From January to July this year, 80 percent of the top 10 real estate companies acquiring land in China’s major cities are state-owned, according to official data in the country. A similar trend has been observed in other industries in China. Analysts believe this is not just an indication that “the state is advancing, the private sector is retreating” — a Chinese catchphrase that describes the trend of state-owned companies continuing to expand while the private sector continues to shrink — but one as well Possibility that the ruling Chinese Communist Party (CCP) will bring back a planned economy in the post-pandemic era.
State-owned companies monopolize the housing market
On July 30, the China Index Academy released the top 100 ranking of the top 100 real estate companies in land acquisition from January to July 2022, showing that the land acquired by the top 100 companies from January to July totaled 802 .4 billion yuan (US$117.7 billion), down 55.6 percent from a year earlier. State-owned companies and local city investment platforms became the top buyers of land auctions, with 80 percent of the top 10 buying land in key cities being state-owned companies. Chinese private companies, which have been very active in land acquisitions in the past, accounted for just 17 percent of sales in the first seven months of this year.
This is particularly true in hip real estate markets such as Guangzhou, Shanghai, Beijing, Nanjing and Chengdu, where state-owned companies have been the dominant land buyers.
In Shanghai, for example, state-owned companies accounted for up to 95 percent of land. A large-scale land auction was held in Beijing on June 1st. Of the 30 participating real estate companies, only three were private companies.
Forced corporate restructuring
The same trend can also be observed in the steel industry.
For example, in 2009 Rizhao Steel, a private company and one of the top ten steel companies in China, was acquired by and merged with state-owned Shandong Steel. According to China Newsweek, chairman Du Shuang Hua did not agree with the restructuring, but the Shandong provincial government acted as the key coordinator to get the two companies to sign a restructuring agreement. The purpose was to achieve the government’s goal of concentrating 70 percent of the province’s steel production capacity in the Shandong Steel Group within five years through mergers and acquisitions.
The steel industry adjustment and revitalization plan announced by the Chinese authorities in March 2009 called for 45 percent of China’s steel production capacity to be concentrated in the top five steel companies by 2011. This industry plan even laid down concrete M&A and restructuring plans. For example, it included the specific operational procedures to “promote supra-regional restructuring between Anben and Pansteel, Northeast Special Steel, Baosteel and Baosteel, Ningbo Steel, etc. and promote intra-regional restructuring between Tianjin Steel and Tiantie, Tiansteel, Tianjin Metallurgical Company and the merger.” from Taigang with other steel companies in the province.”
Tangshan, China’s leading steelmaking city, underwent a steel capacity reduction process in 2016 on orders from the central authorities. China United Steel analyst Ma Qingfeng told Chinese Entrepreneur business magazine that all the shut down steel plants are private companies, while the remaining private steel plants have either stopped investing in new blast furnaces since 2011 or have delegated management powers to state-owned companies.
A Chinese steelworker walks past steel bars at a plant in Tangshan, east China’s Hebei province, April 6, 2016. (Kevin Frayer/Getty Images)
The China Solid Waste Network discussed “government advances, private sector withdrawal” in the environmental industry in a 2018 article, noting that the policies of deleveraging and capacity reduction have had the opposite impact on state-owned and private companies. State-owned companies benefited from the twin effects – output and price increases – due to reduced capacity combined with resilient demand, while private companies were seriously hurt.
regression of marketing
Bao Yujun, chairman of the China Private Sector Association, told Chinese media that he believes that a market saturated with state-owned enterprises means a step backwards in the market economy process and that the future allocation of social and economic resources may be further skewed towards even lower efficiency in the economy Productivity.
Although state-owned companies in China have many resources, they are very inefficient. According to statistics from the CCP’s National Development and Reform Commission, among industrial enterprises over a certain size, the industrial value and profits of state-run enterprises increased year-on-year by 10.7 percent and 17.4 percent, respectively. In comparison, those of private companies increased by 25.3 percent and 47.3 percent, respectively.
In addition, out of the 41.1 million enterprises in China, there are 368,000 companies that are over-size, accounting for only 0.9 percent, most of which are state-owned enterprises, while over 99 percent are under-size and located in are privately owned. Of China’s 750 million workers, 73 million are employed in large firms, and more than 90 percent of the remainder are employed in small firms, with private companies playing a major role in employment.
State-owned companies have all but monopolized China’s crude oil, natural gas and ethylene production, as well as basic telecommunications services and other highly profitable services.
Under the State-owned Assets Supervision and Administration Commission’s plan, state-owned companies will continue to expand their supremacy and eventually retain “absolute control” over the seven basic industries — military manufacturing, power grids, petroleum and petrochemicals, telecommunications, coal, civil aviation and shipping — and “greater control” over pillar industries such as appliance manufacturing, automobiles, electronic information, construction, steel, nonferrous metals, chemicals, surveying and design, and basic technology.
Writer Ding Liting wrote in China Newsweek that China must resolutely end the monopoly of state-owned enterprises and the “state advance, private sector retreat” trend.
“The ongoing mergers and reorganizations leading to ‘government advance, private sector retreat’ do not reflect the market orientation of survival of the fittest, but are mergers and acquisitions by state companies with government cash injections and concessional loans,” he wrote. “The expansion of state-owned enterprises and the shrinking of the private sector is an objective fact, and it is inefficient, anti-market, and has a clear monopoly tendency. If we analyze the economy as a whole, the monopolistic damage wrought by such human-engineered mergers and restructurings does more harm than good.”
Professor Zhang Tianliang, a China expert, believes the troubling issue goes beyond “government advances, private sector retreats.”
“There is a high possibility that the CCP authorities are planning to resume planned economy, that is, state-owned enterprises retaking half of China’s economy,” he told The Epoch Times. “This is a very serious situation that can arise in the post-pandemic period.”
David Cu contributed to this report.
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