Reforming China’s state-owned enterprises
The fundamentals that fuel the US economy may not be transferable to China. By seeking to unleash productivity growth through job creation and consumption, US President Donald Trump openly sought to confront progressive federalism. As excessive bureaucratic oversight was pried away from federal administrative barons living comfortably in executive agencies, the US economy is showing signs of growth again.
But China has taken a different path, applying bureaucratic control over the economy. Having vanquished autonomy, the Chinese model of efficient growth through technocratic management has exhausted future gains. Are there competing, even rival sources to help underwrite China’s future? What of the competing frameworks outside Keynesian ideology? Is there room somewhere in the commanding heights of China’s polity to recognize dangerous ideas about the supremacy of civil society and its constitutive binding effects on political liberalization?
The US rejected the idea of pragmatic authoritarianism by supplanting Keynesian thought under president Ronald Reagan, chiefly by appealing to social, moral antecedents of growth. For Reagan, smaller government meant stronger families. It meant openly repudiating rentier government.
For the time being, Beijing may not have the luxury of rethinking a new social or political framework. It may have to settle for rearranging and reforming its technocratic ways. This leads to an area of thought common in Beijing, namely the reform of China’s state-owned enterprises (SOEs).
China’s SOEs account for nearly 40% of its stock market and more than a third of public investment. They dominate heavy industry, and their impact heavily constrains price discovery in commodities. Their health determines China’s financial system writ large. Though they are often accused of subsidization to the effect of rigging markets and dumping excess capacity abroad, the truth is far more prosaic. The concept of liberalization touted abroad has very limited appeal in China.
If Beijing wishes to reform its SOEs, it will begin by examining the State Owned Assets Supervision & Administration Commission (SASAC). Here we see an agency lying at the heart of China’s industrial deep state.
The agency controls nearly 100 of the largest SOEs. Sixty-three percent of SASAC’s managerial portfolio lies deep within the Chinese stock market. With new opaque constitutions wrought after the US-led 2008 financial crisis, most listed SOEs have formal executive relations with the ruling Communist Party of China.
The positioning a formal role for politicos at the heart of SASAC’s portfolio needs to be re-examined. Other hybrid civil-military regimes such as Egypt, Pakistan, even Saudi Arabia are structured as subservient to political authority.
As it currently stands, China’s ruling SASAC possesses severe contradictions. It must sustain profits and cut debts while openly wooing foreign direct investment. It seeks to do this while cementing party control while openly advertising its autonomy.
In this regard, the heart of China’s deep industrial state resembles Saudi Aramco, Korean chaebol or Singapore’s Temasek, an independent firm with close government relations.
How does President Xi Jinping resolve what looks like alien inefficient culture? China can try to reallocate sources in the hope of changing operating culture, or it can try tying private capital to the foundation of SOEs. No matter how Beijing moves to reform the constitutive components of its SOEs, more opaque ownership isn’t a resolution.
This means that competitive industries need to expand abroad to save themselves. It also means that Beijing’s willingness to drop its governing stake in SOEs is commanding more attention.
The view that business remains an arm of the state is floundering, but it doesn’t yet mean that political liberalization is coming.