China’s state-owned enterprises help protect economy from foreign pressure and risks, says Communist Party economist

Jane Cai

China relies on its state-owned enterprises to help counter “international pressure and risks”, according to a leading Communist Party economist.

Wang Xiaoguang, deputy director of the economics department at the Central Committee’s Party School, argued that the businesses – which attract frequent complaints from the United States and Europe about unfair competition – are a valuable way of protecting the country’s economy at a time when the US is seeking to do down China.

“China has been emphasising the quality and influence of SOEs in recent years,” Wang told a seminar in Beijing on Wednesday.

“The new requirement is that SOEs should have strong capabilities in innovation and in withstanding risks. China relies on SOEs to buffer risks from home and abroad and stand guard for the economy.”

Beijing betting bigger is better as it pushes consolidation of state-owned steel plants

He also said it should be “achievable” for China’s gross domestic product to grow by 6 per cent next year “because China has a huge market and there is the capacity to increase investment”.

Wang told the seminar that SOEs were not only a tool for Beijing to use when the economy was overheating or stagnating, they also took on important social responsibilities.

“As far as I know, a state-owned steel company I investigated a couple of years ago paid 6 billion yuan (US$853 million) in heating fees for their employees a year,” Wang said.

The Central Committee’s fourth plenum was held at the end of last month. Photo: Xinhua

Wang was speaking a seminar discussing the conclusions of the Central Committee’s fourth plenum, which finished at the end of last month.

In the communique released after the closed door policy meeting, Beijing reaffirmed its commitment to the state-led economy, while simultaneously promising a level playing field for international business.

Following the release of the communique, Han Wenxiu, executive deputy director of the General Office of the Central Financial and Economic Affairs Commission, told a press conference that China’s state companies are “normal market players” that “follow market rules and take part in competition on an equal basis with others” after four decades of reforms.

Han also said the state economy would get “stronger, better and bigger’, while public ownership would remain the primary vehicle for economic growth.

European businesses urge EU to take ‘defensive’ measures against China’s state-owned enterprises

There has been growing criticism from China’s biggest trade partners – the US and European Union – that China’s subsidies for state firms are distorting markets.

Critics are concerned that Beijing has not committed to reforming the state sector in a way that would give the private sector a bigger role in the economy and foreign companies access to some industries dominated by state-owned firms.

The role of the companies has proved a sticking point in the protracted trade negotiations between Washington and Beijing.

The EU Chamber of Commerce in China has also called for “defensive measures” against state-owned enterprises, saying in a report released in September that Beijing’s failure to reform the sector had seen it grow more bloated and inefficient.

However, Wang’s comments suggest China will continue to support the state sector with favourable policies, subsidies and relatively easy access to funding rather than bowing to pressure to the US.

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The US and EU have complained that state-owned companies, including heavy industry, enjoy unfair competitive advantages. Photo: Simon Song

While Beijing has cut the total number of companies under central government control, the assets of state firms are growing through consolidation, with profits hitting record highs.

Assets held by China’s state enterprises reached 58.2 trillion yuan (US$8.2 trillion) last year, up from 54.5 trillion yuan in 2017

The net profits of those companies meanwhile jumped 15.7 per cent from 2017 to 1.2 trillion yuan last year.

The contribution of state-owned firms to China’s GDP was estimated to be between 23 and 28 per cent and their share in employment was anywhere between 5 per cent and 16 per cent in 2017, according to a World Bank report released in July this year.

Chen Fengying, former head of the World Economy Institute at the China Institute of Contemporary International Relations, echoed Wang’s arguments, saying China was unlikely to agree to the US’s requests to effectively weaken state-owned firms because of this social role and their use as policy tools.

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