2011 report to congress - U.S.-China Economic and Security Review ...

dkrause on DSKHT7XVN1PROD with $$_JOB42to take advantage of central government financing for business andindustrial deals. 86 The World Bank also noted that a decline of therole of the SOEs in the Chinese economy earlier in the decade hasreversed in recent years. 87 Two experts on China’s industrial policy,Victor Shih of Northwestern University and Yasheng Huang ofthe Massachusetts Institute of Technology, have also noted thatsome of the reforms introduced in the past two decades to promoteChina’s private sector are now being undone by the shift of governmentsupport to the state-owned sector. 88Overview of the Chinese State-owned SectorThe Chinese government continues to eliminate or consolidatethe least profitable SOEs. 89 As a result, the current group of operatingSOEs is composed primarily of very large and comparativelymore profitable SOEs than in the past. 90 The number of ChineseSOEs, at both the central and provincial levels, has decreased significantlysince 2000 as part of a policy to ‘‘grasp the big, let go ofthe small.’’ * The overall effect has been to reduce the number ofcompanies under government control while strengthening the remainderin order to produce global competitors to European-,American-, and Japanese-based multinationals. 91 This goal is partof an effort to create ‘‘national champions.’’ The WTO noted in its2010 Trade Policy Review of China that:‘guided’ by the State Council’s Opinions issued in December2006, SOEs have been retreating from some of the morecompetitive industries, but remain concentrated in other industrieswith a state monopoly. . . . The associated monopolyposition gives these SOEs competition advantage overprivate enterprises. Profits of SOEs continued to rise (theyincreased by 9.8 [percent] in 2009). 92The largest 121 nonfinancial companies owned by the centralgovernment 93 are supervised by the government equivalent of aholding company, the State-owned Assets Supervision and AdministrationCommission (SASAC), which reports to the State Council.†These, however, typically each have dozens of subsidiaries, ‘‘includingnearly all the Chinese companies most people are familiarwith,’’ according to testimony before the Commission by economistDerek Scissors of The Heritage Foundation. 94 There are an additional114,500 SOEs owned by provincial and municipal governments,according to World Bank estimates. 95 Meanwhile, truly privatefirms number in the millions, though they are comparativelyvery small in size. There are also millions of firms whose ownershipis unclear. 96* The ‘‘grasp the big, let go of the small’’ policy, adopted by the Communist Party Congressin 1997, remains the guiding principle for SOE restructuring. These reforms included efforts tocorporatize SOEs and to downsize the state sector. The ‘‘grasp the big’’ component indicated thatpolicymakers should focus on maintaining state control over the largest and most importantSOEs, which were typically controlled by the central government. ‘‘Let go of the small’’ meantthat the central government should relinquish control over smaller SOEs through a variety ofmeans (e.g., giving local governments authority to restructure the firms, privatizing them, orshutting them down). See Barry Naughton, The Chinese Economy: Transitions and Growth(Cambridge, MA: MIT Press, 2007), pp. 301–302.† The State Council of the People’s Republic of China is the chief administrative authority ofthe People’s Republic of China. It is chaired by the premier and includes the heads of each governmentaldepartment and agency. For more information, see People’s Daily Online, ‘‘The StateCouncil.’’ http://english.peopledaily.com.cn/data/organs/statecouncil.shtml.VerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00054 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464