Some excellent points about state-owned enterprises

A new paper from the Paulson Institute makes some points that are good to keep in mind when thinking about the role and function of state-owned enterprises in China. Basically, don’t fall into the trap of thinking that state-sector and private-sector companies are two completely different kinds of things:

China’s institutional environment blurs the boundary between SOEs and privately owned firms, which permits the state to exercise significant influence over firms irrespective of its equity ownership stakes and where firms of all ownership types compete for state-generated rents. …

Private ownership in China does not necessarily mean autonomy from the state. Indeed, many private firms in China bear a striking resemblance to SOEs along the dimensions typically thought to distinguish SOEs from POEs, including ready access to the instruments of state power and state largesse, proximity to the regulatory process, and little autonomy from discretionary state intervention in business judgment.

Generally the piece does a nice job of providing some empirical evidence for these propositions, which fall into the category of things that “everyone knows” but can be hard to pin down. Much of this will strike people with long experience in China as pretty common sense, but all too often common sense propositions are not clearly articulated. I also agree with another point the authors make: that the similarity in treatment of state and private companies is because the government is fundamentally interested in growth, rather than fundamentally interested in promoting SOEs:

The growth imperative forces the state to look beyond SOEs to bolster its claim to legitimacy, thus enabling private firms to secure access to the state’s discretionary authority in dispensing financial and regulatory favors by demonstrating growth potential, particularly to local government officials. As one recent private sector report notes, “local leaders these days are assessed based on economic growth, and are increasingly agnostic about what type of firm provides that growth.”

The discussion reminds me of a nice piece in The Economist from a few years ago, which pointed out that the state-private dichotomy is really more of a spectrum of influence and ownership, and gave examples of different companies at different positions along this spectrum. Here’s a table from that article summarizing some of the many varieties of Chinese state capitalism:

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