This has been a good global financial crisis for China’s large state-owned enterprises. Their economic and policymaking clout has expanded. The days of loss-making SOEs are a distant memory. Front of mind now is a cadre of wealthy and powerful national champions and state-controlled multinationals dominating the commanding heights of the economy. There are more heads of SOEs on the Party’s central committee than ever before and often they outrank the regulators and supervisors for their industries.
Along with that has come a surge in profitability. Collectively, the centrally administered SOEs will make 1 trillion yuan of profits for the first time this year. The energy and natural resources, finance and telecommunications SOEs have done particularly well. Most have done well from the real-estate boom, too, thanks to their political connections, so well that central government has ordered them to get out of property development where it isn’t a core business as part of the measures to let down that particular bubble. The response has been lukewarm to say the least.
The Finance Ministry has also now told more SOEs to start paying a dividend to central government and those that already do to increase the cut of the their profits they hand over. These are both measures that the SOEs and their supervising ministries have fiercely resisted. Even at the proposed maximum 15% of post-tax profits, that is still half the effective rate imposed on state-owned companies in most other parts of the world.
With the emphasis on social welfare priorities in the new five-year plan, it may have come to the point where even the SOEs, whose profits increased by 50% year-on-year in the first eleven months of this year, couldn’t keep their hands stuffed in their pockets anymore. But as they give with one hand, we wonder what they will take with the other. More regulatory actions like giving the state-owned telecoms carriers a duopoly over VoiP telephony, and squashing pesky private-sector competitors eating away their profits?