Sectorial distribution of state assets

The Ministry of Finance Yearbooks provide the most complete overview of the sectorial distribution of the state sector as a whole, including both SASAC and non-SASAC companies.

My calculations show that 27% of state assets are held by industrial companies, followed by 17% in enterprises engaged in social services (see Figure 2.4). Industrial SOEs are covered by comprehensive annual statistics while the SOEs in service sectors, either newly created SOEs or

67 government services restructured into a new enterprise form, are not covered to the same extent in Chinese statistical yearbooks. In addition, it does not make much sense to benchmark service SOEs as they are mostly related to social services including hospitals, kindergartens, museums, schools, and universities (so-called shiye danwei). Below, we will therefore focus on industrial sectors.

Note: “Other” includes water conservation and geology, information services, sanitation, science and research services, and education, culture and broadcast. Source: Ministry of Finance (2016).

Within the industrial sector of the economy, Chinese SOEs continue to play a critical role in key and pillar industries. In so-called “key industries” like oil, coal, gas, railway, aviation, and aerospace, the state remains in absolute control with only minor changes in ownership structures during the last decade (see Table 2.5 below). Measured by assets, state ownership in these industries varies between 51.83% (Production and Supply of Gas) and 95% (Extraction of Petroleum and Natural Gas). In what the government classifies as “pillar industries” such as automobiles, non-ferrous metals, electrical machinery, communication equipment, computers, and other electronic equipment, state ownership remains extensive as well, ranging from 14.03%

(Manufacture of Electrical Machinery and Equipment) to 54.54% (Mining, processing, smelting

68 and pressing of ferrous metals). These pillar industries are at the core of the “Made in China 2025” plan, and the ongoing SOE reform aimed at making SOEs more efficient and innovative will therefore be crucial for the “Made in China 2025” ambitions of technological leadership.

State ownership in “competitive” industries is low but not insignificant, ranging from 6.25% of productive assets in processing of food from agricultural products to 31.17% in manufacture of beverages; most of these SOEs are locally controlled. These competitive industries constitute the largest part of Chinese exports, and the low SOE share in these industries is reflected in a low SOE contribution to Chinese exports: by 2015, SOEs accounted for only 11% of China’s exports.

It is important to note that extensive state ownership in key industries is not unique to Chinese state capitalism. Governments around the world acknowledge the possible efficiency advantages of natural monopolies, although debate persists as to which industries benefit from these advantages. Chinese state capitalism is unique due to high levels of state ownership in pillar industries (14–55%), as well as in competitive industries such as the manufacture of medicine (15%) and of general and special-purpose machinery (20–25%). There are few if any economic justifications for continued state ownership of such firms, but, as will be shown throughout this dissertation, state-capitalist decision-making takes a wide variety of non-economic interests into account.

We can also observe that in China’s steel and coal sector, SOEs continue to dominate over private companies. In mining and washing coal, SOEs control more than 75% of the assets despite only accounting for 19% of the companies in the sector. In mining, processing, smelting, and pressing of ferrous metals (of which “steel and iron” are the largest), the state sector constitutes 5% of the companies and controls 55% of assets. The state-owned steel and coal enterprises are special cases because of their political and economic significance to local governments in China. This is especially the case in Shanxi, Hebei, and Henan provinces, where coal and steel SOEs account for more than 75% of all provincial SOE assets. Reforming these sectors is made difficult by these strong local vested interests. It is in these “pillar” industrial sectors, where the principle of “competitive neutrality” between POEs and SOEs, as laid out in the most recent government work report, will stand its real test. The report states that the government will “follow the principle of competitive neutrality”, which means that “when it

69 comes to access to factors of production, market access and licenses, business operations, government procurement, public biddings, and so on, enterprises under all forms of ownership will be treated on an equal footing”, Li Keqiang, Premier, cited in (State Council, 2019).

There is a tendency for the measurement applied in Table 2.5 to overestimate the significance of the state sector in the Chinese economy since fixed assets are most intensive in heavy industry sectors where state companies traditionally have a high presence. The non-state sector has developed most rapidly in the light industry and service sectors. Nevertheless, the table tells us that the government today still has a presence, albeit uneven, in almost all economic sectors.

70 Table 2.5: SOEs in pillar, key and competitive industries 2008–2017, percentage state-controlled

Number of firms(%) Industrial output (value of finished goods) (%)

Total assets (%)

2017 2012 2008 2017 2012 2008 2017 2012 2008 Key industries

Mining and Washing of Coal 18.76 12.40 9.38 66.75 60.99 66.81 75.72 70.18 75.53 Extraction of Petroleum and

Natural Gas 62.90 52.99 37.46 95.42 90.73 96.38

95.00 94.50 96.45 Processing of Petroleum and

Coking 12.18 10.66 9.56 37.48 49.32 47.74

51.83 57.05 65.05 Production and Supply of

Electric Power and Heat Power 54.18 65.92 58.83 80.18 78.29 72.16

87.04 90.31 89.56 Production and Supply of Gas 28.00 29.90 30.37 37.37 57.97 42.99 53.72 56.88 57.29 Production and Supply of Water 59.30 61.32 62.87 70.61 55.36 45.48 81.62 80.78 79.97 Manufacture of Railway, Vessel,

Aerospace and Other Transport Equipment

11.09 10.35 NA 39.10 38.75 NA

60.48 56.81 NA Pillar industries

Manufacture of Automobiles 5.28 5.90 NA 49.10 41.09 NA 47.21 47.75 NA Mining, processing, smelting and

Pressing of ferrous metals 5.27 3.85 3.88

41.37 40.44 38.38 54.54 50.84 57.86 Mining, processing, smelting and

pressing of non-ferrous metals 9.12 8.40 7.10

36.91 46.05 33.62 41.01 43.03 44.06 Manufacture of Electrical

Machinery and Equipment 2.54 2.67 2.81 14.89 16.90 16.45

14.03 14.69 13.98 Manufacture of Communication

Equipment, Computers and Other Electronic Equipment

3.95 5.07 5.37 16.73 18.69 27.00

17.43 18.20 17.40 Competitive industries

Manufacture of Medicines 5.66 6.65 8.08 12.27 17.92 20.23 15.02 18.84 23.61 Manufacture of Rubber and

Plastics Products 1.34 1.72 3.14 10.15 12.87 8.34

7.20 8.24 10.43 Manufacture of Metal Products 2.30 2.50 2.08 13.41 15.68 9.73 14.31 14.00 8.72 Manufacture of General Purpose

Machinery 3.02 3.34 3.26 21.39 23.73 24.83

20.19 23.37 26.81 Manufacture of Special Purpose

Machinery 3.95 4.61 5.39 28.46 31.64 36.81

24.62 30.87 34.50 Processing of Food from

Agricultural Products 2.64 2.82 3.53 9.17 11.60 9.00

6.25 8.42 8.62 Manufacture of Foods 3.68 4.00 4.74 9.62 8.73 12.53 8.53 9.41 13.48 Manufacture of Beverages 4.16 5.25 6.02 24.44 22.54 22.26 31.17 28.92 27.12 Manufacture of Tobacco*** 77.05 79.26 76.28 98.52 98.48 99.00 99.08 99.20 99.13 Manufacture of Textile 0.94 1.18 1.47 6.29 5.50 7.93 5.42 4.93 6.11 Manufacture of Paper and paper

Products 1.45 1.67 1.96 7.08 17.09 16.81

11.65 14.63 17.90 Printing, reproduction and

recording Media 5.03 7.26 9.09 12.14 17.22 20.50

12.84 16.46 19.56 Source: Authors calculations based on National Bureau of Statistics Yearbooks 2018, 2013, 2009. SOE defined as

“state-holding industrial enterprises”. *** State monopoly industry.

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