The Chinese Communist Party focuses on large state-owned enterprises

– by Paolo Balmas –

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In a recent article published by the bimonthly journal Qiushi, which covers the Chinese Communist Party’s (CCP) economic and political theories, it is stated that large state-owned enterprises are the backbone of China’s economy and that they must be strengthened and expanded while remaining state-owned. These enterprises are at the center of the modernization process of the Chinese socialist economic system “with Chinese characteristics” and represent an “institutional guarantee” to ensure that all Chinese ethnic groups enjoy the fruits of economic development. The article was written by members of the SASAC, the Chinese State Council commission responsible for managing state-owned assets. They indicate state-owned enterprises (the centralized ones operating at the national level, distinct from those owned by provincial governments) as the tools to ensure the economic and technological transformation that China has been undergoing in recent years.

The main task of state-owned enterprises is to focus on innovation, especially the development of new technologies, from which Chinese industrial policy must draw inspiration. The CCP insists on the need to exploit artificial intelligence and alternative energy resources, to develop new materials and biotechnologies, always with the priority of respecting the environment. Defense and security, including food safety, are an integral part of the development objectives of the Chinese economy. References to cutting-edge infrastructure concern telecommunications and water exploitation. While on the one hand the CCP considers large state-owned enterprises as the guarantee for the development of a socialist economy with Chinese characteristics, on the other hand, their existence continues to be criticized (and often not fully understood) by external observers.

In the West, these companies appear as conglomerates supported by state funding against any liberal principles based on competition. If once (now a long time ago) this description could vaguely approach reality, today it is totally anachronistic. The risk is always not to understand China, with possible unpleasant implications for the future. Chinese central state-owned enterprises are cutting-edge companies that have been able to streamline and modernize themselves in the last five years without the need for privatization. This process, which is rarely discussed, for some Westerners (those who blindly believe in neoliberal formulas) indicates a contraption destined for failure, while for others (the more curious ones) it is a sort of mystery. Everything, however, is considered as state aid contrary to market logic (unfair competition) keeping companies alive from birth even if they are already dead. Unfortunately, this is not the case.

In the last ten years, large state-owned enterprises in China have doubled their net profits, which already exceeded an equivalent of 350 billion euros in 2022. The value of the assets they control has reached almost 11 trillion euros, a value that has tripled compared to 4 trillion at the end of 2012. Some of these companies have created advanced technologies with new standards that threaten the monopoly of North Atlantic companies globally, (think of Huawei with the Polar Code) or innovative ideas such as the “global energy interconnection” of China State Grid and Alibaba’s global e-commerce platform. It is not only about economic competition, but also about ideas. What is surprising and should be reflected upon is that the average annual growth of strategic investments in these companies is currently 20%. Naturally, China is always looking with increasing interest at the development of these companies’ activities beyond national borders. However, the Chinese domestic market is so vast that it has allowed state-owned enterprises to enter the rankings of the largest in the world without being truly “global”. Most large Chinese companies are not yet present on world markets. The transformation of governance and their streamlining are partly intended to make them more competitive in international markets, but the geopolitical changes of the last five years make expansion beyond borders more uncertain. The strategic changes at the Pentagon, the Covid-19 pandemic, and then the war in Ukraine are changing the structure of globalization in which Chinese companies were beginning to operate. The creation of an economic triangle between Beijing, Moscow, and Brussels is being weakened, as is China’s momentum on international markets (a momentum slowed down but not yet stopped). China looks at the war in Ukraine not only to understand the future of globalization. If the “Balkanization” of Russia were to develop concretely, then China would feel much less secure, and the international expansion of its companies would be seriously questioned.

– Newsletter Transatlantico N. 13-2023