Is China experiencing an advance of the state sector?

That was the question I was asked by Jude Blanchette at an excellent CSIS panel on China’s state capitalism. It’s a reference to an old debate over the phenomenon known pithily in Chinese guo jin min tui, and less concisely in English as “the advance of the state and the retreat of the private sector.” As Jude remarked, it certainly feels like this has been happening in China in recent years, with the government proudly celebrating its state-directed economic model and the contributions of state-owned enterprises. The below are my notes, in which I try to pull together a concise answer to this vexed question:

The answer is yes and no. That’s not a cop-out. I say that because there’s a couple of different ways of looking at the advance or retreat of China’s state sector: you can look at it in a purely domestic context, or in a global context.

I’ve crunched a lot of numbers to get a handle on the economic size of China’s state sector. What I’ve found is that the value-added produced by state-owned enterprises has usually been in the range of 25-30% of China’s GDP. And what’s really striking about those numbers is that they just haven’t changed very much over the past 25 years. The share of China’s economic output being produced by SOEs today, under Xi Jinping, is not significantly different than it was under Hu Jintao, or even in the later years of Jiang Zemin.

In a purely domestic sense, then, there hasn’t been a major change in the balance of the economy between state-owned and private enterprises. I think that’s evidence that there’s some pretty strong continuities between the approach of the Xi administration and that of previous administrations. Xi certainly did not invent the idea that SOEs are and should be a central part of the Chinese economy, and he hasn’t actually taken huge parts of the economy away from the private sector and handed them to SOEs.

What I think has changed more under Xi is not so much the relative size of the state and private sectors, but more the political context in which both private-sector and state-sector firms have to operate. These days, both types of companies are expected to follow the government’s guidance more closely.

But the trajectory of China’s state sector looks pretty different if you look at it from the perspective of the world economy. Let’s not forget the obvious fact that China’s economy has been consistently growing much, much faster than the rest of the world. Since the share of SOEs in China’s economy has been basically stable, that means SOEs have also been growing quite fast, just as fast as the private sector. And that means China’s SOEs have gotten a lot bigger in absolute terms, and a lot bigger relative to the world economy.

The arithmetic here is pretty simple. At the turn of the century, China accounted for about 3.5% of global GDP. Now, China is about 17% of global GDP. The SOE share of China’s economy is about the same today as it was 20 years ago. Therefore, the share of global GDP produced by China’s SOEs has substantially increased: on my estimates, China’s SOEs account for about 4.5% of global GDP now, compared to about 1% back in 2000. I would point out that 4.5% of global GDP is a lot; it is more than the entire GDP of the UK, France or India.

So for those of us outside China, it is very much the case that China’s state sector is advancing. Chinese SOEs are a much bigger part of the global economy than they were before, and their international activities have also become much more important. I think it’s obvious that the rise of China’s SOEs represents a very substantial change in the structure of the world economy, and it should not be at all surprising that there is a lot of debate in other countries about how to respond to that change.

My contribution was pretty small, but the folks on the second half of the event tackled that exact question–how the US should respond–and generated a very useful discussion. I recommend watching the video.

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