbelowthegovernmentsetbenchmarkinterestedrate,andthatlendingfailedtotakeintoaccount enterpriseprofitability.
119 118
Page53
CapitalTrade,Incorporated
October26,2011
made,itcouldnotidentifytheindustryoftheborrower,thetypeofcollateralposted,oreven whomadethelendingdecision.126 Thegovernmenthasnointentionofreleasingthebanksfromitscontrol.TheCBRChas affirmativelystatedthatthegovernmentwillmaintainamajorityinterestintheBigFourforat leastthenextdecade.127In2006,whenCitigroupattemptedtoacquiremajorityinterestin failingGuangdongDevelopmentBank,thegovernmentinitiallyconsideredallowingthe transactionsbutlaterbacktrackedandreiterateditsnegativestanceonforeigninvestmentin evensmallandmediumsizedbanks.128 Giventhispolicyenvironment,itisnotsurprisingthatmarketreformshaveprogressedslowly inChinasbankingsector.WhileprofitabilityoftheSOCBsisincreasingandNPLshavebeen falling,129theseimprovementsdonotnecessarilyreflectafundamentalreorientationofbank operationsbutratheraretoagreatextentattributabletotransfersofbadassetstoAMCs,loan growth,recapitalization,writeoffs,andChinasstrongeconomy. EvidencestronglysuggeststhatbanksremainlittlemorethanbasicutilitiesthattheCCPusesto provideunlimitedcapitaltothecherishedstateownedenterprises.130Indeed,followingthe governmentsannouncementofstimulusmeasuresinlate2008,stateownedbanks dramaticallyincreasedlendingalmostimmediately,anunusualpatterngiventhatnewlending basedoncommercialconsiderationsrequiresbankstoperformtimeconsumingfinancial analysesandduediligence.131InMarch2011,theWTOappellatebodyaffirmedafindingby theU.S.DepartmentofCommercethatwasbasedonevidencethatSOCBsaremeaningfully controlledbytheChinesegovernmentandexercisegovernmentfunctionsonthegovernments behalf.132Similarly,theWTOs2010TradePolicyReviewofChinaconcludedthatstate directedlendingtofavoredsectorsholdstruenotonlyforthesocalledpolicybanksbutalso forcommercialbanks.133
(McKinseyGlobalInstitute2006)3739. (ChinaIndustry:GovernmentVowstoRetainStakesinLargestBanks2006). 128 (ChinaRegulations:ForeignStakeLimitsMayNotBeAbolished2006);and(ChinaRegulations:Regulator MaintainsStanceonSmall/MidsizeBanks2006). 129 (WalterandHowe2011)43. 130 (WalterandHowe2011)25. 131 (Deng,etal.2011)6and1245. 132 (WorldTradeOrganization2011)par.354355. 133 (WorldTradeOrganization2010)82(par.59).{T}hePBCandotheradministrativeauthoritiesencourage commercialbankstoadapttheirlendingtospecificborrowersinlightofrelevantgovernmentpolicies;loangrowth mayberestrictedadministratively.
127 126
Page54
CapitalTrade,Incorporated
October26,2011
AsaresultofChinasrapideconomicgrowth,Chinasgovernmentprocurementmarkethas beengrowingaswell.AsmanyareasofChinaareimprovinginfrastructure,government procurementinChinaisofgreatinteresttobusinessesinsideandoutsideofChina. ThissectionrespondstotheCommissionsninthquestion,whichrequestsinformationonSOEs shareofgovernmentprocurementintheUnitedStatesandinChina.Thediscussionbelow reviewsimportantissuesregardinggovernmentprocurement,andthenprovidesestimatesof theshareofChineseprocurementaccountedforbySOEsinChinausingtheNBSdataongross output,fixedinvestments,andinputoutputaccounts.TheSOEshareoftheU.S.procurement marketisdifficulttoascertain.Instead,thefocusisonsomewellknownprocurementwinsfor ChinasSOEs.
A. IssuesinChinasprocurementmarket
Byalmostanyindependentmeasure,Chinasgovernmentoperatesasubstantialprocurement market.Measuringthesizeoftheprocurementmarketisdifficultduetoalackof transparency.TheChinesegovernment,andmorespecifically,theMinistryofFinance, recognizesonlygoodsandservicesundertheGovernmentProcurementLaw(GPL)as constitutinggovernmentprocurement.Manyobservers,ontheotherhand,definetheChinese governmentprocurementmarketasthetotalityofgoods,services,projectsandworks regulatedbyChinasGovernmentProcurementLawandtheNationalDevelopmentandReform CommissionsChinaBiddingLaw(BL).134WhiletheChinesegovernmentclaimsthatthemarket isonlyabouttwopercentofGDP,basedonjustGPL,arecentstudybytheEuropeanChamber ofCommerce,basedonbothGPLandBL,estimatesthatthepublicprocurementmarketat morethantwentypercentofGDP(i.e.,$1.07trillion).135However,measuringtheSOEshareof theprocurementmarketisdifficultbecauseofthelackofdata. ThedefinitionoftheprocurementmarketisamajorstickingpointwithChinastrading partners.ChinacommittedtojoiningtheWTOGovernmentProcurementAgreement(GPA)as
Broadlyspeaking,theGPLcoverscentralandsubcentralgovernmentpurchasesofgoodssuchascomputers, medicalequipment,etc.,whiletheBLregulatesallSOEtenders,inparticular,largescaleinfrastructureprojects suchasconstructionofhighways,railwaynetworks,airports,ports,dams,powerprojectsandthelike. 135 (PublicProcurementinChina:EuropeanBusinessExperiencesCompetingforPublicContractsinChinaApril, 2011)15.
134
Page55
CapitalTrade,Incorporated
October26,2011
partofitsWTOaccessionin2001,butthetermsofitsGPAmembershiparestillunder negotiation.InDecember2007,ChinasubmittedaninitialoffertojointheGPA.Theoffer, however,includedhighdomesticcontentthresholdsandneglectedtocoverprocurementby subcentralgovernmententitiesorintheservicessector.The2007proposalwasrejectedas inadequatebyothermembercountries.136Lastyear,Chinapledgedtomakeanoffertojoin theGPAataSinoU.S.summit.ObserverswhohaveseenChina'srevisedoffer,submittedin July2010,sayaspacehasbeenleftblankundertheheadingsubcentralgovernmententities, whichissupposedtooutlinethelevelsofgovernmentthatmustabidebytheagreement.137As ChinasJuly2010GPAofferwassummarilyrejected,China,underpressurefromtheUnited StatesandtheEU,hascommittedtosubmitarevisedoffertojointheWTOAgreementon GovernmentProcurementthatwillincludesubcentralentitiesbytheendof2011.138 ChinahasbeenslowtoputforthanacceptableGPA,inpart,becauseitwouldopenitsmarket toforeigninvestedcompanies.Chinausesitsgovernmentprocurementmarkettosupport SOEsandtocreatenationalchampionsinkeyindustriesandincubateindigenousinnovation (zizhuchuangxin).OnFebruary9,2006,theStateCouncilissuedtheTheNationalMediumand LongTermPlanfortheDevelopmentofScienceandTechnology(20062020),whichisnow knowninpolicycirclesastheMLP.139TheMLPexplicitlystatesthatChinawishestolessenits relianceonforeignintellectualpropertyandtocreateindigenousinnovationthrough enhancingoriginalinnovationthroughcoinnovationandreinnovationbasedonthe assimilationofimportedtechnologies.140 ThemostambitiouscomponentsoftheMLPare16megaprojects.AccordingtotheMLP,asthe majorcarriersofupliftingindigenousinnovationcapacity,themegaprojectsareaimedat assimilatingandabsorbingadvancedtechnologiesimportedfromoutsideChinasothatthe countrycandeveloparangeofmajorequipmentandkeyproductsthatpossessproprietary intellectualpropertyrights.Thegovernmentprocurementmarketisassignedtobeakey driverfortheseprojects.TheplancallsforcreatingabuyChinapolicyforgovernment procurementandexpandingthecreationofChinasowntechnologystandardstogetoutfrom undertheburdenofpayinglicensefeesandroyaltiestoforeigncompanies.141
(Hornby,Reuters2010). (Hornby,ProvincesbecomebattlegroundinChina'sWTOoffer2010). 138 (RemarksbyUndersecretaryLaelBrainardatU.S.ChinaBusinessCouncil's"ForecastAmerica"Conference 2011). 139 (OutlineoftheNationalMediumandLongTermPlanfortheDevelopmentofScienceandTechnology2006) 140 (J.McGregorJuly,2010)3. 141 (J.McGregorJuly,2010)15.
137
136
Page56
CapitalTrade,Incorporated
October26,2011
DefactoanddejurebarriersalsoservetofavorSOEsovercompetition.Chineselawrequires thegovernmenttoprocuredomesticgoods,projects,andservices.142Giventhatmany governmentfundedprojectsarelargeinnature,inmanycasesonlySOEsarelargeenoughto participate.Inaddition,fragmentationofthemarket,lackoftransparency,lackof communication,decentralization,inconsistentimplementation,andvirtuallynoappeals processhavebeencitedasmajorproblemsintheprocurementprocess.143Further,other technicalbarriersandnoncompetitivepractices,inparticulartechnicalregulations(indigenous innovationlegislation),thecataloguesystem,domesticcontentrequirementsandonerous certificationsystems,unfairlyrestraincompetitionintheprocurementmarket.144 Mostprocurement,accordingtotheGOC,isconductedbylocalgovernments,145whichmaybe predisposedtofavorlocalSOEswhocontributerevenuestolocalcoffers.Butbeyondtaxes, localSOEshaveahugeadvantageoveroutsidecompetitorsfromothercountries,andeven otherprovinces,becauseofthecloserelationshipsbetweenlocalSOEmanagementandlocal governments.146 ManyprocurementopportunitiesareinindustriesdominatedbySOEs,suchaspower. Althoughsuchprojectsareintheoryopentoallcomers,SOEshaveanaturaladvantage becausethenationaland/orprovincialgovernmentshaveavestedinterestinthesuccessof SOEs.OnceanSOEobtainssuchaproject,itspurchasesofgoodsandservicesshouldbebased purelyonmarketconsiderations.147However,inpractice,theSOEsarefacedwithanumberof countervailingforcesthataremaypreventthemfromchoosingacompetingforeignproducer. Forexample,ifthepurchaseinvolvesaproductortechnologyfromthegovernments innovationcatalogue,theSOEwillfacepressuretopurchasethegoodorservicefroma domesticproducer.Iftheprovincialgovernmentoverseeingthepurchaseisseekingto enhancetheeconomicprospectsofalocalSOE,ortoenhancelocaleconomicactivity,there alsowillbepressuretomakeprocurementdecisionsonnonmarketconsiderations.Finally,
(WorldTradeOrganization2010)40(par.65).However,internationalpurchasesareallowedwhentheneeded procurementisunavailableinChinaorunavailableonreasonablecommercialterms.Internationalpurchasesare alsoallowedforuseoutsideofChina.Therearenoprovisionsonrulesoforiginorlocalcontentdefiningwhat constitutesdomesticproduction.NoraretheredataonthevalueofforeignprocurementbytheGOC,butforeign procurementisknowntooccur. 143 (PublicProcurementinChina:EuropeanBusinessExperiencesCompetingforPublicContractsinChinaApril, 2011)15. 144 (PublicProcurementinChina:EuropeanBusinessExperiencesCompetingforPublicContractsinChinaApril, 2011)15. 145 (WorldTradeOrganization2010)40(par.66)and41(par.69). 146 (InterviewwithU.S.governmentofficial2011). 147 (ReportoftheWorkingPartyontheAccessionofChinaOctober1,2001)9(par.46).
142
Page57
CapitalTrade,Incorporated
October26,2011
guanxi(i.e.,interpersonalrelationshipsthroughwhichinfluencecanbeexerted)canalsoplaya roleduetothecloserelationshipsbetweengovernment/PartyofficialsandSOEmanagement. AlthoughthesefactorsresultinapreferenceforSOEsbothinprocurementandinthe subcontractingprocess,foreignandprivateChinesefirmsarenotcompletelyshutoutfromthe procurementmarket.148U.S.andotherforeignfirmshavehadsomenotablesuccessesin tappingtheChinesegovernmentprocurementmarket,directlyandindirectly.Nevertheless, thedynamicsthatfavorprocurementfromSOEscaninfluencepurchasingdecisionsatthe expenseofU.S.firmsandcanleadtoinvestmentsinChinabyU.S.firmsinordertoimprove accesstoChinasmarket. Asaresultoftheglobalrecessionin20082009,theChinesegovernmentenactedstimulus measuresvaluedatRMB4trillion,13percentofGDP,thoughitwasspreadover23years.149 SOEshavebenefitteddisproportionatelyfromthisspending.150Ontheotherhand,SOEswere alsocalleduponbythegovernmenttomakelargeinvestments,whichmayhaveharmedtheir financialperformance.
B. MeasuringtheSOEshareofgovernmentprocurementinChina
TherearetwomethodologiesforestimatingtheroleofSOEsinChinasprocurementmarket.A bottomupapproachwouldreviewinformationoncontractordatatodeterminewhetheran awardorsubawardwenttoanSOE.ThisinformationisnotavailableinChinaand,evenifit were,itwouldnotnecessarilyincludeinformationabouttheultimatesourceofthegoodor servicebeingprovided.Corporateandgovernmentpressreleasescouldalsoprovidesuch information,butlocatingsuchinformationforallgovernmentpurchaseswouldbeextremely challenging.Thesecondmethodologyistopdownbecauseitreliesonaggregateddataon industryoutputandinvestment,governmentpurchasesbyindustry,imports,andSOE productionbyindustry.151Usingsomereasonableassumptionsandsimplemath,itwouldbe possibletoestimatetheSOEshareofgovernmentpurchasesusingtheframeworkofinput outputanalysis.152Thisistheapproachtakenhere. Theanalysiswasconductedusingdatafrom2007,theyearoftheinputoutputtable.The results,shownbelow,indicatethattheestimatedSOEandSHEshareswere43percentfor investmentrelatedprocurementmadethroughstateownedorcontrolledenterprisesand79
(InterviewwithU.S.governmentofficial2011). (Deng,etal.2011)4. 150 (WorldTradeOrganization2010)2425(par.8). 151 TheSHEshareofconstructionoutputwasestimatedbasedontheSOEshare.SeeAttachment2.Theoutput shareforthevariousservicesectorswasbasedoninvestmentshares,asinformationonthegrossoutputof serviceproducingSHEsrelativetoservicesoutputbyindustrywasnotavailable. 152 (MillerandandBlair2009).
149 148
Page58
CapitalTrade,Incorporated
October26,2011
Source:AuthorsestimatesbasedonNationalBureauofStatisticsofChina.
C. SOEProcurementintheUnitedStates
TheCommissionhasrequestedinformationaboutSOEactivityintheU.S.procurementmarket. Atthefederallevel,directSOEparticipationisrestrictedbytheBuyAmericaAct,whichrequires thatallmaterialsusedinconstructionofpublicprojectsoriginateintheUnitedStatesor designatedcountries.U.S.procurementisfairlytransparent,withsubstantialinformation aboutcontractsavailableonthewebsiteusaspending.gov.However,areviewofthedatabase ofprimeandsubawardcontractorsturneduponlyonecentralSOE:BaosteelGroup Corporation,withatotalcontractamountoflessthanhalfamilliondollarsfortheleaseor rentaloffacilitiesduringFY2010. SOEparticipationintheU.S.federalprocurementmarketis,ifanything,indirectandeventhis isverydifficulttodocument.Forexample,theBechtelCorporationisamajorfederal contractor,withrecentcontractsinvolvingtheconstructionofawastetreatmentplantforthe DepartmentofEnergyandreactorsfortheNavyduringFY2010.Areviewofthewebsite importgenius.comshowsthatBechtelalsoimportedstructuralsteelduringFY2010froma companyUnitedSteelStructuresLtd.(USSL),locatedinGuangzhou.AccordingtoBloomberg Businessweek,GSSLisasubsidiaryofGuangzhouShipyardInternationalCo.Ltd.(GSI),153afirm thatislistedontheHongKongStockExchange.BasedonGSIs2010AnnualReport,thefirms controllingshareholderistheChinaStateShipbuildingCompany(CSSC),whichholds35.71 percentofGSIsoutstandingshares.154CSSCisacentrallyownedSOEthatis100percent ownedbySASAC.155WhilethisnarrativeillustratesthatBechtelimportedstructuralsteelfrom
153 154
Page59
CapitalTrade,Incorporated
October26,2011
asubsidiaryofafirmownedbyacentrallyownedSOE,itisunknownwhetherBechtelusedthis steelinitsfederalprojects.156 StatesthathavenoBuyAmericaprovisionsareabletousetaxpayermoneysforforeign procurementsaslongasthestategovernmentdoesnotseekfederalfunds.Thus,theSOErole inprojectsconductedbylocalgovernmentsiseasiertodiscern.Forexample,Shanghai ZhenhuaHeavyIndustryCoLtd(ZPMC)wonthebidfromtheCaliforniaDepartmentof TransportationfordeliveringsectionsofthesuspensionportionoftheeastspanoftheSan FranciscoOaklandBayBridge.157AccordingtoitsWebsite,ZPMCisastateholdingcompany listedontheShanghaiStockExchange.ThefirmsmajorshareholderisHongKonglistedChina CommunicationsConstructionCompanyLimited(CCCC).158AccordingtoCCCCs2010Annual Report,itsbeneficialowneristheSASACownedChinaCommunicationsConstructionGroup Limited,whichowns70.1percentofCCCCsshares.159Thecontractvalueexceeds$350million outofthe$7.2billionBayBridgeproject(i.e.,4.9percent).160Anothercompany,Shanghai PujiangCableCo.(SPCCC)issupplyingtheonemilemaincableforthebridge,thoughthevalue ofthatitemisnotknown.SPCCC,Chinaslargestcablecompany,isjointlyownedbyaprivate firmandthreesubnationalSOEs. ChinaConstructionAmerica,Inc.(CCA)isawhollyownedU.S.subsidiaryofChinaState ConstructionEngineeringCorporationLimited(CSCEC),whichCCAtoutsasbeingapublically listedfirminChina.161CSCECislistedontheShanghaiStockExchange(listing601668.SS),but itsprimaryowneristheSASACownedChinaStateConstructionEngineeringCorporation.162 CSCECwentpubliconlyrecently,inJuly2009,andwastheworldsmostvaluableIPOthat year.163CCAhasbeensuccessfulinprocuringconstructioncontractsinSouthCarolinaandNew York.ItsSouthCarolinaprojectsincludepublicschools,(e.g.,attheUniversityofSouth Carolina);theChanceryBuildingoftheChineseEmbassyinWashington,D.C.;andrenovationof theAlexanderHamiltonBridge(withHalmarInternational)thelargestsinglephaseproject ($407million)overseenbytheNewYorkStateDepartmentofTransportation.164Inorderto competeforsuchlargeprojects,CCArequiredlargebondingfacilities.Thesewereobtained
PublicitysurroundingalawsuitagainstHomeDepotandotherfirmsindicatesthattheBuyAmericaActisoften ignoredbyfirmssellinggoodstotheFederalgovernment.See(Elias2011). 157 (Barboza2011). 158 (WangandLevy2011). 159 (ChinaCommunicationsConstructionCompanyLimited2011)48. 160 (Barboza2011). 161 (Overview:ChinaConstructionAmerica,Inc.2009). 162 SeeAttachment1:SASAClistofCentralSOEs(#48). 163 (AbramiandZhang2011)3. 164 (AbramiandZhang2011)810.
156
Page60
CapitalTrade,Incorporated
October26,2011
fromAIG,andCCAslargestateownedparentprovedcriticalinthisregard.165Indeed,a HarvardBusinessSchoolcasestudyofCCAdemonstratesthatthefirmsstatesupportwasalso criticaltothefirmssuccess,andthatCCAsrevenueshavebeengrowingatatimewhenU.S. nonresidentialconstructionwascrashing.166 ThehurdleforusingSOEmanufacturedgoodsinfederalprojectsdependsonwhichprovisions ofU.S.lawapply.Forexample,BuyAmericaprovisionsforsteelrequireapricedifferenceof25 percentbeforeforeignsteelcanbeusedtobuildahighwaybridgewithfederalfunds.But undercertaincircumstances,BuyAmericanprovisionsofthelawapply.Underthese provisions,foreignsteelcanbeusedifthepricedifferentialexceedssixpercent.Itisnotknown towhatextentthisdistinctionhasfacilitatedtheusedofSOEproducedsteelinfederally fundedprojects,butatthetimeofthiswritingtherewasonongoingdisputeabouttheuseof ChinesesteelintheTananaBridgeprojectinAlaska,whichisbeingbuiltprimarilywith DepartmentofDefensefundingfunneledthroughtheFederalRailroadAdministration.167 Inadditiontostatefundedprojects,SOEshavehadsuccessinwinningbusinessinfederally fundedprojectsoverseas.TheMillenniumChallengeCorporation(MCC),arelativelynewU.S. foreignaidagency,awardedninecontractstoChinesefirmsworth$320millionforprojectsin AfricaatleastfiveofthosecontractswenttoChinesestateownedcompanies.168However, recentchangesinthelawnowmakeSOEsineligibletocompeteforMCCfinancecontracts.
IX. TheSOEroleinChinasfiveyeardevelopmentplans
FiveyearplansareissuedbytheCCPandprovideoverallobjectivesandgoalsrelatedtosocial andeconomicgrowth.Industrialplanninginkeysectorsorregionsisalsoincorporatedintothe plans,includingwhichindustriesandproductsshouldbetargetedforpreferentialgovernment support.Theplansenumeratethetypesofpreferencestobeprovidedsuchindustries.Inthe wordsoftheChinesegovernment,thefiveyearplansaimtoarrangenationalkeyconstruction projects,managethedistributionofproductiveforcesandindividualsectorscontributionsto thenationaleconomy,mapthedirectionoffuturedevelopment,andsettargets.169Theyare commonlyreferredtoasanationalblueprintforindustrialdevelopment.Theplansserveas economicandindustrialinstructionsforplanningagencies,localandprovincialgovernments, banks,andstateownedenterprises.However,theseentitiesarenotalwaysmentioned explicitly.
(AbramiandZhang2011)10. (AbramiandZhang2011).SeeExhibits1,15a,and15c. 167 (AlaskaRailroadIsn'tJokingIt'sPayingtheChineseUSDepartmentofDefenseFundstoBuildaUSArmyBridge 2011);and(TheAssociatedPress2011). 168 (McLaughlin2010). 169 (WhatistheFiveYearPlan2007).
166 165
Page61
CapitalTrade,Incorporated
October26,2011
The10thFiveYearPlanforNationalEconomicandSocialDevelopment,coveringtheperiod from20012005,calledforenergeticallyoptimizingandimproving[the]industrialsectorby enhancingtraditionalindustrieswithnewtechnologiesandintensifyingconstructionof transportation,energyandotherinfrastructurefacilities.Theplancallsfortheseactivitiesto focusontheenergyandmetallurgyindustries.Inadditiontocallingforsubstantialnew capacityinseveralkeyindustries,theplanalsoaimedtoequiptheseindustrieswith sophisticatedtechnologyandequipment.Whilenotemphasized,theplandidcallforthe governmenttoholdacontrollingstakeinstrategicenterprisesthatconcernthenational economyandalsotoupholdthedominanceofthepublicsectoroftheeconomy[and]letthe stateownedsectorplaytheleadingrole,apronouncementthatwaslaterelaboratedin SASACsdocumentdefiningstrategicandpillarindustries. Afterthesuccessfulimplementationofthe10thFiveYearPlan,thegovernmentwasconfronted withanewproblem,namely,overcapacityinseveralkeyindustriessuchassteelandchemicals. So,thecentralgovernments11thFiveYearPlan,coveringtheyears20062010,focusedon consolidationofcapacity,alongwiththecreationofnew,highefficiencyfacilitiesthatcan competeonaglobalscale.170Theplanprovidesforimprovingthequalityofcertainproducts throughtheacquisitionofnewtechnologyandequipmentandconsolidatingkeyindustries throughmergerstocreatelargerandmoreinternationallycompetitivecompanies(i.e.,firms thatcanexportintointernationalmarkets).Withregardtostateownership,theplansdiction changedsomewhatfromthe10thFiveYearPlan,statingthatChinamustadheretothe fundamentaleconomicsystemwithpublicownershipasthemainstayanddiverseformsof ownershipdevelopingsidebyside.171Still,thislanguagedoesnotprovideanyinklingthatthe governmentintendedtoeliminateorseverelyerodeitsrelianceonSOEs. Asbefore,Chinafacedaproblemafterthesuccessfulimplementationofthe11thFiveYear Plan:aneconomylargelydrivenby,anddependenton,exportsandinvestment.The12thFive YearPlan,unveiledinMarchofthisyear,focusesonrebalancingtheeconomy.Animportant pointistheemphasisofconsumptionoverexports.172Theplanfurtherencouragesincreasing technologicalcapabilitiesinkeysectors.Movingawayfromtraditionalindustrialsectors,such assteel,basemetalsandchemicals,theplanemphasizesStrategicEmergingIndustriessuch asenergy,healthcare,andtechnology.Thegovernmentaimstohaveitsnewbackbone industriesincludebiotechnology,newenergy,highendequipmentmanufacturing,energy conservationandenvironmentalprotection,cleanenergyvehicles,newmaterials,andnext generationIT.Nationalchampionsaretotaketheleadindevelopingtheseindustries.The
170 171
Page62
CapitalTrade,Incorporated
October26,2011
planstatesthatthegovernmentmust{c}hannelstatecapitalintoindustriespertinentto nationalsecurityandtheeconomythroughdiscretionaryandrationalcapitalinjectionor withdrawal.Thislanguagedoesnotsuggestthatthegovernmentplanstoallowmarketforces todeterminethestructuraldevelopmentoftheChineseeconomy. Basedontheoverallplan,industryspecificfiveyearplansarethenformulated.Theseplans canbevaguewithrespecttotheanticipatedroleforSOEs.Theplansgenerallyemphasize favoredindustrialsectors.Fiveyearplansarethenformulatedattheprovinciallevel.These plansmirrorthenationalplansbutaretailoredtotheneedsofaspecificprovince.Theseplans willsometimesmentionkeyenterprisesinfavoredindustrialsectors.Specificrequirements aboutstateownershiparenotoftenlisted.However,oftentimeskeyenterprisesarestate owned.173 Thefiveyearplansareimplementedthroughaseriesofindustrialcatalogues.Thecatalogues areplanningdocumentsthatlistkeyindustriesandproductsthatarefavoredbythecentral government,pursuanttothebroadstatementsincludedintheFiveYearPlans.Forexample, theNationalDevelopmentandReformCommissiondevelopedtheCataloguefortheGuidance ofForeignInvestmentIndustries,whichspecificallyencouragesindustrialprojectstargetedfor foreigninvestment.174TheStateDevelopmentandPlanningCommissionandStateEconomic TradeCommissiondevelopedtheCatalogueofKeyIndustries,Products,andTechnologies EncouragedforDevelopmentbytheState,175whichprovidesmorespecificguidanceonthe intendedadjustmentstoChinasindustrialstructure. TheDirectoryCatalogueonReadjustmentofIndustrialStructureissuedin2005bythe NationalDevelopmentandReformCommission,Chinaspremierplanningagency,isanother influentialplanningdocument.176TheStateCouncilissuedimplementingregulationsthat instructgovernmententitiestofollowthiscataloguewhenmakingkeydecisionsconcerning highlypreferentialtreatmentonfinance,taxation,provisionofland,andimportingand exportingprivileges.177Article12oftheregulationsstates:
TheCataloguefortheGuidanceofIndustrialStructureAdjustmentistheimportant basisforfundinginvestmentdirections,andforthegovernmentstoadminister
(CoatedFreeSheetPaperfromthePeople'sRepublicofChina:FinalAffirmativeCountervailingDuty Determination2007)and(CertainNewPneumaticOffTheRoadTiresfromthePeople'sRepublicofChina:Final AffirmativeDeterminationofSalesatLessThanFairValueandPartialAffirmativeDeterminationofCritical Circumstances2008). 174 (CataloguefortheGuidanceofForeignInvestmentIndustries2007). 175 (CatalogueofKeyIndustries,Products,andTechnologiesforDevelopmentbytheStaten.d.) 176 (DirectoryCatalogueonReadjustmentofIndustrialStructure2005). 177 (InterimProvisionsonPromotingIndustrialStructureAdjustmentforImplementationn.d.).
173
Page63
CapitalTrade,Incorporated
October26,2011
investmentprojects,toformulateandenforcepoliciesonpublicfinance,taxation, credit,land,importandexport,etc.178
Thecatalogueisseparatedbyindustry.Theindustriesincludedare1)agriculturalandforestry; 2)waterconservation;3)coal;4)electricpower;5)nuclearenergy;6)petroleumandnatural gas;7)steel;8)nonferrousmetal;9)chemicalproducts;10)buildingmaterial;11)medicine; 12)mechanism;13)automobiles;14)marinevessel;15)aviationandspaceflight;16)light industry;17)textiles;18)architecture;19)urbaninfrastructureandrealestate;20)railway;21) highways;22)watertransport;23)airtransport;24)informationindustry;25)otherservice industry;and26)environmentalprotectionandenergysavingcomprehensiveutilization.179 Theprojectsincludedinthecataloguerangefrombroadstatements,coveringnearlyany conceivableapplicationintheindustry,tonarrowinstructions,focusingonspecificproduction lines.Forexample,underthepetroleumandnaturalgasindustrysubheading,thecatalogue lists{p}etroleumandnaturalgasexplorationandexploitationasanencouragedproject.In contrast,underthesteelsubheading,thecataloguelistsasanencouragedprojectthe {c}onstructionofnewgenerationlargevolumemechaniccokeovenofcokedryquenching, coalchargingandcokepushingandcleaningapparatuswiththeheightandwidthofthe carbonizationchambernolessthan6meterand500mmrespectively.180 Areviewofapartialtranslationofthe12thFiveyearPlanindicatesSOEswillbeaffectedby effortsto:
ImprovetheservicesindustriesinChina,manyofwhicharecurrentlydominatedby SOEs; SupporttheoldindustrialbaseinNortheastChina; Improveincomedistribution; Optimizeinvestmentstructure; Channelinvestmentsintoindustriesconsideredimportanttonationalsecurityandthe economy; DevelopnationalchampionsandChinesebrands; Developstrategicemergingsectors; Implementindustryinnovationprojects; Reformenergyproduction.
178 179
Page64
CapitalTrade,Incorporated
October26,2011
Services:Theplanechoesmanyofthepoliciesusedtodevelopmanufacturingindustries,such asopeninguptheservicesectortovarioustypesofownership,providingpreferentialutility ratestoencouragedservicessectors,andraisingcapitalthroughequityandbondissuance. SupportforNortheastChina:Thefavoredsectorsincludemanufacturing(e.g.,equipment manufacturing,rawmaterials,automobilesandagriculturalproductsdeepprocessing);services industries(e.g.,financial,logistics,tourismandsoftwareandoutsourcing);andagriculture.The SOEsintheregionwillcontinuetobereformedandthenonpubliceconomywillbe encouraged. Improveincomedistribution:TheproportionofSOEgainstakenbythestatewillriseandbe redistributed.Salariesofseniormanagersatstatecontrolledfirmswillbestandardizedand reflectoperationalandmanagementperformance,aswellastechnicalachievements.In addition,payrollandsalarystandardswillbeadjustedinsomeindustriestoreducethedisparity betweenruralandurbanareasandacrossindustries. Optimizeinvestmentstructure:TheaimistoimproveinvestmentdecisionsbySOEstoavoid excessiveexpansionandduplicativeinvestments. Channelstatecapitalintokeyindustries.Thegovernmentwillinjectcapitalintokeyindustries andwithdrawthemfromothers.LargeSOEsthatarenotabletobelistedandthosethat remainsolelyfundedbythestatewillundergocorporatereforms.Certainindustrieswillbegin thereformprocess(e.g.,saltandrailway)whileotherindustries(primarilystrategicindustries) willdeepenreforms. DevelopnationalchampionsandChinesebrands:Theplanurgesadvantagedenterprisesto createalliancesandmergersinordertoincreaseindustryconcentration,withafocusonthe auto,steel,cement,machinery,aluminum,rareearth,pharmaceutical,electronicinformation industries,shipbuilding,petrochemical,lightindustryandtextiles.Thedevelopmentoflarge enterpriseswithcorecompetenciesandworldfamousbrandsistobeencouraged.SOEsare notmentionedexplicitly,buttheyalreadydominatemanyoftheindustrieswhichare mentioned. Developstrategicemergingsectors:Theideaistodevelopnewstrategicindustries,presumably tobecomeworldleadersinemergingindustries.Theseincludeenergysavingand environmentfriendlynewgenerationIT,biology,highendequipmentmanufacturing,new energysources,newmaterialsandnewenergyautomobiles.Theplanspecifiesanumberof specificgoodsandservices(e.g.,cloudcomputing)andinstructsthatthevalueaddedofthese newindustriesshouldreacheightpercentofGDP.
Page65
CapitalTrade,Incorporated
October26,2011
Implementingindustryinnovation:Thisaspectoftheplanurgesthedevelopmentand implementationofmajortechnologyprojectstobecarriedoutbythestate,whichpresumably indicatesSOEs.Theaimistomastercoreindustrytechnologiesandacceleratelargescale industrydevelopment. Reformenergyproduction:Thisentailsdevelopingcleananddiversifiedenergysources; optimizingtheexploration,storage,andtransmissionaspectsofenergydistribution;and developingthecountrysenergyinfrastructure. Itdoesnotmatterthatthe12thFiveYearPlandoesnotmentionSOEsexplicitlywithregardsto keydevelopmentprojectsandindustrygoals;theSOEsarealreadydominantinmostofthe industrieswhicharementionedintheplan.And,incaseswhereprojectsrequirelargecapital expenditures,onlySOEsareinapositiontomakesuchinvestments.Thus,althoughChinais comfortablewithamixedeconomythatincorporatesprivateenterprisesandforeign investments,itcontinuestorelyonSOEstocarryoutwhatitdeemstobethemostimportant projects.AndalthoughChinaiscomfortablewiththemarketallocatingresourcestoimprove enterprisedecisionmaking,itdoesnottrustthemarkettodetermineChinasindustrial structure.
X. TheSOEroleintechnologytransfers
Thedevelopmentofadvancedtechnologyindustriesisamajorpriorityforthegovernmentof China.ThissectiondescribesthegovernmentstechnologyplansandexplorestheroleofSOEs infacilitatingtechnologytransfersthroughjointventureswithforeignfirms.Thissection respondstotheCommissionseleventhquestion. Inthelastfewyears,therehasbeenaconsensusamongChinawatchersthattheroleof centrallycontrolledSOEs(120companies)hasbecomegreaterandthatChinaisonceagain followingaguojinmintuipolicy(thestateadvancesastheprivatesectorretreats)tofoster nationalchampionsinthestrategicindustriesofthefuture.Thestatesshareofassetshas beengrowingattheexpenseofprivatecapitalinthefollowingindustries:steel,chemicals,coal, petroleum,mining,electricitygeneration,civilaviation,highways,water,finance,brokerage, insurance,realestate,posts,etc.181 SOEsarethedefaultvehiclesthatareusedtoimplementstatepolicy.Theyareusuallythe partnerofchoiceforFIEsthatwanttoenteramarketinChinathatisclosedtowhollyowned foreignenterprises.SOEsaretypicallytheonlypartnersthathavethegovernment
181
(IsChinaRenationalizing?2010).
Page66
CapitalTrade,Incorporated
October26,2011
connectionsandeconomiesofscalerequiredformajorprojects.RecentexamplesofSOEs actingasstateactorsinfacilitatingtechnologytransferfromforeigncompaniesincludethe ChinaCommercialAircraftCorporationsagreementswithGeneralElectric(GE)andtheother foreignaviationcompaniestobuildcommercialaircraftandtheagreementsbetweenChina SouthLocomotive&RollingStockCorporationanditssubsidiarieswithKawasakiHeavy Industries,Siemens,andBombardiertobuildhighspeedrailinChina. Evenforeignexecutives,generallyreluctanttospeakoutduetofearofretributioninChina, havevoicedtheirconcernswiththeChinamarket.Themostnotableexampleoccurredata conferenceofbusinessexecutivesinRomeinJuly2010,whereGEsCEOJeffreyImmelt observed,IreallyworryaboutChina.Imnotsurethatintheendtheywantanyofustowin, oranyofustobesuccessful.182 TheStateCouncilarticulateditsdesiretoincubateindigenoustechnologicaldevelopmentin TheNationalMediumandLongTermPlanfortheDevelopmentofScienceandTechnology (20062020)(MLP),issuedonFebruary9,2006.183InhisstudyonChinasinnovationefforts, JamesMcGregorexplainsthattheChinesegovernmenthasputinplaceanindustrialpolicy ecosystemthatincludes:
182 183
Page67
CapitalTrade,Incorporated
October26,2011
Inadditionandcomplementarytothe8targetedtechnologies,theMLPalsolists16Mega Projects(3ofwhichareclassifiedastheyaremostlikelymilitaryprojects)thattheChinese governmentdeemscriticalforChinatobecomeamodernandtechnologicallyadvancednation. Thegovernmentwillfundthesemegaprojectswiththeaimofcreatingindigenous innovationsthroughcoinnovationandreinnovationofforeigntechnologiessuppliedby companiesseekingtoprofitfromthemassivegovernmentoutlaysonthemegaprojects.186 PerhapsthebestwaytoappreciatethetechnologyenvironmentinChinaandtheroleplayedby SOEsandotheractorsincreatingindigenousinnovationsthroughcoinnovationandre innovationofforeigntechnologiesisthroughrecentexamplesinthefieldsofaviationand highspeedrail.
A. Aviation
TheStateCouncilfirstinitiatedafeasibilitystudyintothepossibilityofdevelopingamidsized indigenouspassengeraircraftin2003.187Thegoalwasenshrinedinthe2006MLPblueprint andtheairlinerbecameoneofthetopprioritymegaprojects.Ofthe120centralSOEslistedon SASACswebsite,threeofthefirstfivelistedcompaniesareinvolvedintheaerospaceor aviationindustry,andanotherfourareincludedinthetotallist.188,189 InMarch2008,theChinaCommercialAircraftCompany(COMAC)wasformedtodrivethe planesdevelopment,manufactureandcommercialization.COMACisChinasofficialchallenger totheduopolyofBoeingandAirbus.COMACwasestablishedinShanghaiinMay2008witha registeredcapitalofRMB19billionanditsmissionistodesignandbuildlargepassenger aircraftofover150passengerstoreduceChinasdependencyonBoeingandAirbus.190China currentlyaccountsfor22percentofAirbus2010ordersand15percentofBoeing'sorders.
PertheMLP,the16megaprojectsinclude:(1)Coreelectroniccomponents,highendgeneralusechipsand basicsoftwareproducts,(2)Largescaleintegratedcircuitmanufacturingequipmentandtechniques,(3)New generationbroadbandwirelessmobilecommunicationnetworks,(4)Advancednumericcontrolledmachineryand basicmanufacturingtechnology,(5)Largescaleoilandgasexploration,(6)Largeadvancenuclearreactors,(7) Waterpollutioncontrolandtreatment,(8)Breedingnewvarietiesofgeneticallymodifiedorganisms,(9) Pharmaceuticalinnovationanddevelopment,(10)ControlandtreatmentofAIDS,hepatitisandothermajor diseases,(11)Largeaircraft,(12)Highdefinitionearthobservationsystems,(13)Mannedspaceflightandlunar probeprograms,(1416)Undisclosed,believedtobeclassifiedmilitaryprojects. 187 (J.McGregorJuly,2010)33. 188 (MainFunctionsandResponsibilitiesofSASAC2011). 189 ChinaAerospaceScienceandTechnologyCorporation,ChinaAerospaceScienceandIndustryCorporation, ChinaAviationIndustryCorporation,ChinaNationalAviationHoldingCompany(AirChina),ChinaEasternAir HoldingCompany,ChinaSouthernAirHoldingCompany,andChinaCommercialAircraftCorporation. 190 (Chinaplanebusinessgetsitswings2008).
186
Page68
CapitalTrade,Incorporated
October26,2011
COMACwantstospurtheaviationindustrybyeffectivelycompetingwiththeAirbusA320and theBoeing737.AccordingtotheChinaDaily: MuchofCOMAC'sambitionsalsostemfromthegovernment'splantotransform Chinaasanaviationmajorcapableofmakingjumbojets,regionalplanes, businessjets,propellerplanesandhelicoptersallathome.Thatinturnis expectedtohaveapositiveimpactonahostofalliedindustriesrelatedtothe aviationindustry.191 COMACsfirstjettobemarketedwillbetheARJ21,atwinengineregionaljetthatwasmodeled ontheMcDonnellDouglasCorporationsMD90.TheARJ21wasoriginallyplannedtoberolled outin2007,butproductiondelayshavepostponeditslaunchdateuntiltheendof2011.192The ARJ21,a90seatregionaljetpoweredbytwo,fuselagemountedGeneralElectricCF3410A engines,istocompeteintheregionalairmarket. COMACsnextjetistobetheC919,anarrowbodyjetthatChinahopeswillbeabletocompete directlytheAirbus320andtheBoeing737.ConstructionoftheC919beganinSeptember 2009,withfirstdeliveriesexpectedin2016.TheC919jetwillcontainadvancedavionics suppliedbyGE,includingsomeofthesametechnologythatisgoingintothemuchdelayed nextgenerationBoeingDreamliner.193SeveralotherAmericancompanieshavealsobeen chosenassuppliersfortheC919aircraft,providingpowergenerators,fueltanks,hydraulic controls,brakes,tiresandother gear. TherosterofU.S.suppliersincludesRockwellCollins, Honeywell,HamiltonSundstrand,ParkerAerospace,EatonCorporationandKidde Aerospace.194 ForeignplayershavebeenlininguptointegratetheirtechnologyintotheC919designvia technologytransfersandjointdevelopment.ParkerAerospace,GE,HoneywellandGoodrich haveallpartneredwithvariousChineseentitiesorthemainaviationSOE,theAviationIndustry CorporationofChina(AVIC).195Industryanalystsbelieveitisonlyamatteroftimebeforefierce competitionbeginsbetweenChinasaviationmanufacturersandinternationalheavyweights suchasBoeingandAirbus,andCOMAChasalreadymadeinroadsintoBoeingstraditional737 marketsandisintalkswithbudgetcarrierRyanAiraboutapotentialorderoftheC919jet.196
191 192
(ChinaReadyToChallengeAirbus,Boeing2011). (ARJ21WingProblemsDriveProgramDelay2010). 193 (G.E.toShareTechnologywithChinainNewJointVenture2011). 194 (G.E.toShareTechnologywithChinainNewJointVenture2011). 195 (J.McGregorJuly,2010)34. 196 (RyanAirMaySpendBillionsonCheapChineseJets2011).
Page69
CapitalTrade,Incorporated
October26,2011
TheallegedmostegregiousexampleofaChinesecompanyappropriatingforeigntechnology hasoccurredinthehighspeedrailsector.InJune2004,theMinistryofRailways(MOR) solicitedbidstomakesome200highspeedtrains.Fourcompanieseventuallysubmittedbids aJapaneseconsortiumledbyKawasakiHeavyIndustries,AlstomofFrance,Siemensof GermanyandBombardierofCanada.AllofthecompaniesexceptSiemenswereawardedpart ofthe140billionyencontract,withKawasakiwinningthelargestportion.Kawasakiwasthe leaderofasixcompanyJapaneseconsortiumincludingMitsubishiCorporation,Itochu Corporation,MarubeniCorporation,MitsubishiElectricandHitachi. AccordingtoanOctober20,2004pressreleaseonKawasakiswebsite,theMORawarded Kawasakianditslocalpartner,CSRSifangLocomotive,acontractworth80billionyen($100 million)toproduce480carsarrangedin60eightcartrains.Ofthe60trainsets,threewere directlyimportedfromJapan,sixwerekitsassembledatCSRSifang,andtheremaining51were madeinChinausingtransferredtechnologyfromKawasakiwithdomesticandimportedparts. ThetrainsthatwereproducedinChinawereknownasCRH2trainsandtheyweremodeled ontheE2seriesHayatetrainsthatruninJapan.199 Duringtheproductionofthe51carsmadeatCSRSiansplantinQingdao,Kawasakitookdozens ofCSRengineerstoJapanfortraining.200SomelaterhelpedsetuptheQingdaofactory,which nowchurnsoutabout200trainsetsperannum.However,CSRnolongerhasanyaffiliation withKawasaki,anddespitethefactthatthetrainsemergingfromtheirSifangplantlook
(EatonCorporationandShanghaiManufacturingCo.,Ltd.AnnounceJointVentureAgreementtoSupport COMACC919AircraftPlatform2010).TheventurereceivedabusinesslicenseinMarch2011andwasformally launchonJune28,2011. 198 (Donald2011). 199 (KawasakiHeavyIndustriesn.d.) 200 (Shirouzo2010).
197
Page70
CapitalTrade,Incorporated
October26,2011
identicalwiththeE2seriesHayatetrains,CSRSifangengineersclaimthatthetrainsare Chinese. InaJuly8,2010articleintheFinancialTimesentitledJapanIncShootsItselfintheFooton BulletTrain,LuoBin,vicechiefengineeratCSRSifangsTechnologyDevelopmentCenter, statesTheshapemaybethesame,but[inside]itscompletelydifferentThisisourdesign. Mr.LuowentontofurtherstatethatwithintwoyearsofsealingthedealwithKawasaki,Sifang haddigestedallthetechnologyrequiredfortheirmanufacture,andthatCSRSifanghas improvedonitsothoroughlythatitslatestmodelshavenothingatalltodowith Shinkansen.201 AsforthecriticalquestionofwhethertheChinesestoleJapanesetechnology,Mr.Sasakisaid thatChinadidnothaveanyofthebasictechnologyforbuildinghighspeedtrainsin2004,and thattheJapaneseprovidedthebasicdesignsfortheChinesetrains.Heindicatedthatthe Chinesehaddevelopedsomeinnovationsbutacknowledgedthatthetechnologywasstill98 percentJapanese.202 AlthoughKawasakididnotenterajointventurewithSifang,foreigntechnologyprovidedby foreignpartnersthroughjointventureswithSOEsisanimportantpartofthedevelopment story.TheCRH1,anothertrainmodel,incorporatedtechnologyfromtheCanadianfirm BombardierRegina,andwasbuiltbyajointventurewithSifangPowerTransportation,a subsidiaryofthestateownedCSR.203TheFrenchproducerAlstom,produceroftheTGV,has jointventureswiththeSOEsChangchunRailwayCo.andChinaNorthernLocomotiveand RollingStockIndustry.204 Insum,ChinasSOEshaveplayedakeyroleintheprocessofacquiringforeigntechnologyto developindustriesfavoredbytheChinesegovernment.Chinashighspeedrailwayswerebuilt usingforeigntechnology,someofwhichwassecuredthroughjointventures.Currently,the SOECOMACisdevelopingajetlinerandisfollowingasimilarpatternbyformingjointventures withforeignproducersofcomplexsystems.Inallinstancesreviewedforthisreport,thejoint venturesarebasedinChina,asarethemanufacturingactivitiesandrelatedemployment.
201
Page71
CapitalTrade,Incorporated
XI. AreSOEleadersmarketdrivenorPartydriven?
October26,2011
TherehavebeenimportantreformstoSOEs,whichhavebeentransformedfromappendagesof ministrybureaustolargeenterpriseswithlistedfirms,jointventureswithforeignfirms,and largeoverseasholdings.ThewaysinwhichSOEsaremanagedhavealsochangeddueto corporatereforms.SOEsnowseektomakemoney,andmanyhavesucceededinrecentyears. AccordingtoSASACswebsite,operatingrevenuesforcentralSOEsin2010totaledRMB16.7 trillion. ListingsbySOEsubsidiariesarenowrelativelycommonplace,butitisreallyquiteremarkable consideringthatprivateentrepreneurswereconsideredenemiesofthestateonlyfourdecades ago.Butasdiscussedabove,ChinasSOEscontinuetobeinfluencedbypolicyconsiderations. ThesetofrelationshipsthatconveythegovernmentspolicyprioritiestoSOEsandtheirlisted subsidiariesisthesubjectofthissection,whichrespondstotheCommissionsfifteenth question.
A. SOEreformsinChinaandtheroleofSASAC
ThelawgoverningSOEs,theLawonIndustrialEnterprisesOwnedbytheWholePeople(SOE Law),removedthegovernmentfromdirectcontroloverSOEs,grantinglegalstatustothemand definingthestateasanowner.205Eventually,manySOEswerecorporatized,i.e.,converted tojointstockcompaniesandregisteredundertheCompanyLaw,whichwasfirstintroducedin 1994.206OverhalfofallSOEswerecorporatizedinthiswaybytheendofthe1990s. Corporatizationisdesignedtoseparatecompanyownersfromcompanymanagementsothat thecompanycanberunonacommercialbasisandtoeventuallyallowinvestorstopurchase limitedamountsofshares.Theprocessofcorporatizationsucceededinraisingequitycapital forSOEs,butthestatestiestotheSOEsremainstrong.TheCompanyLawwasrevisedin2006 toprovidemoresecurityforminorityshareholders,buttransformedfirmsarestillnotimmune fromstateinterference,andtheirincreasedautonomymadeiteasierformanagersto expropriatethefirmsassets.207 Recentreforminitiativeshaveindicatedagreaterwillingnesstoprovideforshareholder protection.Forexample,theamendmentstotheCompanyLawin2006increaseshareholders abilitytocollectivelyinfluencemattersplacedbeforetheboard,andgenerallyincrease transparencyobligations.208Importantly,theamendmentsintroducetheconceptoffiduciary dutiesandexpandmanagementscivilliabilitiesinordertoincreaseaccountabilityto
205 206
Page72
CapitalTrade,Incorporated
October26,2011
shareholders.209Articles55,56,121,and122oftheCompanyLawprovidethatemployees, unions,andshareholdershavetherighttooverseeandevaluatetheactivitiesofthecompany incertaincircumstances.Shareholdersarenowpermittedtobringsuitifdirectorsor managementviolatetheirobligations.Inaddition,ChinasSecuritiesRegulatoryCommission hasissuedanumberofadministrativemeasuresaimedatimprovingtheprotectionofminority shareholderrights.Thestepconsideredmostimportantbymanyexpertsisimprovingthe systemforminorityshareholdervotingonmajorissues.210 TheSixteenthNationalPartyCongresspresentedtheGuidingPrinciplesforStateownedAssets in2002,whichreinforcedthestatesroleasownerofSOEs.211TheStateownedAsset SupervisionandAdministrationCommission(SASAC)wascreatedinMay2003andmanages SOEsregisteredundertheCompanyLawontheprincipleofseparatinggovernment administrationfromenterprisemanagementandseparatingownershipfrommanagement.212 TheSASACshallnotinterfereinproductionandoperationactivitiesbutratherwillactasthe majorityshareholdertotakemajorpolicydecisionsandchoosemanagers.213Apriorityofthe SASACistoimprovetheperformanceofSOEsboardsofdirectorsbyappointingandremoving directorsbasedonperformancemeasures.214TheSASACmayauthorizedirectorstotake independentdecisionsonimportantmattersofthecompany.Thestateneverthelessdecides anymatterrelatedtotheincreaseorreductionincapital,issuanceofbondsorchangesin corporatestructure,suchasmergers,divisions,orliquidation.Thechairmanandvicechairman oftheboardareappointedbytheSASACfromamongtheboardmembers.215 PertheSASACswebsite,itsmainfunctionsandresponsibilitiesare:2161)Supervisionand evaluationofstateownedenterprises;2)Oversightofstateownedassets;3)Recruitingoftop executivetalent;4)Draftingoflaws,administrativerulesandregulationsthatpromote increaseddevelopmentofcorporatelawinChina;and5)Coordinationoflocalstateowned assetsasprescribedbylaw.Asforpersonnelpolicies,thewebsitefurtherstates: SASACappointsandremovesthetopexecutivesofthesupervisedenterprises,andevaluates theirperformancesthroughlegalproceduresandeithergrantsrewardsorinflictspunishments basedontheirperformances;establishescorporateexecutivesselectionsysteminaccordance
209 210
(Anderson2005)19. (ChinaUpdate2006). 211 (ChinaintheGlobalEconomy:GovernanceinChina2005)305. 212 (TradePolicyReview,ReportbytheSecretariat:People'sRepublicofChina2006)133. 213 (TradePolicyReview,ReportbytheSecretariat:People'sRepublicofChina2006)133134. 214 (ChinaintheGlobalEconomy:GovernanceinChina2005)305. 215 (TradePolicyReview,ReportbytheSecretariat:People'sRepublicofChina2006)129. 216 (MainFunctionsandResponsibilitiesofSASAC2011).
Page73
CapitalTrade,Incorporated
October26,2011
withtherequirementsofthesocialistmarketeconomysystemandmodernenterprisesystem, andimprovesincentivesandrestraintssystemforcorporatemanagement. TheSASACwillassesstheseniorandmiddlemanagementofanSOEonthesefourcriteriaonan annualbasis,andwillawardeachpersonagradeofA,B,Cortheequivalent.TheSASAC conductstheseratingsbothbyhavingthesubjectcompleteaselfassessmentandbyhaving thesubjectscolleaguesfilloutanonymousratingsformsvisvistheirleaders(anindigenous Chineseversionofa360degreepersonnelreview).IfaseniorSOEmanagerhasthreeyearsof mediocreratingsinarow,hewillusuallyberemovedfromhisjob.217 ContemporaneouswithratingtheseniorSOEmanagers,theSASACalsopicks10midtoupper levelSOEmanagers(houbeior peoplewaitinginthewings)andratesthemaccordingtoa similarmethodology.Thosewhoreceiveahighratingwillbefirstinlineforhigherranking positionswhenopeningsoccur. Ascentralgovernmentownershipofcompaniessuchasenergyordefenserelatedfirmsis consideredkeytonationalsecurity,thecentralgovernmentmaintainsabsoluteorcontrolling stakesinsuchenterprises.Hence,SOEsaffiliatedwiththecentralgovernmentareunder tightergovernmentcontrolthanfirmsaffiliatedwithlocalgovernmentsatthethree jurisdictionallevels:provincial,municipal(orcity),andcounty(ortownship).Itshouldbenoted thattherearelocalSASACsatallofthesethreelevels,andthattheirdutieswithregardto provincial,municipal,andcountyownedSOEsparallelthoseofthecentralSASAC. Despitetheabovedescribedsystemstopickthemostcompetentcandidateforaposition,the Chinesepersonnelsystemisstillriddledwithcorruptionandcronyism,especiallyatthelocal levels.218Asthesystemistosomeextentselfgoverningandselfregulating,sycophancyand loyaltytoonesdirectsuperioroftencountmorethananysortofobjectivemeasureof competency.MostChineseSOEboardsfallintothetypologieshighlightedinarecentOECD report:1)theoperationalboard,fortheboardthatrunstheSOEasanextensionofa governmentdepartment;2)theconduitboard,whichsimplyrelaysdirectionsgivenby ministers;3)thesymbolicboard,whichiscircumventedanduninvolved;and4)thesubjugated board,whichisdominatedbyapowerfulCEOorchair.219
217 218
Page74
CapitalTrade,Incorporated
B. TheroleoftheCOD
October26,2011
Officially,SOEsincorporatedundertheCompanyLawareempoweredtomaketheirown managerial,operational,andproductiondecisions.Thestateretainsonlytheauthorityto appoint,remove,andrewarddirectors.Aminorityofcommercialenterprisesisnot incorporatedundertheCompanyLawandstilloperatesundertheoldsystemofdirect managementbygovernmentministries.AprimarygoalofSOEreformshasbeentoimprove efficiencybyintroducingmarketmanagementpracticesandbyseparatingtheownershipof firmsfromtheirmanagementinordertorestrictthestatetotheroleofownerandlimitits interferenceindaytodayoperationsofthecompany.Intheory,thisprovidesgreater autonomytotheSOEmanagersandallowsthemtomakedecisionsbasedonmarket considerations.Inpractice,however,theCCPstillappointsthemajorityofseniorSOE managersdespiteanominalseparationofownershipandmanagement.Accordingtoan analysisbyPeiMinxinthatappearedinForeignPolicyin2006,theCCPappointsfourfifthsof thechiefexecutivesatSOEsandmorethanhalfofallseniorexecutives.220 TheseniormanagersofthecentralSASACenterprisesareimportantpeoplewithinthe CommunistPartyframework.Forthetop50orsocentrallymanagedSOEs(yangqi),thethree toppositionspartysecretary,chairmanoftheboardandCEOareappointeddirectlybythe CommunistPartysCentralOrganizationDepartment(COD)(zhongzubu).221UndertheChinese model,theboardchairmanisviewedasthedefactoheadtowhicheveryonedefers,including theCEO.AlmostallofthepeoplechosenforthesetopthreepositionsareCCPmembers,and onepersoncanholdtwopositionsatthesametime.Infact,theCEOandpartysecretaryof manyofthetopyangqiareoftenthesameperson.222Thesepositionsareequivalenttoa minister(buji)orviceminister(fubuji)rankintheChinesegovernment,andtheselected executivesarereviewedandapprovedbytheStandingCommitteeofthePolitburo.Theyoften serveasvicegovernorsofprovincesbeforeoraftertheirtenuresinseniormanagementatthe SOEs. Theappointmentsofalltheremaininghighrankingpositions(vicepresidents,deputyparty secretary,etc.)atthese50yangqiarecarriedoutbytheSASACinconsultationwiththeCOD. ThecentralSASACisalsonominallyinchargeofallmajorpersonneldecisionsattheremaining 70centrallymanagedSOEs.Personneldecisionsinprovincial,municipalandcountySOEsare alsomanagedbythelocalarmoftheSASAC.
(Pei2006)36. FormerChineseleaderssuchasZhouEnlaiandDengXiaopengwerebothleadersoftheCODbeforetheir ascensiontothetopechelonofpower,givinganindicationofthecentralityoftheCODtotheChinesebodypolitic. 222 (Pei2006)36.
221 220
Page75
CapitalTrade,Incorporated
October26,2011
TheCODhasdetaileddossiersoneverymemberoftheCCP,andistheundisputedarbiterof majorpersonneldecisionsinChinesesociety.TheCCPusesthenomenklaturamethod(listof namesinSovietterminology)todetermineappointments.Thecentralnomenklaturalist comprisesthetop5,000positionsinthePartystate,allofwhicharecontrolledbytheCOD.The listincludesallministerialandviceministerialpositions,provincialgovernorshipsandfirstParty secretaryappointments,aswellasappointmentsofuniversitychancellors,presidentsofthe AcademyofScienceandAcademyofSocialSciences,etc.224 AsourcewhowasahighrankingmemberofthepersonneldepartmentoftheMinistryof ScienceandTechnologystatedinaninterviewthatitisstilltheCODthatwieldstherealpower behindthescenesformajorpersonnelappointmentsateverystratumofChinesesociety.The departmenthasbeenheadedsincelate2007byLiYuanchao,areportedlyforwardlooking leaderwhostudiedattheKennedySchoolofGovernmentatHarvard.
C. Themarketorthestate?
Page76
CapitalTrade,Incorporated
October26,2011
andinstitutionalshareholders.Inmanycases,sharesarealsoownedbyotherstateownedor controlledentities.
FigureXI1:OwnershipandcontrolstructureoflistedSOEsubsidiaries
CODand CSASAC
Nonstate shareholders
Otherstate shareholders
CentralSOE
Listed subsidiaries
Unlisted subsidiaries
So,giventhisstructure,whathappenswhenalistedsubsidiaryisfacedwithtwooptions,one thatbenefitsthefinancialinterestsofshareholders,oronethatbenefitsthenationalinterests ofChinaasdefinedbytheStateCouncil?Companymanagementwouldhavetochoose. Theincentivestheyfaceensurethattheywillchoosestateinterestsoverthoseofnonstate shareholders.TheexecutivesofSOEownersarechosenand/orapprovedbyCODandSASAC, whichalsodetermineexecutivesalariesandtheircareerpaths.Theircareersandfinancial successdependsonhowwelltheyadheretoCCPprioritiesand/orgovernmentorders.226 Moreover,theInterimProvisionsonManagementofExecutivesinCentralSOEs",issuedjointly bytheCentralCommitteeofCCPandtheStateCouncilinDecember,2009,clearlyindicates thatthePartymaintainsabsolutecontrolovertheexecutives.227Theexecutivesofthelisted subsidiariesmainshareholder,therefore,areincentivizedtofollowwhatisbestforthestate. Thisinstitutionalordersuggeststhatthesubsidiarieswouldalsobelikelytochosefollowthe interestoftheParty/state.ThedisclosuredocumentssubmittedbySOEsthathaveraised capitalintheUnitedStatessupportthisconclusion.ThestatementofriskprovidedbyChina SouthernAirlinesCompanyLimitedisquiteexplicit:TheCompanyisindirectlymajorityowned bytheChinesegovernment,whichmayexertinfluenceinamannerthatmayconflictwiththe
226 227
(Deng,etal.2011)16. (Deng,etal.2011)1314.
Page77
CapitalTrade,Incorporated
October26,2011
interestsofholdersofADRs,HSharesandAShares.228Theotherdisclosuredocumentviewed forthisstudymakethissamegeneralpoint.Forexample, Chalco:Theinterestsofourcontrollingshareholder{theSOEChinalco},whoexertssignificant influenceoverus,mayconflictwithours.229 ChinaTelecomCorporationLimited:WewillcontinuetobecontrolledbyChinaTelecom Group,whichcouldcauseustotakeactionsthatmayconflictwiththebestinterestsofour othershareholders.230 CNOOCLimited:CNOOCindirectlyownedorcontrolledanaggregateofapproximately64.41% ofoursharesasofMarch31,2011.Accordingly,CNOOCcontinuestobeabletoexerciseallthe rightsofacontrollingshareholder,includingelectingourdirectorsandvotingtoamendour articlesofassociation.231 Inshort,itappearslikelythatwhenfiduciarydutiesofmanagementatlistedfirmsconflictwith Chinasgovernmentpriorities,managementwill,ataminimum,faceanincentivestructurethat pushesittochosetheinterestsofChinaovertheinterestsofprivateshareholders.
XII. EffectsofSOEinstitutionalinterestsonmarketaccessnormsinChina
Page78
CapitalTrade,Incorporated
October26,2011
consideringaswell.TheprimaryactorhereistheCCP,anditsrolewillbediscussed extensively. SOEexecutives:Asdescribedabove,theexecutivesofChinasimportantSOEsfacetwosetsof incentives.Ontheonehand,theywanttheSOEstheymanagetobeprofitablebecause SASACsgradingofmanagementisbasedontheenterprisefinancialperformance.Onthe otherhand,theircareerpathsareultimatelydeterminedbytheCCPsCOD,whichismore concernedwithhowwelltheexecutivescarryoutthegoalsofthestate.Areviewofrecent eventsindicatesthatwhenfinancialandstategoalsconflict,thegoalsofthestateare dominant.Forexample,thegovernmentsfiscalstimulusmeasuresin2009requiredsignificant amountsoflendingbystateownedbankandinvestmentsbySOEs.Accordingtoonestudyof thestimulus,banklendingwentprimarilytoSOEswhosubsequentlyusedthosefundstoinvest inrealestate.232Thebankslentthismoneywithouttheduediligencetypicallyused,andthe SOEspaidmorefortheiracquisitionsthannonSOEswhopurchasedotherwiseidentical properties.233Also,theretailoperationofpetroleumSOEsrackeduphugelossesin2008 becausetheywereforcedtomaintainlowgasolinepricesatatimewhenglobalfuelprices wereskyrocketing. StateCouncil:TheStateCouncilisthehighestexecutiveorganofstatepower,aswellasthe highestorganofstateadministrationinChina.234TheStateCouncilhassubstantialpowerto legislateandregulate.Itholdsthepowertoproposelegislationandmaytakedirectaction throughadministrativeregulationdelegatedtoitbytheNationalPeoplesCongressorthe StandingCommittee.TheStateCouncilexercisesitseconomicregulatorypowerthrough documentssuchascirculars,measures,andtemporarymeasures.TheLegislativeAffairs CommitteeoftheStateCouncilmayinterpretlegislationand,jointlywiththeNPCStanding Committee,resolveconflictsbetweenregionallawsandStateCouncilregulations.235All membersoftheStateCouncilarereviewedbytheNPC(oritsStandingCommittee).236Thus, theStateCouncilisbeholdentothePartymembersintheNPC. SOEemployees:SOEsemploymillionsofChinese.Theyhaveanobviousinterestinthefinancial successoftheSOEsatwhichtheyworkbecausefailurecouldleadtounemployment.Thisisno idlethreatbecausepastSOEclosuresdidleadtojoblosses. ChinasCommunistParty:TheCommunistPartyisomnipresentineveryfacet,andatevery level,ofgovernmentandhasbeensoforthelastsixtyyears.InthewordsoftheBBC,the
232 233
Page79
CapitalTrade,Incorporated
October26,2011
Studiesobservethat...Chinascurrentregimefollowsthesamephilosophy.242 Indeed,justrecently,inBeijing,theCommunistPartycelebratedsixtyyearsinpowerwitha spectacularpublicceremony.243Themilitary,pastandpresentgovernmentcadres,andsenior PartyleadersincludingthehighestlevelsofthePolitburowereallinattendance.244Atthe heightoftheceremony,tensofthousandsofstudentsflippedcolouredcardstoformphrases suchasobeythePartyscommandandbeloyaltotheParty.245 TheCommunistPartyexertsitscontroloverthegovernmentthroughatopdownpyramid.At thetopstandsaselectfewthatformthepowerbaseoftheentiresystem.246ThePolitburos ninememberstandingcommitteeisthesourceofultimatepowerinChina.247ThePolitburo itselfhas25members,whoareselectedbythePartysCentralCommitteeof370fullandpart timemembers.248 Exactlyhowthestandingcommitteeoperatesissecretandunclear,butonceadecisionhas beenmade,allmembersspeakwithonevoice.249Whentheordersareissued,theGOCand
237 238
(HowChinaIsRuled2010). (BiographyofMaoZedong2010). 239 (Kominiak1996)10. 240 (Kominiak1996)10. 241 (Kane2001)30,citingto(DengXiaoping:TheStateman1993)at557. 242 (Kane2001)48. 243 (PartyLikeIt's'492009). 244 (PartyLikeIt's'492009). 245 (PartyLikeIt's'492009). 246 (HowChinaIsRuled2010). 247 (HowChinaIsRuled2010). 248 (R.McGregor2010)12. 249 (HowChinaIsRuled2010).
Page80
CapitalTrade,Incorporated
October26,2011
ThereportnotesthateventhearmyreportsdirectlytotheCommunistParty.256Communist Partyrepresentativessitsidebysidewithofficialsinthegovernment,army,andSOEs.They areunderthedirectcontroloftheCommunistParty.257Indeed,theSandiaReportconcludes thatagroupofincestuouspowerelite,formsasinglepoliticalbureaucracyconsistingof Party,government,andmilitary.258Asnotedinanotherindepthacademicstudy,Chinas intelligenceofficials,Chinasmilitaryofficers,andChinaspoliticalleaderstendtobeclosely relatedbyblood,whentheyarenotactuallythesameindividuals.259 TheentiresystemisbasedonlawthatispurposefullycontradictorysothatPartyleaderscan rulewithimpunity,ifnecessary.Althoughincreasingattentionreportedlyisbeingpaidto formallaw,sourcesreportthatpartiesinChinaaffectedbyaspecificlawcustomarilyaskfor themostrecentinterpretationofthelaw,notwhatthewrittenletterofthelawsays.There maybeactivegovernmentpolicyonaparticulartopicforyearsbeforethepolicyhasbeen codifiedintolaw. Inaddition,oncealawispromulgated,thepracticalmeaningofalawisoftendeterminedby administrativeregulationsissuedbytheStateCouncilorcentralgovernmentministriesmonths afterthelawispassed.Regulationsalsomaybefurthermodifiedbyprovincialandlocalrules
250 251
(HowChinaIsRuled2010). (HowChinaIsRuled2010). 252 (HowChinaIsRuled2010). 253 (HowChinaIsRuled2010). 254 (Kominiak1996)10. 255 (Kominiak1996)10. 256 (Kominiak1996)10. 257 (Kominiak1996)9. 258 (Kominiak1996)9. 259 (Kane2001)50.
Page81
CapitalTrade,Incorporated
October26,2011
andregulations.AnexampleofthissituationisChinasAntimonopolyLaw,whichwaspassedin AugustinAugust2007after13yearsofdebate.Afterthepassageofthelaw,fundamental issues,suchaswhetherthelawisprimarilydirectedatpreventingforeigntakeoversofChinese companies,orwhetheritmaybeusedtocounterthemonopolypoweroflargeSOEs,aresill mattersofuncertaintyanddebate.260 Chinasgovernmentpolicieshaveinfluencedthebehavioroffirmsandindustriessince economicreformsbeganinthelate1970s,althoughthemethodshavechangedradicallyand repeatedly,andcontinuetodoso.Chinahasundergonefivemajorgovernmentreformsduring thistimein198283,1988,1993,1998,and2003.261Eachofthesereformsreorganizedand redrewthemajorlinesofgovernmentresponsibility,reducingthenumberofministries, commissions,andotherorgansoftheStateCouncilfrom100in1982to28in2003.Eachwave ofreformhasalsoattemptedtoredrawtheboundariesbetweenthegovernmentandthe SOEs.Asaresult,SOEshaveevolvedfrombeingpartsofgovernmentministriesinvolvedin productionactivitiestosomethingmorenearlyresemblingstandaloneenterprises. TheCCPexercisessomemeasureofleverageandcontroloveralltheotheractorsdiscussed thusfar.ThePartyappointsthetopexecutivesofkeySOEsanddeterminestheircareerpaths aftertheyarerotatedout.TheParty,throughitsmembersintheNPC,mustapproveall appointmentstotheStateCouncilandallStateCouncilappointeesarePartymembers. Workers,too,areundertheeyeoftheParty.UnionsarecreatedundertheumbrellaoftheAll ChinaFederationofTradeUnions(ACFTU);independentunionsareinpracticenotallowed.262 PursuanttotheTradeUnionLaw,thepurposeoftheACFTUistoassistthepeoples governmentintheirworkandsafeguardthesocialiststatepower.263TheACFTUisfundedby theChinesegovernmentanditsleadershipischosenbytheCCP.
B. ImpactonforeignaccessinChina
Page82
CapitalTrade,Incorporated
October26,2011
ThisdoesnotmeanthatU.S.firmscannotmakemoneyinChina,orcannotsellinChina.Many U.S.firmshaveprofitedhandsomelyfromtheopeningofChinaseconomy.ManyU.S.firms haveinvestedinChina,soldU.S.madeequipmentinChina,andmademoneyinChina,inpart duetogeneroussubsidiesandcompetitionlimitsputinplacebythegovernment. Butitisnowincreasinglyobviousthatthesepolicies,andthegainstheyconferredonU.S.firms, werenotduetothePartysconversiontofreemarketcapitalism.Rather,amoreconvincing interpretationofthesepoliciesisthattheywereputinplacetoaccomplishcertainveryspecific aimsofthestate.Whenthegovernmentdesiredforeigninvestmenttospurjobgrowthand kickstartChinaseconomy,theresultwasincentivestoattractforeigncapital.AsDeng Xiaopingsaidina1984speechexplainingChinasopeningtoforeigninvestment,
Wewelcomeforeigninvestmentandadvancedtechniques.Managementisalsoa technique.Willtheyundermineoursocialism?Notlikely,becausethesocialistsectoris themainstayofoureconomy.Oursocialisteconomicbaseissohugethatitcanabsorb tensandhundredsofbillionsofdollars'worthofforeignfundswithoutbeingshaken. Foreigninvestmentwilldoubtlessserveasamajorsupplementinthebuildingof socialisminourcountry.Andasthingsstandnow,thatsupplementisindispensable.264
SOEsareatoolusedbytheCCPtodevelopChinaseconomy,carryoutmacroeconomic stimulus,and,increasingly,tosecuretheeconomicsecurityofChinaandadvanceChinas economicinterestsabroad.Whenforeignbusinessesadvancethegovernmentscausesthey areallowedaccesstoChina,butwithintheconfinesthatarecomfortabletotheParty. ThePartydoesnotseemcomfortablewithforeignentitiesowningcontrollingsharesstrategic industries.Thus,explicitlimitationsareplacedonforeignownershiplevelsinthoseindustries. ThePartywantedtoupgradethetechnologylevelofSOEsandtheeconomyingeneral,so foreigncompanieswiththeneededtechnologieswereattractedandallowedtoformjoint ventureswithSOEsubsidiaries.Nowpolicyhasshiftedtofavorindigenoustechnologies,and ChinaincreasinglyispursuingpoliciesthataimforSOEstodevelopindigenoustechnologiesat theexpenseofforeignones. ForeignresourceproducerswerehappytosellrawmaterialstoChinesesteelSOEs,whowere buyingincreasinglylargequantities.ButwhenChinadecideditshouldgetabetterdealthanits internationalcompetitors,itformedanegotiatingblocofSOEsteelmakerstodealbetterprices forChina.
264
(X.Deng1984).
Page83
CapitalTrade,Incorporated
October26,2011
TheRioTintocaseisinstructive.Inthelatterhalfof2008andearly2009,Chinawasengagedin ahotlycontesteddisputewithRioTintoofAustraliaoverironoreprices.TheGOCwasirate overwhatitclaimedtobepricegougingbyRioTinto.Inreality,however,RioTintomerely askedtheChinesetopaythemarketprice(i.e.,thesamepricenegotiatedwiththeJapanese andKoreans).265Outragedthatsomeofitssteelproducersmayhavereachedan understandingwithRioTintothatwasnotinlinewithitspolicygoalsofcheaprawmaterialsfor allChineseproducers,theGOCjailedseveralsteelCEOsunderchargesoftreasonwhichcan carrythedeathsentence266forallegedlyrevealingstatesecretsinthenegotiations.267In addition,theGOCjailedRioTintoexecutives,confiscatedtheirbusinessproprietary information,andhandedovertheirinformationtoRioTintosstateownedcompetitors.268 Inshort,becauseSOEsareimportanttothestate,andbyextensiontheCCP,andbecausethe stateandCCPinterestscastalongshadowoverSOEs,U.S.andotherforeigncompaniesare likelytofacelimitstoaccessinChinawhensuchaccesscontradictstheinterestsofthePartyor potentiallyharmsthefinancialinterestsofSOEs. AlthoughtheinfluenceofthegovernmentandthePartyareexpressedmostclearlythrough SOEs,itwouldbeamistaketoassumethatprivateenterpriseinChinaignoresthegovernment andtheCCPandaspirestoendthecurrenteconomicandpoliticalsysteminChina. NotwithstandingtheromanticimagefromTiananmenSquare,mostcapitalistsinChinaarenot tryingtobringaboutatransitiontodemocracyinChina.InthewordsofKelleeS.Tsai,instead, mostareworkingeighteenhourdaysandstrugglingtostayinbusiness.Othersaresavingtheir profitstoeducatetheironechild,payformedicine,buyahouse,orretire.Quiteafew entertainlocalofficialsasnecessarybusinessexpense,andmanyaremembersoftheChinese CommunistParty.269 Moreover,thestateandtheCCPhasmanagedtoextenditsreachintotheprivatesector.Most businessassociationsinChinaareeitherorganizedbythestateorhavebeencooptedbythe state.270Privateentrepreneursareoftenautomaticallyregisteredintojoinstatesponsored representativebodies,suchastheAllChinaFederationofIndustryandCommerce,the IndividualLaborassociation,andthePrivateEntrepreneursAssociation.Moreover,inmany instancesthelocalentrepreneurhardlyneedstobecoopted,becauseheisalreadyaParty memberandlocalpoliticianacadreentrepreneurorredcapitalist.271By2003,34
265 266
(TheSteelFistofGovernment2009). (ChinaOfficiallyArrestsRioEmployees2009). 267 (ChinaWidensProbeofSteelIndustry2009). 268 (China'sYukos:TheRioTintoCaseShowsPutinismIsMovingEast2009). 269 (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)3. 270 (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)7. 271 (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)82.
Page84
CapitalTrade,Incorporated
October26,2011
percentofprivateentrepreneurswerePartymembers,comparedto14percentadecade earlier.272Membershiphasitsprivileges:Entrepreneurswhoaremenwithstrongpoliticalties (i.e.,membersofformalpoliticalorganizations),whorunbusinesseswithalargenumberof employees,andwhohavePartybranchesintheenterprisearemorelikelytohaveaccessto bankcredit.273 PrivateentrepreneursarenowencouragedtojointheCCPaswellasconsultativebodies.The situationforprivatecapitalinChinahassignificantlyimprovedinrecentyears.274Butprivate businessesstillfaceanumberofoperationalandfinancinglegalbarriersthatcompel entrepreneurstocollaboratewithlocalofficials.275 Inshort,althoughtheprivatesectordoesnotfacethesamepoliticalconstraintsasdoSOEs, neitherisitfreefromCCPinfluence.
XIII. SOEsasconduitsforforeignpolicies
Duringthepasttenyears,ChinasmajorSOEshaveextendedtheirreachbeyondChinain responsetothegovernmentsgoalsofenlargingmarketsforChinesegoodsandservices, securingaccesstorawmaterials,obtainingadvancedtechnologies,andenhancinginternational awarenessofChinesebrands.Thesocalledgoingglobalstrategy(zouchuqu)wasproposed in2000atthe5thplenarysessionofthe15thCentralCommittee.276 Withtotalforeignexchangereservesat$3.2trillion(andalmostofhalfofitinU.S.Treasuries), equivalenttoabout50percentofgrossdomesticproductandalmostthreetimesmorethan anyothernationsreserves,Chinahasaplethoraofexcesscashonhand.277Chinais desperatelylookingtodiversifyitsforeignholdings,andthenaturalvehiclehasbeenthrough overseasinvestmentsinindustriesthatareofstrategicimportancetothePRCnamelyenergy andminerals.GiventhesizeofresourceextractionprojectsandtheirimportancetoChinas economicdevelopment,centralSOEshaveplayedaprominentroleinChinasforeign investments.In2006,SOEswereresponsibleforfourfifthsofoutwardFDI;centralSOEsalone wereresponsiblefor66percentoftotaloutwardFDI.Sincethebeginningof2005Chinahas investedmorethan$250billioninnonfinancialinvestmentsoverseas.278SOEsaccountfor
272 273
(Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)83. (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)84. 274 (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)8. 275 (Tsai,CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina2007)12. 276 (Lee2009)9. 277 (China'sReserve'sClimbby$153Billion2011). 278 (ScissorsJuly,2011).
Page85
CapitalTrade,Incorporated
October26,2011
Page86
CapitalTrade,Incorporated
October26,2011
TableXIII2:SectoralcompositionofChinasforeigninvestmentsasofJune2011 Investment (Bil.Dollars) OtherWesternHemisphere 72.3 SubSaharanAfrica 56.4 WestAsia 51.7 ArabWorld 43.7 Europe 43.2 EastAsia 42.6 Australia 38.4 UnitedStates 30.5
Total
Source:ScissorsJuly,2011.
378.8
AustraliahasbeenthenumberonenationaldestinationforChineseinvestment,withalmostall oftheinvestmentgoingtothecoal,gas,iron,steelandaluminumsectors.TheUnitedStatesis nominallytheseconddestination,butmostoftheinvestmentshavebeenpassivefinancial investmentsbytheCIC.282LatinAmerica,especiallyBrazilandArgentina,haveseenanupsurge ofChineseinvestmentinenergy,mineralsandfoodstuffs,althoughBrazilhasrecentlyenacted measurestolimitforeigninvestmentinlargelandholdings.Africahasalsoseenalargerisein energyandmineralinvestment,especiallyaftertheChinaAfricaSummitof2006.Almost$2 billioninagreementsweresignedandPresidentHuJintaopledgedtooffer$5billioninloans andcreditandtodoubleaidtoAfricaby2009.283 ThebiggestplayersNationalChampionsinoverseasinvestmentareamongChinaslargest SOEs:nationaloilgiantsChinaNationalPetroleumCorporation(CNPC),SinopecandtheChina NationalOffshoreOilCompany(CNOOC),aswellasmetalconglomeratestheAluminum CorporationofChina(Chinalco),ChinaMetallurgicalandMinmetals.Shippingandconstruction groupsalsofigurehighonthelist,includingtheChinaStateConstructionandEngineeringCorp., ChinaOceanShippingGroup(COSCO),andChinaCommunicationsConstruction.Among industrialcompanies,ZTECorp(telecoms),Lenovo(IT)andHaier(householdgoods)arealso prominent,asisthediversifiedconglomerateCITIC.TheChinaInvestmentCorporation(CIC), ChinassovereignwealthfunddevelopedalongthelinesofSingaporesTemasekandAbu DhabisInvestmentAuthority,alonehasassetsofsome$200billionandhasmadenotable(but notverysuccessful)investmentsinthefinancialsector.JustfourentitiestheoilgiantsCNPC
SeveralattemptstobuyrealassetsintheUShavebeenstymiedbyUSlawmakersduetonationalsecurity concerns(e.g.,CNOOCsaborted$18billiontakeoverofUnocalandHuaweisabortedtakeoverattemptsof3Com, 2WireandMotorolaswirelessequipmentunit). 283 (ChinaAfricaSummitYields$1.9BillioninDeals2006).
282
Page87
CapitalTrade,Incorporated
October26,2011
CITICGroup COSCOGroup ChinaStateConstructionEngineeringCorp ChinalNationalPetroleumCorp SinochemCorp ChinaShipping(Group)Co CNOOCLtd. ChinaCommunicationsConstructionCo BeijingEnterprisesHoldingsLtd SinosteelCorp ChinalRailwayConstructionCorp ZTECorp Sinotrans&CSCGroup LenovoGroup ShanghaiAutomobileIndustryCorp ChinaMinmetalsCorp ShanghaiBaosteelGroup HaierGroup
43.8 20.3 13.9 9.4 6.4 6.0 5.3 4.0 3.7 3.5 3.2 3.1 2.8 2.7 2.3 1.7 1.1 0.8
Source:China'sMinistryofCommerceandFudanUCC2010.
284 285
Page88
CapitalTrade,Incorporated
October26,2011
financingnecessarytoconsummatethedeal.288Thisscreeningprocessspreadstheriskamong alltheentitiesinvolved,thusreducinganyrepercussionsfortheSOEifanythinggoeswrong.289 TheexistenceofsuchinteractionsdoesnotmeanthatSOEexecutivesignoremarketincentives. SOEsarenotinbusinesstolosemoney,andmanyoftheirinvestmentdecisionsreflectmarket principlestosomedegree.However,SOEinvestmentsandactionsalsoreflectthelongterm visionoftheircontrollingshareholder(theChinesegovernment),andthusshorttermprofits arenotnecessarilytheirhighestpriority.Asageneralmatter,SOEmanagersareincentivizedto makeinvestmentsfromaneconomicpointofview,buttheyalsomakeinvestmentsthatreflect Chinesegovernmentpolicy,especiallyinAfrica,whereChinesestyleODAinfrastructure projectsareusedtofacilitateSOEinvestment.290 ThegovernmentneedstoapproveanymajoroverseasinvestmentbyanyChinesecompany.291 SOEsoverseasinvestmentsneedtheexplicitapprovalofatleast4governmentagencies:the NRDC,MinistryofCommerce,StateAdministrationofForeignExchangeandtheSASAC.These agenciesactaspoliticalandeconomicconsultantsformajoroverseasprojects.292TheNDRCis responsibleforreviewingprojectfeasibilityanddeterminingwhethertheinvestmentisinsync withcurrentgovernmentpolicy.MOFCOMisresponsibleforcheckingwhethertheinvestment makescommercialsenseandisinsyncwiththetargetcountryspoliticalandeconomic environment.SAFEisresponsibleforexaminingthesourceoffundingforanyinvestmentand approvingtheconversionofRMBintoforeigncurrency.Inthissense,SAFEholdstheultimate trumpcard,aswithoutforeignexchangeapprovalnoinvestmentscanoccur. ThefinancialcrisisintheWesthasgivenimpetusforChinatoaccelerateitsoverseas investmentsandfurthersupportitsnationalchampions.ThetopChineseleadershiphasstated thatSOEswillcontinuetobethemainactorsinChinasgoingoutpolicy,andthatChinawilluse itsmassiveforeignexchangereservestofuelthisoverseasexpansion,especiallytargeting energyandnaturalresources.ThiswasclearlystatedbyPrimeMinisterWenJiabaoinaJuly 2009speechtoChinesediplomats:Weshouldhastentheimplementationofourgoingout strategyandcombinetheutilizationofforeignexchangereserveswiththegoingoutofour enterprises.293
(Interviewwithresourceindustryexecutive2011). (InterviewwithformerSOEexecutive2011). 290 (CorkinApril,2008). 291 Majorinvestmentsarethosethatexceed$300millionintheresourcesectorand$100millioninnonresource sectors. 292 (Interviewwithresourceindustryexecutive2011). 293 (Anderlini2009).
289
288
Page89
CapitalTrade,Incorporated
October26,2011
TheChinesegoingoutpolicywasmeanttofosternationalchampions,andtheselargescale SOEsaretheonlycorporateentitiesinChinathathavethescale,knowhowandgovernment backingtocarryoutlargeinfrastructure,resourceorenergyinvestments.Thegovernments pushforthedevelopmentofnationalchampionsandtheprocurementofoverseasnatural resourcesunderpinsabroaderagendaofeconomicnationalismfocusedonenergysecurity, geopolitics,andcompetitiveness.SotheoverseasinvestmentsofthecentralSOEsareclearly advancingthenationalinterestasdefinedbythegovernment. OverseasinvestmentregulationsweresimplifiedinChinasmostrecent5yearplanpassedby theNationalPeoplesCongressinMarch2011.ThechangesmakeiteasierforSOEstoinvest overseas,andplaceagreaterfocusonoutboundinvestmentinkeysectorssuchasenergy resources,technologyandR&D,manufacturing,agricultureandfinancialinstitutions.The investmentthresholdswereraised,ascentralNDRCapprovalisnowneededonlyfor investmentsbyChinesecompaniesexceedingUS$300millionintheresourcessectorandfor investmentsexceedingUS$100millioninthenonresourcessector.Thesethresholdsare10 timesthosesetoutinthe2004Rules.294AlthoughthecentralSOEsnolongerneedanyNDRC approvalforprojectsundertheabovementionedthresholds,outboundinvestmentsinsensitive industriesand/orcountriesandotherspecialprojectsstillmustbeapprovedbytheNDRC and/ortheStateCouncil.
XIV. OverallassessmentofSOEsandstatecapitalisminChina
DespitetheindisputablegrowthoftheprivatesectorinChina,andthepresenceofforeign investment,thestateownedsectorremainsimportanttoChinaseconomy.Theobservable statesector,whichconsistofSOEsandtheenterprisestheydirectlycontrol,accountsfor approximately40percentoftheChineseoutputunderreasonableassumptions.Ifotherpublic bodies,suchasurbancollectives,publicTVEs,andFIEsassociatedwithSOEaffiliatesare included,theshareoftheoutputdirectlyorindirectlyattributabletosomeformofpublic ownershipislikelyfiftypercent. ThatthestatesectorremainsaforceinChinashouldbenosurprise.NeitherDengXiaopingnor thecurrentleadershiphassoughttoeliminatethestatesector.AsDengnotedinhis1984 speechcitedearlier,thesocialistsectoristhemainstayofoureconomy.Whiletherehave beenconflictsbetweenthosewhopreferredmorerapidreformsandthosewhosoughttoroll themback,thecurrentgoalofpolicyissocialismwithChinesecharacteristics.Onthe
(NoticeofMinistryofCommerceonFurtherEnhancementoftheApprovalSchemeforForeignInvestment, Circular72009).
294
Page90
CapitalTrade,Incorporated
October26,2011
economicfront,socialismwithChinesecharacteristicsmeansamultiownershiporientedbasic marketeconomicsystem,withthepublicownershipinthedominance.295 Asfaraswecantell,theguidingprincipleofeconomicreformsfromthetimeofDeng includingtheacceptanceofforeigndirectinvestment,theincreasedroleoftheprivatesector, andtheuseofcapitalmarketstoraisefundsforSOEshasbeentoimprovetheperformance ofChinaseconomythroughthecontrolledintroductionofmarketforces.296Reformsbeganin thecountrysidetorevivethemoribundruraleconomybeforespreadingtourbanareas.The introductionofforeigncapitalprovidedamuchneededdosageofforeignmoney,management skill,andtechnology.SOEshavebeen,andarebeing,streamlinedtobecomemoreefficient andmoreresponsivetomarketforces,andthestateislimitingitsroleincertainsectors. Still,sayingthatChinaisreformingitseconomyandbecomingmoremarketorientedisnotthe sameassayingthatitisabandoningthestatesector,orthattheprivatesectorisdominantin China.TheCCPisnotpursingafreemarketeconomyinwhichallaspectsofChinaseconomy aredeterminedsolelybymarketforces.Thestatesector,asdemonstratedinthisreport, respondsbothtoeconomicincentivesandtostatepolicies.TotheextentChinaiscapitalist, Chinaispursuingstateguidedcapitalism,wheretheoveralldirectionoftheeconomy,including theprivatesector,isguidedbygovernmentpolicies. ThereisnoeasywaytopredictwhatChinaseconomywilllooklikeintwentyyears.Chinas economicreformshavenotbeenlinearandthepaceandfocusofreformshavereflectedthe policyleaningsandprioritiesofthepinnacleoftheCCPsleadership.AsscholarYashengHuang explains,economicreformsinthecountrysideduringthe1980sweremadepossiblebya monumentalchangeinChinaspoliticalandpolicyenvironmentindicatedbytheascensionof DengXiaopingtothehelmoftheCCP.297Similarly,theaftermathoftheTiananmenSquare incidentandtheascensionofanewCCPleadershipledtoaneraofreformmorefocusedon restructuringandimprovingtheperformanceofthestatesector.Althoughmarketmechanisms haveplayedanimportantroleinthisrestructuring,thereisnoindicationthattheCCPwas,or is,aimingtoturnChinaintoabastionoffreemarketcapitalismdominatedbyprivatelyowned entrepreneurialfirmsrespondingtomarketincentives.TheCCPcontinuestopreferastrong statesector.
Page91
CapitalTrade,Incorporated
October26,2011
Indeed,thecurrenteconomicdirectionofChinaiscommandingheightsstatecapitalism,298 withtheChinesegovernmentpickingthewinningindustriesoftomorrowanddevelopingstate ownednationalchampionsthatareprominentathomeandabroad.Theprivatesectorand foreigncompanieswillremainimportantactorsChinaseconomy,especiallyiftheyfacilitate thegovernmentgoalsofenhancingindigenousinnovation,restructuringtheservicessector, developingacommercialaircrafttocompetewithBoeingandAirbus,andleapfroggingthe Westandothercountriesinkeyemergingsectors.Clearly,stateguidedcapitalisminChinais ascendantatthemoment.299 Thegovernmentsprominenteconomicrole,comingadecadeafterChinajoinedtheWTO, throwsintodoubtexpectationsthatChinasWTOmembershipwouldleadittopullbackfrom marketinterventions.ThebackandforthbetweenChinasrepresentativeandtheWorking PartyonChinasaccessionismemorializedintheWorkingPartyReport.Asthefollowingtext fromthereportdemonstrates,Chinaitselfencouragedtheseexpectations:
TherepresentativeofChinafurtherconfirmedthatChinawouldensurethatallstate ownedandstateinvestedenterpriseswouldmakepurchasesandsalesbasedsolelyon commercialconsiderations,e.g.,price,quality,marketabilityandavailability,andthat theenterprisesofotherWTOMemberswouldhaveanadequateopportunityto competeforsalestoandpurchasesfromtheseenterprisesonnondiscriminatoryterms andconditions.Inaddition,theGovernmentofChinawouldnotinfluence,directlyor indirectly,commercialdecisionsonthepartofstateownedorstateinvested enterprises,includingonthequantity,valueorcountryoforiginofanygoodspurchased orsold,exceptinamannerconsistentwiththeWTOAgreement.TheWorkingParty tooknoteofthesecommitments.300
Page92
CapitalTrade,Incorporated
October26,2011
U.S.firmsaremajorplayersinsomeoftheindustriesadvancedbyBeijing.Assuch,thecurrent frameworkwilldisadvantageU.S.firms.WhatwillitmeanforBoeingwhenstateowned airlinesinChinamustchoosebetweenBoeingaircraftandtheC919developedbyCOMAC?The Form20FofChinaSouthernAirlines,quotedearlier,ishardlyreassuring:TheCompanyis indirectlymajorityownedbytheChinesegovernment,whichmayexertinfluenceinamanner thatmayconflictwiththeinterestsofholdersofADRs,HSharesandAShares.301Thus,evenif marketconsiderationsdictatethepurchaseoftheBoeingplane,ChinaSouthernmaystill purchasetheC919.U.S.producersoftelecommunicationsequipmentfacedthisissuebefore when,asBarryNaughtonnotedintestimonybeforetheCommission,thestateowned telecommunicationsserviceproviderswereessentiallycoercedintoadoptingtheChinese indigenoustechnologystandard,TDSCDMA.302Ifthe12thFiveYearPlanisanyguide,U.S. firmsinemergingindustriesarelikelytoencounterthesamefrustrations.
301 302
(ChinaSouthernAirlineCorporationLimited2011)10. (StateownedEnterprisesinChina:TestimonyofBarryNaughton2011).
Page93
CapitalTrade,Incorporated
October26,2011
Attachments
Page94
CapitalTrade,Incorporated
XV. Attachment1:SASAClistofCentralSOEs
October26,2011
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
CentralStateownedEnterprises
ChinaNationalNuclearCorporation(CNNC) ChinaNuclearEngineeringGroupCorporation(CNEC) ChinaAerospaceScienceandTechnologyCorporation(CASC) ChinaAerospaceScience&IndustryCorporation(CASIC) AviationIndustryCorporationofChina(AVIC) ChinaStateShipbuildingCorporation(CSSC) ChinaShipbuildingIndustryCorporation(CSIC) ChinaNorthIndustriesGroupCorporation(CNGC) ChinaSouthIndustriesGroupCorporation(CSGC) ChinaElectronicsTechnologyGroupCo.(CETC) ChinaNationalPetroleumCorporation(CNPC) ChinaPetrochemicalCorporation(SinopecGroup) ChinaNationalOffshoreOilCorp(CNOOCGroup) StateGridCorporationofChina(SGCC) ChinaSouthernPowerGridCorporation(CSG) ChinaHuanengGroup(CNHG) ChinaDatangCorporation(CDT) ChinaHuadianCorporation(CHD) ChinaGuodianGroup ChinaPowerInvestmentCorporation(CPI) ChinaThreeGorgesCorporation(CTGPC) ShenhuaGroupCorporationLimited ChinaTelecommunicationsCorporation(ChinaTelecom) ChinaUnitedNetworkCommunicationsLtd.(ChinaUnicom) ChinaMobileCommunicationGroupCo.(ChinaMobile) ChinaElectronicsCorporation(CEC) ChinaFAWGroupCorporation(FAW) DongfengMotorCorporation(DFM) ChinaFirstHeavyIndustriesGroup(CFHI) ChinaNationalErzhongGroupCo.(ChinaErzhong) HarbinElectricCorporation(HE) DongfangElectricCorporation(DEC) AnshanIronandSteelGroupCorporation(Ansteel) BaosteelGroupCorporation(Baosteel)
Page95
CapitalTrade,Incorporated
Ctd.
35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72
October26,2011
CentralStateownedEnterprises
WuhanIronandSteel(Group)Corporation(WISCO) AluminumCorporationofChina(Chinalco) ChinaOceanShipping(Group)Company(COSCO) ChinaShipping(Group)Company(ChinaShipping) ChinaNationalAviationHoldingGroup(CNAH) ChinaEasternAirHoldingCompany(CEAH) ChinaSouthernAirHoldingCompany(CSAH) SinochemGroupCorporation(Sinochem) ChinaNationalCereals,Oils&FoodstuffsCorp.(COFCO) ChinaMinmetalsCorporation ChinaGeneralTechnology(Group)Holding,Limited(Genertec) ChinaStateConstructionEngineeringCorporation(CSCEC) ChinaGrainReservesCorporation(Sinograin) StateDevelopment&InvestmentCorporation(SDIC) ChinaMerchantsGroup ChinaResources(Holdings)Co.,Ltd. ChinaTravelService(Holdings)H.K.,Ltd.(HKCTS) StateNuclearPowerTechnologyCorporationLtd.(SNPTC) CommercialAircraftCorporationofChina,Ltd. ChinaEnergyConservationandEnvironmentalProtectionGroup(CECEP) ChinaInternationalEngineeringConsultingCorporation(CIECC) ChinaHuafuTradeandDevelopmentGroupCorp. ChinaChengtongHolding ChinaNationalCoalGroupCo.(ChinaCoal) ChinaCoalTechnology&EngineeringGroupCo.(CCTEG) ChinaNationalMachineryIndustryCorporation(SINOMACH) ChinaAcademyofMachineryScience&Technology SinosteelCorporation(Sinosteel) ChinaMetallurgicalGroupCorporation(MCC) ChinaIronandSteelResearchInstituteGroup(CISRI) ChinaNationalChemicalCorporation(ChemChina) ChinaNationalChemicalEngineeringCo.(CNCEC) SinoLightCorporation(Sinolight) ChinaNationalArts&Crafts(Group)Corporation ChinaNationalSaltIndustryCorp. HuachengInvestment&ManagementCo.,Ltd. ChinaHengtianGroupCo. ChinaNationalMaterialsGroupCorporation(Sinoma)
()
Page96
CapitalTrade,Incorporated
Ctd.
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110
October26,2011
CentralStateownedEnterprises
ChinaNationalBuildingMaterialsGroupCorporation(CNBM) ChinaNonferrousMetalMining(Group)Co.Ltd.(CNMC) GeneralResearchInstituteforNonferrousMetals BeijingGeneralResearchInstituteofMining&Metallurgy ChinaInternationalIntellectechCorporation ChinaAcademyofBuildingResearchCABR ChinaNorthernLocomotive&RollingStockIndustry(Group)Corporation ChinaSouthernLocomotive&RollingStockIndustry(Group)Corporation (CSRGroup) ChinaRailwaySignal&CommunicationCorporation(CRSC) ChinaRailwayEngineeringCorporationGroup(CRECG) ChinaRailwayConstructionCorporationGroup(CRCCG) ChinaCommunicationsConstructionCompanyLtd.(CCCC) PotevioCorporation(Potevio) DatangTelecomTechnology&IndustryGroup ChinaNationalAgriculturalDevelopmentGroupCorporation ChinatexCorporationLimited Sinotrans&CSC(SinotransGroup) ChinaNationalSilkImp.&Exp.Corp. ChinaForestryGroupCorporation ChinaNationalPharmaceuticalGroupCorporation(SINOPHARM) CITSGroupCorporation ChinaPolyGroupCorporation ZhuHaiZhenRongCompany(ZHZR) ChinaArchitectureDesignandResearchGroup ChinaMetallurgicalGeologyBureau ChinaNationalAdministrationofCoalGeology XinxingCathayInternationalGroup ChinaTravelSkyHoldingCompany(Travelsky) ChinaNationalAviationFuelGroupCorporation(CNAF) ChinaAviationSuppliesHoldingCompanyCASC ChinaPowerEngineeringsConsultingGroupCorporation(CPECC) HydroChinaCorporation(HydroChina) SinohydroCorporation(SINOHYDRO) ChinaNationalGoldGroupCorporation ChinaNationalCottonReservesCorporation ChinaPrinting(Group)Corporation ChinaLuckyFilmCorporation ChinaGuangdongNuclearPowerCo.(CGNPC)
Page97
CapitalTrade,Incorporated
October26,2011
Ctd.
111 112 113 114 115 116 117 118 119 120 ChinaHualuGroupCo.,Ltd AlcatelLucentCorporationLimited IRICOCorporationGroup
CentralStateownedEnterprises
Source:StateownedAssetsSupervisionandAdministrationCommission.
Page98
CapitalTrade,Incorporated
XVI. Attachment2:CalculationofSOEshareofChinasGDP
October26,2011
TableXVI1:CalculationofSOEshareofGDPwithadjustmentforstateholdingenterpriseparticipationinconstruction,2007
Primaryindustry Secondaryindustry:industry Secondaryindustry:construction1/ Tertiaryindustry2/ Total GDPshare (2007) 10.8% 41.6% 5.8% 41.9% 100.0% SOEvalue added (Bil.Yuan) 0.0 3,997.0 680.1 5,940.1 10,617.2 Totalvalue added (Bil.Yuan) 2,862.7 11,053.5 1,529.6 11,135.2 26,581.0 SOEShareof valueadded 0.0% 36.2% 44.5% 53.3% 39.9%
TableXVI2:CalculationofSOEshareofGDPwithoutadjustmentforstateholdingenterpriseparticipationinconstruction,2007
Primaryindustry Secondaryindustry:industry Secondaryindustry:construction1/ Tertiaryindustry2/ Total GDPshare (2007) 10.8% 41.6% 5.8% 41.9% 100.0% SOEvalue added (Bil.Yuan) 0.0 3,997.0 211.7 5,940.1 10,148.8 Totalvalue added (Bil.Yuan) 2,862.7 11,053.5 1,529.6 11,135.2 26,581.0 SOEShareof valueadded 0.0% 36.2% 13.8% 53.3% 38.2%
Page99
CapitalTrade,Incorporated
October26,2011
TableXVI3:Worksheet1Calculationofconstructionindustryvalueadded,withoutadjustmentforstateholdingenterprise share,2007
Value (Bil.Yuan) 1,529.6 1,063.1 7,680.8 13.8% 211.7
1 2 3 4=2/3 5=1*4
Source:NationalBureauofStatisticsofChina;andauthorscalculations.
TableXVI4:Worksheet2Incorporationofstateholdingenterprisevalueaddedintheconstructionindustry,2007
Value (Bil.Yuan) 211.7 45,648.0 146,630.0 31.1% 680.1
1 2 3 4=2/3 5=1/4
Source:NationalBureauofStatisticsofChina;andauthorscalculations.
Page100
CapitalTrade,Incorporated
TableXVI5:Worksheet3CalculationofSOEvalueaddedforservicesindustries,2007
SOEshareof: Urbanfixed Urban investment employment 90% 96% 14% 16% 73% 22% 54% 68% 87% 28% 84% 82% 61% 78% 1 65% 37% 28% 27% 33% 23% 43% 77% 87% 48% 96% 89% 86% 99% 2 Average 78% 66% 21% 22% 53% 23% 49% 73% 87% 38% 90% 85% 74% 88% 3=(1+2)*0.5 SectorValue Added 1,460.1 670.6 2,093.8 554.8 1,233.8 1,381.0 469.5 344.1 111.1 399.6 769.3 401.4 163.1 1,083.0 4
October26,2011
Transport,StorageandPost InformationTrans.,ComputerServices& Software WholesaleandRetailTrades HotelsandCateringServices FinancialIntermediation RealEstate LeasingandBusinessServices ScientificRsch.,TechnicalSrvc.&Geologic Prospecting Mgmt.ofWaterConservancy,Env.&Public Facilities ServicestoHouseholdsandOtherServices Education Health,SocialSecurityandSocialWelfare Culture,SportsandEntertainment PublicManagementandSocialOrganization
ImputedSOE ValueAdded 1,133.8 445.4 437.6 120.6 649.9 312.4 228.6 249.8 96.5 151.8 693.4 343.2 120.1 957.0 5=3*4
Source:NationalBureauofStatisticsofChina;andauthorscalculations.
Page101
CapitalTrade,Incorporated
XVII. GlossaryofTerms
October26,2011
AllChinaFederationofTradeUnions(ACFTU):MainChineseunionthatisfundedbythe governmentofChinaandwhoseleadershipischosenbytheCCP CentralHuijinInvestmentLtd.:Stateowned(byasovereignwealthfundunderthecontrolof theStateCouncil)holdingcompanythatownssharesinChinasstateownedbanks CentralOrganizationDepartmentoftheCCP(COD):ThePartyorganthatisresponsiblefor personnelappointmentsingovernmentandchoosesthetopthreepostsinSOEmanagement ChinaCommercialAircraftCompany(COMAC):Stateownedaircraftfirmresponsiblefor developing,manufacturing,andcommercializingChinasindigenouspassengeraircraft ChinaStatisticalYearbook(CSY):PrimarystatisticalpublicationoftheChinasNationalBureau ofStatistics CommunistPartyofChina(CCP):RulingpartyofChina
Collectiveenterprises:Economicentitiesinwhichassetsareownedcollectivelyandownership isconsideredtobepublic Fiveyearplan(guidance):Planningdocuments,issuedbytheCCP,whichprovideoverall objectivesandgoalsrelatedtosocialdevelopmentandeconomicgrowth Foreignfunded(orinvested)enterprises(FIEs):Allindustrialenterprisesregisteredasjoint venture,cooperative,sole(exclusive)investmentindustrialenterprisesorlimitedliability corporationswithforeignfunds GovernmentProcurementLaw:Chinasprocurementlawcoveringgovernmentpurchasesbut excludingpurchasesmadebySOEs Grossindustryoutputvalue(GIOV):Aneconomicstatisticstermthatreferstothetotalvolume offinalindustrialproductsproducedandindustrialservicesprovidedduringagivenperiod Guanxi:Interpersonalrelationshipsthroughwhichinfluencecanbeexerted Guojinmintui:Describesapolicyenvironmentinwhichthestateadvancesastheprivate sectorretreats Houbei:Managerswaitinginthewingtoassumethemostimportantmanagementpositions ofSOEs
Page102
CapitalTrade,Incorporated
October26,2011
Limitedliabilitycorporations:Economicunitswithcapitalfrom2to49investors,whichcan includestatesolefundedcorporationsandotherlimitedliabilitycorporations NationalBiddingLaw:Chinasbroaderprocurementlaw,whichcoverscertainprocurementsby SOEs NationalBureauofStatistics(NBS):Chinasmainstatisticalagencyinchargeofstatisticsand economicaccountinginChina NationalDevelopmentandReformCommission:Chinasmainplanningbody,whichformulates andimplementsstrategiesofnationaleconomicandsocialdevelopment TheNationalMediumandLongTermPlanfortheDevelopmentofScienceandTechnology (20062020)(MLP):PlanningdocumentwhicharticulatesChinasdesiretolessenitsrelianceon foreignintellectualpropertyandtocreateindigenousinnovation Pillarindustries:Thoseindustriesinwhichthestate,accordingtoSASAC,shouldmaintain significant,thoughnotmajority,ownership(equipmentmanufacturing,auto,information technology,construction,ironandsteel,nonferrousmetals,chemicals,andsurveyingand design) Policybanks:Banksthatprovidegovernmentdirectedconcessionalfinancing Privateenterprise:Economicunitsinvestedinorcontrolledbynaturalpersonswhohire workersforprofitmakingactivities(includesprivatelimitedliabilitycorporations,private shareholdingcorporations,privatepartnershipenterprisesandprivatesoleinvestment enterprises) Roundtrippedforeigninvestment:ChinesecapitalthathasreturnedtoChinaasforeigndirect investmentinordertobenefitfromspecialtaxincentives(thoughinrecentyearsthetax benefitsfromroundtrippinghavebeeneliminated) StateownedAssetsSupervisionandAdministrationCommission(SASAC):HoldsSOEshareson behalfofthestate;responsibleforguidingandsupervisingSOEreforms Statecontrolledenterprise(SCE)orstateholdingenterprise(SHE):Economicunitwhose majoritysharesbelongtothegovernmentorotherSOE Stateownedenterprise(SOE):Noncorporateeconomicentitieswhereallassetsareownedby thestate
Page103
CapitalTrade,Incorporated
October26,2011
SocialismwithChinesecharacteristics:WithregardstoChinaseconomy,socialismwithChinese characteristicsdenotesamultiownershiporientedbasicmarketeconomicsystem,withthe publicownershipinthedominance StateCouncil:Thehighestexecutiveorganofstatepower,aswellasthehighestorganofstate administrationinChina Strategicindustries:Thoseindustriesinwhichthestate,accordingtoSASAC,mustmaintainat leastafiftypercentownershipstakeofexistingfirms(defense,electricpowerandgrid, petroleumandpetrochemical,telecommunications,coal,civilaviation,andshipping) Townshipandvillageenterprises(TVE):Businesseslocatedinruralareas;includesprivately ownedandpublicallyownedvariants Valueadded:Aneconomicstatisticstermthatreferstogrossindustrialoutputvalueminus intermediateinputsplusvalueaddedtaxes Yangqi:Threetoppositions(partysecretary,chairmanoftheboardandCEO)atthetopSOEs whoareappointeddirectlybytheCommunistPartysCentralOrganizationDepartment Zhuada,fangxiao:Graspthebig,letgoofthesmallreferringtoChinaspolicyofdisinvesting thestatefromsmaller,lessstrategicindustrieswhilestillmaintaininganimportantrolein strategicindustries Zizhuchuangxin:ChinaspolicyofpromotingIndigenousinnovation Zouchuqu:ChinasgoingglobalstrategyforSOEs
Page104
CapitalTrade,Incorporated
XVIII. Bibliography
October26,2011
Overview:ChinaConstructionAmerica,Inc.2009. http://www.chinaconstruction.us/Overview.jsp?id=2(accessedJuly20,2011). www.khi.co.jp. Abrami,ReginaM.,andWeiqiZhang.ChinaConstructionAmerica(A):TheRoadAhead. Cambridge:HarvardBusinessSchool,2011. AgriculturalBankofChina.ABCSignedtheBankEnterpriseComprehensiveStrategic CooperationAgreementwithChinaSouthernAirlines.Beijing,June11,2011. AlaskaRailroadIsn'tJokingIt'sPayingtheChineseUSDepartmentofDefenseFundstoBuilda USArmyBridge.August2011.http://www.aisc.org/contentnsba.aspx?id=20844(accessed August12,2011). AluminumCorporationofChinaLimited."Form20Ffor2010."2011. Anderlini,Jamil."ChinatoDeployForeignReserves."FinancialTimes.July21,2009. http://www.ft.com/intl/cms/s/0/b576ec86761e11de9e59 00144feabdc0.html#axzz1ZjaEPOtr. Anderson,CraigandGuo,Bingna.CorporateGovernanceundertheNewCompanyLaw: FiduciaryDutiesandMinorityShareholderProtection.O'Melvany&Myers,LLP,2005. "ARJ21WingProblemsDriveProgramDelay."AviationWeek.November15,2010. AsiaPulseNews."China'sHebeiSteeltoTake10%Stakesin7PrivateMills."January6,2011. Barboza,David."BridgeComestoSanFranciscoWithaMadeinChinaLabel."TheYewYork Times,June25,2011. Barth,James,Koepp,Rob,andZongfeiZhou.BankingReforminChina:CatalyzingtheNation's FinancialFuture.MilkenInstitute,2004. Baumol,WilliamJ.,RobertE.Litan,andCarlJ.Schramm.GoodCapitalism,BadCapitalismnand theEconomicsofGrowthandProsperity.NewHaven:YaleUniversityPress,2007. Bhattasali,Deepak.AcceleratingFinancialReformMarketRestructuringinChina.Washington DC:WorldBank,2002. BiographyofMaoZedong.January22,2010.www.idcpc.org.cn. "CataloguefortheGuidanceofForeignInvestmentIndustries."2007. Page105
CapitalTrade,Incorporated
October26,2011
"CatalogueofKeyIndustries,Products,andTechnologiesforDevelopmentbytheState." "CertainNewPneumaticOffTheRoadTiresfromthePeople'sRepublicofChina:Final AffirmativeDeterminationofSalesatLessThanFairValueandPartialAffirmative DeterminationofCriticalCircumstances."73Fed.Reg.40,485andaccompanyingDecision Memorandum.July15,2008. ChinaandtheWTO.WashingtonDC:WorldBank,2003. ChinaCommunicationsConstructionCompanyLimited."2010AnnualReport."2011. ChinaDaily."HebeiIronarmsmergertochallengeBaosteel."June25,2009. ChinaintheGlobalEconomy:GovernanceinChina.Paris:OrganizationforEconomic CooperationandDevelopment,2005. ChinaKnowledgeNewswires."HebeiIroninksagreementwith5privatesteelenterprises." November15,2010. "ChinaOfficiallyArrestsRioEmployees."FinancialTimes.August12,2009. http://www.ft.com/intl/cms/s/0/6ecc05e686db11de9e8e 00144feabdc0.html#axzz1ZjaEPOtr. ChinaPetroelum&ChemicalCorporation."Form20Ffor2010."2011. Chinaplanebusinessgetsitswings.May11,2008.www.news.bbc.co.uk. ChinaQuarterly."DengXiaoping:TheStateman."1993. "ChinaReadyToChallengeAirbus,Boeing."TheChinaDailyEurope.January7,2011. ChinaSouthernAirlineCorporationLimited."Form20Ffor2010."2011. ChinaTelecomCorporationLimited."Form20Ffor2010."2011. ChinaUpdate.Squire,Sanders,andDempsey,2006. ChinaWidensProbeofSteelIndustry.14July,2009.http://www.chinadaily.com.cn/china/2009 07/14/content_8423527.htm. "ChinaAfricaSummitYields$1.9BillioninDeals."TheWashingtonPost.November6,2006. http://www.washingtonpost.com/wp dyn/content/article/2006/11/05/AR2006110500742.html. Chinadaily.com."BaosteelmergertalkswithBaotoucollapse."June1,2010. Page106
CapitalTrade,Incorporated
October26,2011
China'sEmergingPrivateEnterprisesProspectsfortheNewCentury.WashingtonDC:World Bank,2000. China'sGrowthandIntegrationintotheWorldEconomy,ProspectsandChallenges.Washington DC:InternationalMonetaryFund,2004. "China'sIndustrialPolicyandItsImpactonU.S.Companies,Workers,andtheAmerican Economy:TestimonyofTerrenceP.Stewart."HearingbeforetheUnitedStatesChinaEconomic andSecurityReviewCommission.March24,2009. China'sMinistryofCommerceandFudanUCC."SurveyofChineseMultinationals."2010. "China'sReserve'sClimbby$153Billion."FinancialTimes.July12,2011. "China'sYukos:TheRioTintoCaseShowsPutinismIsMovingEast."WallStreetJournal.August 11,2009. http://online.wsj.com/article/SB10001424052970204251404574343921718733470.html. ChinaStakes."BaoSteelStymiedbyProvincialGovernmentfromAcquiringMaSteel."May15, 2009. ChinesePeopleQuestionEffectivenessofAntiMonopolyLawonSOEs.XinhuaNews. CitricAcidandCertainCitrateSaltsfromCanadaandChina.InvestigationNos.701TA456and 731TA11511152(Final)(May2009). CNOOCLimited."Form20Ffor2010."2011. "CoatedFreeSheetPaperfromthePeople'sRepublicofChina:FinalAffirmativeCountervailing DutyDetermination."72Fed.Reg.60,645andaccompanyingIssuesandDecision Memorandum.October25,2007. ConfusionattheILO?China'sGovernmentElectedtoGoverningBodyas...WorkerDelegate. GlobalLabourInstitute,July7,2007. "ConstitutionofthePeople'sRepublicofChina."GovernmentofChina,1982(asamended). InterviewbyAndrewSzamosszegi.ConversationwithalawyerbasedinAsiaPacific(July27, 2011). Corkin,Lucy,Burke,Christopher,andDavies,Martyn.China'sRoleintheDevelopmentof Africa'sInfrastructure.SAICWorkingPapersinAfricanStudies,April,2008.
Page107
CapitalTrade,Incorporated
October26,2011
D&BFamilyTreeforChinaStateConstructionEngineeringCorporation(Beijing,BeijingChina). Dun&Bradstreet,Inc.,2011. Daneil,Santabarbara.China'sBankingReform:AnAssessmentofItsEvolutionandPossible Impact.Madrid:BancodeEspana,2005. Datamonitor."MarineFreightinChina."IndustryProfile,2011. Deng,Xiaoping."BuildSocialismwithChineseCharacteristics."June30,1984. Deng,Yongheng,RandallMorck,JingWu,andBernardYeung."MonetaryandFiscalStimuli, OwnershipStructure,andChina'sHousingMarket."NBERWorkingPaperSeries.no.Working Paper16871.Cambridge,MA:NationalBureauofEconomicResearch,March2011. Department,U.S.State.CountryReportonHumanRightsPractices2006,China.Washington DC:U.S.StateDepartment,2006. Diamond,Stephen.RacetotheBottomReturns:China'sChallengetotheInternationalLabor Movement.CornellLawSchool,WorkingPaper#10,2003. Dickie,Mure."JapanIncShootsItselfintheFootonBulletTrain."FinancialTimes.July8,2010. "DirectoryCatalogueonReadjustmentofIndustrialStructure."2005. DoingBusinessin2006.WashingtonDC:WorldBankandInternationalFinanceCorporation, 2006. Donald,David.Paris2011:SafranandComacFormJointVentureforC919Wiring.June23, 2011.http://www.ainonline.com/news/singlenewspage/article/paris2011safranandcomac formjointventureforc919wiring30230/(accessedAugust12,2011). EatonCorporationandShanghaiManufacturingCo.,Ltd.AnnounceJointVentureAgreementto SupportCOMACC919AircraftPlatform.July12,2010. http://www.eaton.com/Eaton/OurCompany/NewsEvents/NewsReleases/CT_287932(accessed August12,2011). EconomicSurveyofChina.Paris:OrganizationforEconomicCooperationandDevelopment, 2005. Economist."CountryProfiles."March2006. Elias,Paul."HomeDepotAccused:U.S.JusticeDepartmentInvestigatesCompanyForBuy AmericanActViolations."HuffingtonPost,June26,2011.
Page108
CapitalTrade,Incorporated
October26,2011
Engardio,Peter."OnlineExtra:"ChinaIsaPrivateSectorEconomy".August22,2005. http://www.businessweek.com/magazine/content/05_34/b3948478.htm(accessedAugust17, 2011). FinanceandDevelopment,NextStepsforChina.WashingtonDC:InternationalMonetaryFund, 2005. FinancialTimes."Aretheseprofitsorlosses?"April29,2006. FinancialTimes."ImmeltHitsOutatChinaandObama."July1,2010. Frederick,W.EnhancingtheRoleofBoardsofDirectorsofStateOwnedEnterprises.Paris: OrganizationforEconomicCooperationandDevelopment,2011. Fujiwara,Hidehito.October11,2007.www.asahi.com. "G.E.toShareTechnologywithChinainNewJointVenture."NewYorkTimes.January17,2011. Gale,H.Frederick,FrancisTuan,XiaohuiWang,andZhiCao.ChinaIsUsingMoreCornfor IndustrialProducts.USDA,EconomicResearchService,December2009. GarciaHerrero,Alicia,GavilaSergio,andSantabarbaraDaneil.China'sBankingReform:An AssessmentofItsEvolutionandPossibleImpact.Madrid:BancodeEspana,2005. Garnaut,Ross,Song,Ligang,Tenev,Stoyan,andYang.China'sOwnershipTransformation: Process,Outcomes,Prospects.WashingtonDC:WorldBank,2005. GeneralRulesonLoans.August1,1996. GovernmentofChina.www.gov.cn. Gu,Edward."BeyondthePropertyRightsApproach:WelfarePolicyandtheReformofState OwnedEnterprisesinChina."DevelopmentandChange,2001:129150. GuangzhouShipyardInternationalCompanyLimited."AnnualReport2010."2011. GuidingOpiniononPromotingtheAdjustmentofStateOwnedCapitalandtheReorganization ofStateOwnedEnterprises.GovernmentofChina,2006. Hammer,Alexander.TheDynamicStructureofU.S.ChinaTrade.WashingtonDC:UnitedStates InternationalTradeCommission,2006. Hille,Kathrin."HuaweidropsUSsecuritychallenge."FinancialTimes,February19,2011.
Page109
CapitalTrade,Incorporated
October26,2011
"HomeAwayFromHomeInvestment."ChinaDaily.July27,2011. http://www.chinadaily.com.cn/business/201107/27/content_12990227.htm. Hornby,Lucy.ProvincesbecomebattlegroundinChina'sWTOoffer.July21,2010. https://uk.reuters.com. .Reuters.July21,2010.http://uk.reuters.com. HowChinaIsRuled.January25,2010. http://news.bbc.co.uk/2/shared/spl/hi/in_depth/china_politics/government/html/1.stm. Huang,Yasheng.CapitalismwithChineseCharacteristics:EntrepreneurshipandtheState.New York:CambridgeUniversityPress,2008. "InterimProvisionsonPromotingIndustrialStructureAdjustmentforImplementation."(No.40 (2005)). "InterimRegulationsonSupervisionandManagementofStateOwnedAssetsofEnterprises." StateOwnedAssetSupervisionandAdministrationCommission.GovernmentofChina,2003. InternationalEnergyAgency.ChinaOvercomestheUStoBecometheWorld'sLargestEnergy Consumer.July20,2010.http://www.iea.org/index_info.asp?id=1479. InterviewbyINT1.InterviewwithformerSOEexecutive(Summer2011). InterviewbyINT1.Interviewwithresourceindustryexecutive(Summer2011). InterviewbyAndrewSzamosszegi.InterviewwithU.S.governmentofficial(August1,2011). IsChinaRenationalizing?April10,2010.www.chinabizgov.blogspot.com. Jefferson,GaryandInderjitSingh.EnterpriseReforminChina:Ownership,Transition,and Performance.WashingtonDC:WorldBankOxfordUniversityPress,1999. Kane,Thomas."China'sFoundations:GuidingPrinciplesofChineseForeignPolicy."Department ofPoliticsandAsianStudies,UniversityofHull,UnitedKingdom,2001. Kominiak,George,Eisenberger,Jane,Menaul,Kathryn,andSather,Tara.SandiaReport:The "CommandandControlPhilosophyoftheCommunistPartyofChina.Albuquerque,New Mexico:SandiaNationalLaboratories,U.S.DepartmentofEnergy,1996. Kyl,Jon,JimWebb,RichardBurr,IleanaRosLehtinen,andSueMyrick."LettertoSecretaries LockeandGeithner."February10,2011.
Page110
CapitalTrade,Incorporated
October26,2011
Lee,Junyeop.StateOwnedEnterprisesinChina:ReviewingtheEvidence.Organizationfor EconomicCooperationandDevelopment,2009. Li,Jing,andQiyan:Yu,NingLi."BaosteelTakeoverPlanMeetsResistance."Caijing,June12, 2006. Lim,SuAik."FitchAffirmsChalcoat'BBB+';OutlookStable."HongKong,June1,2011. MainFunctionsandResponsibilitiesofSASAC.March4,2011.www.sasac.gov.cn(accessedJuly 12,2011). Malveda,MichaelP.,HosseinJanshekar,andYoshioInoguchi.CEHMarketingResearchReport: CitricAcid.SRIConsulting,2009. Martin,MichaelF.China'sSoveriegnWealthFund:DevelopmentsandPolicyImplications. Washington:CongressionalResearchService,2010. Mattlin,Mikael."ChineseStateownedEnterprisesandOwnershipControl."AsiaPaper.Vol.4. no.6.BrusselsinstituteofcontemporaryChinaStudies,2010. Mattlin,Mikael.TheChineseGovernment'sNewApproachtoOwnershipandFinancialControl ofStrategicStateOwnedEnterprises.InstituteforEconomiesinTransition,BankofFinland, 2007. McGregor,James.China'sDrivefor'IndigenousInnovation':AWebofIndustrialPolicies.U.S. ChamberofCommerce,WashingtonDC:GlobalRegulatoryCooperationProject,July,2010. McGregor,Richard.TheParty:TheSecretWorldofChina'sCommunistRulers.NewYork: HarperCollinsPublishers,2010. McKinseyGlobalInstitute.PuttingChina'sCapitaltoWork:TheValueofFinancialSystem Reform.McKinsey&Company,2006. McLaughlin,Seth."U.S.endscontractstoforeignownedfirms."TheWashingtonTimes, September29,2010. Metcalf,DavidandLi,Jianwei."ChineseUnions:NugatoryorTransforming?AnAliceAnalysis." DiscussionPaperNo.708,CentreforEconomicPerformance,December,2005. Miller,RonaldE.,andPeterD.andBlair.InputOutputAnalysis:FoundationsandExtensions. NewYork:CambridgeUniversityPress,2009. NationalBureauofStatistics.GeneralSurveyDefinitions.ManagementofRegistrationof CorporationsGuidelines,2002. Page111
October26,2011
NationalDevelopmentandReformCommission.10thFiveYearPlanforNationalEconomicand SocialDevelopmentPeoplesRepublicofChina.2001. ."11thFiveYearPlanforNationalEconomicandSocialDevelopment."2006. ."The12thFiveYearGuidelineforNationalEconomicandSocialDevelopment."2011. Naughton,Barry."ClaimingProfitfortheState:SASACandtheCapitalManagementBudget." ChinaLeadershipMonitor.HooverInstitution,2006. .TheChineseEconomy:TransitionsandGrowth.Cambridge,MA:MITPress,2006. "NoticeofMinistryofCommerceonFurtherEnhancementoftheApprovalSchemeforForeign Investment,Circular7."GovernmentofChina,2009. "OutlineoftheNationalMediumandLongTermPlanfortheDevelopmentofScienceand Technology."GovernmentofChina,February9,2006. "PartyLikeIt's'49."TheEconomist.October1,2009. http://www.economist.com/node/14569466. Pei,Minxin."TheDarkSideofChina'sRise."ForeignPolicy,March/April2006. Price,AlanH.,RobertE.Lighthizer,andRogerB.Schagrin."PetitionfortheImpositionof AntidumpingandCountervailingDuties:CertainOilCountryTubularGoodsfromthePeople's RepublicofChina."April8,2009. ProgressinChina'sBankingSectorReforms:HasBankBehaviorChanged?WashingtonDC: InternationalMonetaryFund,2006. PublicProcurementinChina:EuropeanBusinessExperiencesCompetingforPublicContractsin China.EuropeanChamberofCommerce,April,2011. Raice,Shayndi."LawmakersUrgeScrutinyofChineseGearSuppliers."TheWallStreetJournal, October20,2010. RailwayAge."ChinaMinistryofRailways(BriefArticle)."November1,2004. "RemarksbyUndersecretaryLaelBrainardatU.S.ChinaBusinessCouncil's"ForecastAmerica" Conference."www.treasury.gov,February10,2011. Page112
CapitalTrade,Incorporated
October26,2011
ReportoftheWorkingPartyontheAccessionofChina.Geneva:WorldTradeOrganization, October1,2001. "RyanAirMaySpendBillionsonCheapChineseJets."Independent.ie.February6,2011. Salidjanova,Nargiza.GoingOut:anOverviewofChina'sOutwardForeignDirectInvestment. Washington:U.S.ChinaEconomic&SecurityReveiwCommission,2011. Scissors,Derek.ChineseOutwardInvestment:MoreOpportunityThanDanger.Heritage Foundation,July,2011. Shambaugh,David.TheModernChineseState.CambridgeUniversityPress,2000. Shirouzo,Norihiko."TrainMakersRailAgainstChina'sHighSpeedDesigns."TheWallStreet Journal.November17,2010. SocialismwithChineseCharacteristics.September30,2007. http://english.peopledaily.com.cn/90002/92169/92211/6275043.html#(accessedJuly2011). SRIConsultingInternational."ChinaReport:ChemicalProductTrendsCitricAcid."2007. State,U.S.Departmentof.CountryReportonHumanRightsPracticesinChina.WashingtonDC: U.S.DepartmentofState,March8,2006. StateownedAssetsSupervisionandAdministrationCommission.Usefullinks:CentralSOEs. March4,2011.http://www.sasac.gov.cn/n2963340/n2963414/2965155.html(accessedJuly8, 2011). "StateownedEnterprisesinChina:TestimonyofBarryNaughton."HearingbeforetheUnited StatesChinaEconomicandSecurityReviewCommission.Washington,DC,March11,2011. "StateownedEnterprisesinChina:TestimonyofDerekLScissors."HearingbeforetheUnited StatesChinaEconomicandSecurityReviewCommission.Washington,DC,March11,2011. Szamosszegi,Andrew,CharlesAnderson,andColeKyle.AnAssessmentofChinasSubsidiesto StrategicandHeavyweightIndustries.Washingtons,DC:UnitedStatesChinaEconomicand SecurityReviewCommission,2009. TheAssociatedPress.WorkbeingdonetopreparenewTananaRiverbridgesite.August8, 2011.http://juneauempire.com/state/20110808/workbeingdonepreparenewtananariver bridgesitemassiveamountsrockneeded(accessedAugust12,2011). "TheCommercialBankingLawofthePeople'sRepublicofChina."May10,1995.
Page113
CapitalTrade,Incorporated
October26,2011
TheEconomist."AGreatBigBankingGamble:China'sBankingIndustry."October29,2005. TheEconomistIntelligenceUnit."ChinaEconomy:DevelopmentStillLagsinNortheast."June9, 2005. TheEconomistIntelligenceUnit."ChinaIndustry:GovernmentVowstoRetainStakesinLargest Banks."April28,2006. TheEconomistIntelligenceUnit."ChinaRegulations:ForeignStakeLimitsMayNotBe Abolished."January17,2006. TheEconomistIntelligenceUnit."ChinaRegulations:RegulatorMaintainsStanceonSmall/Mid sizeBanks."May10,2006. TheEconomistIntelligenceUnit."CountryCommerce:China."2006. TheEconomistIntelligenceUnit."RiskBriefing,ChinaRisk:LabourMarketRisk."August11, 2006. "TheLaborLawofthePeople'sRepublicofChina."July5,1994. TheStateCouncil.October25,2005.http://www.gov.cn/english/links/statecouncil.htm. "TheSteelFistofGovernment."TheEconomist.16July,2009. http://www.economist.com/node/14031440. "TheTradeUnionLawofthePeople'sRepublicofChina(amendedOctober27,2001)."April3, 1992. Thun,Eric."IndustrialPolicy,Chinesestyle:FDI,Regulations,andDreamsofNational ChampionsintheAutoSector."JournalofEastAsianStudies,2004:458. "TradePolicyReview,ReportbytheSecretariat:People'sRepublicofChina."Geneva:World TradeOrganization,2006.WT/TPR/S/161/Rev.1. Tsai,KelleeS.BackAlleyBanking:PrivateEntrepreneursinChina.Ithaca:CornellUniversity Press,2002. .CapitalismwithoutDemocracy:ThePrivateSectorinContemporaryChina.Ithaca:Cornell UniversityPress,2007. UnitedStatesTradeRepresentative.ChinaToEndSubsidiesChallengedbytheUnitedStatesin WTODispute.November2007.http://www.ustr.gov/aboutus/pressoffice/press
Page114
CapitalTrade,Incorporated
October26,2011
releases/archives/2007/november/chinaendsubsidieschallengedunitedst(accessedAugust 10,2011). "UnitedSteelStructuresLimited."BloombergBusinessweek. http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=29975821 (accessedJuly20,2011). Walter,CarlE.,andFraserJ.T.Howe.RedCapitalism:TheFragileFinancialFoundationof China'sExtraordinaryRise.Singapore:JohnWiley&Sons(Asia),2011. Wang,Hui."Chinafeelstheneedforspeed."InternationalRailwayJournal,August1,2007. Wang,Jasmine,andDavidLevy."SanFranciscosBayBridgeGets5,300TonSteelSpanDelivery fromChina."Bloomberg.July11,2011.http://www.bloomberg.com/news/20110711/sfbay bridgegets5300tondeliveryfromchina.html(accessedJuly14,2011). Wang,Jiwei."Acomparisonofshareholderidentityandgovernancemechanismsinthe monitoringofCEOsoflistedcompaniesinChina."ChinaEconomicReview21(2010):2437. Wang,Ying."BridgechangesChina'simage."china.daily.com.cn.July12,2011. http://www.chinadaily.com.cn/bizchina/201107/12/content_12883119.htm(accessedJuly13, 2011). WhatistheFiveYearPlan.May21,2007. http://www.china.org.cn/english/MATERIAL/157595.htm(accessedAugust18,2011). WorldTradeOrganization."ReportoftheAppellateBody:UnitedStatesDefinitiveAnti dumpingandCountervailingDutiesMeasuresonCertainProductsfromChina."Geneva,2011. WorldTradeOrganization."TradePolicyReview."2006,WT/TPR/S/161/Rev.1. WorldTradeOrganization.TradePolicyReview:China(Revised).Geneva:WTO,2010. Xiao,Geng.People'sRepublicofChina'sRoundTrippingFDI:ScaleCausesandImplications. Tokyo:AsianDevelopmentBankInstitute,2004. XinhuaNewsAgency."ChinaSouthernAirlineslikelytoreceive1.5blnyuancapitalinjection." February22,2010. XinhuaNewsAgency."Chinatopromoteautoimportsinnextfiveyears:official."December26, 2010. Yang,Fengchum.ChineseGovernment.Beijing:ForeignLanguagePress,2004.
Page115
CapitalTrade,Incorporated
October26,2011
Page116