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

49erate primarily within state-controlled markets,’’ said Dr. Scissorsat a Commission hearing. ‘‘This regulatory protection is the mostpowerful subsidy many SOEs receive.’’ 136Under the ‘‘grasp the big, let go of the small’’ policy, scores ofstate companies have listed their shares on foreign stock exchanges,while the Chinese government has kept about 70 percentto 80 percent of the equity in its own hands (see Addendum I fora list of the central Chinese SOEs). Many foreign observers ‘‘oftenmistook these sales of minority stakes to be privatization,’’ becausethey assumed that the listing covered the entire ownership of thecompany. But the ultimate control remained in the hands of thestate. 137 In addition, many companies in China whose stocks aretraded on China’s exchanges are also SOEs in which the governmentkeeps a majority stake. By offering only a limited portion ofownership of an SOE on domestic exchanges, the Chinese governmentis able to raise capital and still maintain control of the firm.As Dr. Scissors testified before the Commission:Neither specification of share-holders nor sale of stock byitself does anything to alter state control. The large majorityof firms listed on domestic stock markets are specificallydesignated as state-owned. The sale of small minoritystakes on foreign exchanges could be construed as recastingmainstays such as CNPC [China National Petroleum Corporation](through its list vehicle PetroChina), China Mobile,and Chinalco as nonstate entities of some form. However,they are still centrally directed SOEs, as explicitly indicatedby the Chinese government. 138Moreover, the biggest private companies often get their financingfrom state banks and coordinate their investments with the government.139Some analysts now believe that many of the early Chinese marketliberalization reforms are being reversed. Zhiwu Chen of YaleUniversity said during a presentation at The Brookings Institutionthat SOEs are crowding out private firms from various industries.140 ‘‘The problem is that the reforms of the first 20 years, from1978 to the end of the ’90s, actually did not touch on the power ofthe government,’’ said Yao Yang, a Peking University professorwho heads the China Center for Economic Research. ‘‘So after theother reforms were finished, you actually find the government isexpanding, because there is no check and balance on its power.’’ 141dkrause on DSKHT7XVN1PROD with $$_JOBPolitical Power of theState-owned Company SectorWhile provincial chiefs, cabinet ministers, and military leadersconstitute the bulk of the Chinese Communist Party, SOEs arean increasingly significant cultivating ground for party leadership.There are currently 17 prominent political leaders whohave held management positions in large SOEs, and 27 prominentbusiness leaders currently serve on the 17th CCP CentralCommittee or the Central Commission of Discipline Inspection.142VerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00061 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464