From January to July, of the top 10 real estate companies purchasing land in major cities in China, 80% were state-owned enterprises. The same trend is also occurring in other industries. A typical example is the steel industry. Analysts believe this is not only a sign of “the public sector moving forward and the private sector retreating” but also the possibility that the Chinese Communist Party (CCP) will return to the economic planning in the post-pandemic period.
State-owned enterprises aggressively buy land on a large scale
On July 30, the China Research Index Institute – an independent real estate research organization – announced the Ranking of the Top 100 Real Estate Enterprises in the field of land acquisition in China.
The ranking shows that in the first 7 months of the year, the amount of land purchased by the top 100 real estate businesses was worth 802.4 billion yuan ($116.99 billion) – a decrease of 55.6% over the same period last year. before. Eighty percent of the top 10 real estate investors in key cities are state-owned enterprises. Chinese private companies, which have been very active in land acquisition in the past, accounted for only 17% in the first seven months of the year.
This is especially true in hot real estate markets such as Guangzhou, Shanghai, Beijing, Nanjing, and Chengdu, where investors are mainly Chinese state-owned enterprises.
In Shanghai, for example, 95% of the land acquired was by state-owned enterprises. In Beijing, a large-scale land auction was held on June 1. Of the 30 participating real estate companies, only 3 were private companies.
Forced corporate restructuring
A similar trend is happening in the steel industry. For example, in 2009, Rizhao Steel – a private enterprise and one of the top 10 steel enterprises in China – was acquired by state-owned Shandong Steel. According to Sohu, Chairman Du Shuanghua did not agree with the restructuring, but the Shandong provincial government acted as arbiter for the two companies. The aim was to meet the government’s target: to concentrate 70% of steel production in the province into Shandong Steel Corporation through mergers and acquisitions within 5 years.
The Plan for the Adjustment and Revitalization of the Steel Industry announced by the CCP in March 2009 stipulates that by 2011, 45% of China’s steel production will be concentrated in the top 5 steel companies. The plan even offers specific options for mergers and acquisitions as well as restructuring. For example, it outlines specific operating procedures that “promote cross-regional restructuring between Anben and Pansteel; Northeast Special Steel, and Baosteel; and Baosteel, and Ningbo Steel. Promoting intra-regional restructuring between Tianjin Steel and Tiantie; Tiansteel and Tianjin Metallurgical Company; and Taigang’s merger with other steel enterprises in the province.”
At the behest of the CCP, China’s top steel-producing city Tangshan experienced a reduction in output in 2016. China United Steel analyst Ma Qingfeng said that all decommissioned steel mills are private companies. Existing private steel mills either stopped investing in new furnaces in 2011 or transferred management rights to state-owned enterprises.
In a 2018 article, China Solid Waste discussed the trend of “the public sector moving forward, the private sector backing down.” Accordingly, policies to reduce debt and reduce output have opposite effects on state-owned enterprises and private enterprises in China. State owned enterprises enjoy a dual benefit: an increase in output and prices – resulting from a decrease in supply (due to a decrease in output) coupled with a recovery in demand. Meanwhile, private enterprises suffered serious damage.
“Sick” free market
According to Forbes, almost all of the companies that receive the CCP’s massive subsidies are government-owned. Many of China’s private entrepreneurs are still starving for cash, and those who have been trying to muscle into government-dominated business sectors are getting their comeuppance. State-owned enterprises are, the entrepreneurs say, eating them alive, acquiring private competitors at fire-sale prices or squeezing them out.
Bao Yujun, president of the China Private Enterprises Association and former vice chairman of the All-China Federation of Industry & Commerce said, “Now the big brothers are trying to grab all the food and enjoy it by themselves.” He added, “They don’t want to leave any to the little brothers.”
Of the 41.1 million enterprises in China, there are 368,000 enterprises that make 20 million yuan or more – only 0.9%, most of which are state-owned; while more than 99% of the businesses that make less than 20 million yuan are privately owned. Of China’s 750 million employed, 73 million work for the larger enterprises and the remaining 90% work for enterprises below the designated size. Private companies play an important role in job creation.
China’s state-owned enterprises have a near monopoly in crude oil, natural gas, and ethylene production, as well as basic telecommunications and other highly lucrative services.
According to the plan of the State Asset Management and Supervision Commission, state-owned enterprises will increasingly dominate the market and will eventually hold “absolute control” over seven basic industries – the military industry, power grids, oil and gas and petrochemicals, telecommunications, coal, civil aviation, and shipping. And they will have “stronger control” of pillar industries such as equipment manufacturing, automotive, electronic information, construction, steel, non-ferrous metals, chemicals, surveying, and design as well as basic technology.
Experts say that restructuring and mergers create a trend of the “public sector moving forward and the private sector retreating.” This does not reflect the direction of the market where the strongest businesses survive, but rather it shows mergers and acquisitions by state-owned enterprises that get cash injections and concessional loans from the government. The expansion of the public sector and the contraction of the private sector is an objective fact, and it is inefficient, anti-market, and clearly shows the tendency to monopolize. If we analyze the national economy as a whole, monopolies will bring more harm than good.
Professor Zhang Tianliang, an expert on China, believes that the issue of concern has gone beyond the trend of “the public sector moving forward and the private sector retreating.”
He told The Epoch Times, “There is a high probability that the CCP has a plan to return to a planned economy, which is to let state-owned enterprises recapture half of the Chinese economy. This is a very serious situation that could arise in the post-pandemic era.”