Contesting State Ownership

Kevin Lin is a PhD candidate at the China Research Centre, University of Technology Sydney. His research concerns the remaking of the working class in China’s state-owned industrial sector since the 2000s.—The Editors


In 2012, the respected economist Xu Xiaonian 许小年 wrote in the Financier: ‘The existence of state departments and state capital is not necessary in a market economy. From a theoretical perspective, if a market economy needs state capital, the market must have malfunctioned.’ This position requires little comment, but it is well worth noting for the fact that state capital in the form of state-owned enterprises (SOEs) has again become a contentious issue.

SOE in Baoji (宝鸡), Shaanxi (陕西) province, November 2012.

SOE in the city of Baoji 宝鸡, Shaanxi province, November 2012.

Against widespread expectations of a more market-oriented economy in the wake of China’s state sector restructuring in the late 1990s and the country’s accession to the World Trade Organisation in 2001, during the last decade SOEs have not only remained on the economic stage but have been recapitalised and consolidated. They have become the largest companies not only in China but also internationally.

To get an idea of the strength of the state sector in the Chinese economy today, we can refer to a report released in September 2012 by the China Enterprise Confederation and the China Enterprise Directors Association in which it stated that among the five hundred largest companies in China, more than three hundred are SOEs. The ‘top ten’ are all state-owned conglomerates: namely, Sinopec, China National Petroleum Corporation, China Grid, Industrial and Commercial Bank of China, China Construction Bank, China Mobile, Agricultural Bank of China, Bank of China, China State Construction and China National Offshore Oil Corporation. All together, 310 SOEs make up more than eighty percent of the total revenues and close to ninety percent of the total profits of the five hundred largest Chinese companies.

To be sure, there are many more small- and medium-sized private companies in China today than SOEs. Nevertheless, the heft of SOEs in the Chinese economy is beyond dispute. According to one calculation, the state sector controls about thirty percent of total secondary and tertiary assets, or over fifty percent of total industrial assets. More importantly, SOEs are now widely seen as unfairly competing with China’s domestic private and foreign companies, in some cases squeezing them out of the Chinese market altogether. Therefore, it is not surprising that people in the entrepreneurial community find the advance of state-ownership disturbing.

Such negative attitudes toward state ownership can be found in a wide variety of sources. Public discussion of China’s state ownership is almost uniformly dominated by a market ideology that sees state ownership as corrupt, inefficient and ultimately market-distorting. This popular unhappiness finds expression in the phrase guojin mintui 国进民退 (‘the state advances while the people have retreated’) which, interestingly, highlights the notion of min as in ‘the people’ (renmin 人民) to suggest that ‘private business’ (minying qiye 民营企业) belongs to the people. The phrase thus presents the rise of state ownership as a threat not just to businesses but to the well-being of ordinary Chinese.

Neoliberal market ideology is widely publicised by economists, scholars, the financial press and global financial institutions. For example, in 2011 the Unirule Institute of Economics in Beijing, headed by the prominent economist Mao Yushi 茅于轼, released a report titled ‘The Nature, Performance and Reform of State-owned Enterprises’ which explicitly called for economic reforms and the exit of SOEs from profit-making and competitive sectors. This view is widely shared among mainstream Chinese economists, even if not always so strongly voiced. Other instances can be found in respected scholarly works, such as Capitalism with Chinese Characteristics, an acclaimed study of China’s economic reforms by Huang Yasheng 黄亚生, which presents the image of private entrepreneurship in the early reform period as the crucial engine of growth that was then stifled by the advance of the state.

Perhaps the strongest criticism of SOEs comes from foreign business. James McGregor, a former journalist and Chairman of the American Chamber of Commerce in China, commented in an interview with the Wall Street Journal (1 October 2012):SOEs add zero growth — zero job growth, zero innovation … [a]re SOEs ultimately going to be the new General Electrics in ten or twenty years? I don’t see that happening. But they can destroy a lot of companies and distort global markets and business practices along the way.’

This dismissive attitude toward SOEs is in contrast with the more mixed assessment of The Economist magazine. The Economist, hardly a defender of state ownership, published a special report in January 2012 on state capitalism. China, along with Russia and Brazil, were noted for their state-directed economies and their giant SOEs. What is worth noting in this feature is the recognition, however reluctant, of the success of state-directed SOEs. As the anonymous journalists of the magazine write, ‘the era of free-market triumphalism has come to a juddering halt…[t]he crisis of liberal capitalism has been rendered more serious by the rise of a potent alternative: state capitalism, which tries to meld the powers of the state with the powers of capitalism.’ They then went on to describe in detail the successes of SOEs, before concluding with a warning about the weaknesses and dangers of state capitalism.


The game of Monopoly, China Edition.

Public opinion regarding SOEs is more difficult to gauge, being diverse and at times contradictory. The protests by state workers against privatisation and loss of their jobs and livelihoods in the 1990s have been meticulously documented. But Marc Blecher, writing about workers’ politics of this period in Hegemony and Workers’ Politics in China, also noted ‘workers’ hegemonic acceptance of the core values of the market’. Chatting with a taxi driver in Beijing two years ago, I was more than surprised to hear him praising former premier Zhu Rongji 朱瑢基 for his ‘decisive and necessary’ restructuring of SOEs that directly led to his loss of employment in an SOE and subsequent career as a taxi driver. More commonly, complaints about the petroleum and telecommunication corporations artificially inflating the prices and ripping off consumers are echoed among ordinary urban residents.

At the same time, SOEs are still widely considered to offer stable and secure jobs akin to holding an ‘iron rice bowl’ 铁饭碗: in one extreme example reported in the media, a mother travelled ten times in the last three years from Hubei to Chongqing to persuade her son to work in an SOE for this reason. This perception is widespread. According to a Chinese consulting firm’s survey in November 2012, college graduates placed a particular importance on stable employment, with forty-eight percent of the graduates surveyed choosing to work in SOEs, compared with only seventeen percent and fourteen percent wanting to work in domestic private and foreign companies respectively. For their first job, college graduates are less concerned with their wages than with the package of social security benefits, overtime rates, provision of food and even shuttle bus fares. From the survey and anecdotal stories, foreign companies, which used to be the first choice of ambitious college graduates, are losing their appeals to SOEs as well as large domestic private firms. While criticisms of SOEs abound in public, ordinary Chinese also recognise that SOEs provide better employment and social security benefits.

More confusingly, there are mixed signals from the Chinese state. On the one hand, given the apparent success of SOEs, it is reasonable to ask why the Chinese state should implement SOE reforms at a time when liberal market economies are performing so poorly. Left-leaning members of the government, eager to claim that state and public ownership is the core of the Chinese economy, have become bolder in affirming state and public ownership. In May 2012 the party journal Seeking Truth (Qiushi 求是) included an opinion piece titled ‘SOEs belong to the entire people of the nation’. Written by representatives of the State-owned Assets Supervision and Administration Commission (SASAC) which manages SOEs, this article evaluated the importance and success of SOEs in the reform period, unequivocally reaffirming the importance of state ownership and calling it ‘irreplaceable’ 不可替代 in China’s socio-economic development. The state sector must be strengthened, not weakened, according to this piece.

On the other hand, the Report to the Eighteenth Communist Party Congress delivered by President Hu Jintao mentioned the need for ‘deepening SOE reform’ 深化国有企业改革 but also emphasised the importance of ‘constantly strengthening the state sector’s economic vitality and its capacity to leverage and influence the economy’ 不断增强国有经济活力、控制力、影响力. Speaking during the Congress, the Director of the SASAC and a Party Congress representative, Wang Yong 王勇, further elaborated that to advance marketisation SOEs should ‘learn from multinational companies … to establish better market mechanisms … so as to make SOEs more internationally competitive’. While this indicates that SOEs will implement some degree of market reforms, it is unlikely to be to the extent that opponents of state ownership have in mind, and more significantly the aim is apparently to strengthen the role and influence of SOEs.

There is a host of issues in the state sector demanding urgent reforms, but they are rarely discussed. One issue that has gained public attention in the last few years is the growing insecurity of SOE employees. In the past decade, SOEs in manufacturing, telecommunications and banking have employed an alarming number of temporary workers to restrict the size of their core regular workforce and to cut labour and welfare costs. In manufacturing, for example, half or more than half of the production workforce is made up of temporary workers, commonly known as dispatch workers 劳务派遣.

Dispatch workers are technically employed by temporary labour agencies and therefore are not in direct contractual relationships with the SOEs in which they actually work, often for many years. This has caused an increase in labour disputes that caught the attention of the All-China Federation of Trade Unions (ACFTU). The ACFTU reports that most of the sixty million dispatch workers in China are to be found in SOEs and public institutions. A repeatedly-delayed amendment to China’s Labour Contract Law designed to strengthen the regulation of the use of dispatch labour was finally passed at the end of 2012. It became effective on 1 July this year. Crucially, while it reaffirmed the conditions for the use of dispatch labour already in the original Labour Contract Law, it failed to limit the number of dispatch workers. During public consultation, the amendment received more than half a million submissions from the public within a month. But the opposition of SOEs to the amendment was powerful, and probably the main reason the amendment was watered down. The continuing marketisation of labour relations may be the one thing on which both the Chinese one-party state and liberal opponents of state ownership agree.

State ownership remains highly contested. Both opponents and proponents of state ownership believe SOEs must undergo reform, but there is no agreement on what kind of reform should be implemented. If the current trend is any indication, Chinese SOEs will maintain their dominance in the domestic economy and reach outward globally. There is good reason to believe that the debate over state ownership will intensify in the coming years, even though it is highly unlikely that the Chinese state will relinquish its control over SOEs. Greater public discussion will be crucial for countering both the crude hostility toward state ownership and the equally crude defense of it, and for making SOEs more accountable and beneficial to the Chinese public.