!['Is China experiencing an advance of the state sector?'](https://cdn.prod.website-files.com/5a3e922cf6b9a40001bc2d70/60947c77ca82bf6f07c8a259_IeDEbXYNVuYdXxSmJS69hzl72eJkfbmt4t8yenImKBWpnB4YU4myT9-8UqDpoJyK.png)
BIG IDEA | ‘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.’
BIG IDEA | ‘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.’
One of broad overarching issues in the Chinese economy is the tension between State-Owned-Enterprises and private companies.
- During Xi Jinping’s administration SOEs have been favored.
- This is because one of Mr. Xi’s overriding objectives is to assert greater and greater Chinese Communist Party over the economy even at the expense of growth.
- And SOEs, being more directly under Party control, are more responsive to aligning themselves with Party mandates.
Private companies, even though they account for much of the innovation and 75% of GDP have sometimes, have often seemed to be the poor stepchildren.
- Now Mr. Xi is working to bring them to heel, allowing them to make money as long as they toe the Party line.
There is even a phrase in Chinese that expresses this tension: 国进民退 (guo jin min tui).
- This can be translated: ‘state enterprises advance, the private sector retreats.’
All by way saying that despite the tension, the private sector has been taking over a larger and larger share of GDP, as the chart above shows,
- Or so I thought until I read this analysis by Andrew Batson, China research director for Gavekal Dragonomics.
Mr. Batson recently participated in the discussion, ‘Confronting Chinese State Capitalism,’ at the Center for Strategic & International Studies, and he transcribed his comments on his blog.
- Those comments not only challenged ideas about the private sector’s share of GDP relative to SOEs', they also put the size of the state sector in the global economy into perspective.
Mr. Batson says: ‘There are a couple of different ways of looking at the advance or retreat of China’s state sector:’
- ‘In a purely domestic context, or in a global context.’
‘On the domestic context, I’ve crunched a lot of numbers and 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.'
- ‘That’s evidence that there are 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 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.’
‘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.’
I note that I am good enough to challenge Mr. Batson's analysis.
- But he is a respected analyst, working for one of the top independent firms.
- Keep an eye out for other analyses that confirm or deny.