World News

@min_fapper@iusearchlinux.fyi @DdCnol@beehaw.org

The level of control by the Chinese Communist Party (CCP) wielded over the enterprises in China is extremley high, and this is true for state-owned enterprises (e.g., China National Petroleum, State Grid, Sinopec) as well as 'private' companies.

The combined assets of state-owned enterprises in China amount to +60 trillion USD, the equivalent of ~80% of the world' GDP (according to Freeman Chair analyses). This is so as they are strictly shielded from any domestic or foreign competition as well as from any anti-trust regulations. Under Xi Jinping, the level of control has even grown. In 2017, the CCP even amended its constitution to assert that the Party “plays a leadership role” in firms' decision making processes. All of these state-owned companies operate in strategic industries like banking, telecommunications, utilities, etc.

The increasing level of control and political influence by the CCP is also an issue for formally private companies, however. Private firms benefit from a similar economic system of high state subsidies that often focuse on scale rather than financial health, and -again- a shield from any competition in order to become major domestic and international players (the EV car industry is currently a prominent example, as well as its donestic property market).

When Western firms compete with Chinese firms, therefore, they essentially compete with the CCP rather than an individual rival. The CCP will do whatever it takes (regulation regarding competition, state subsidies) to ensure that foreign firms are outpaced.

As successful this may be for now, it backfires in the long-term. Some weaknesses are evident in the meantime, while others are likely to emerge in the not so distant future. The all-encompassing, centrally-planning state decision maker leads to shrinking company profitaibilty already and may lead to a decline in the rate of innovation in the future. China is already facing scrutiny in Europe and the U.S. over its structural overcapacity in many industries, its hegemonial intentions, and is increasingly struggling with its demographic development of an aging and shrinking population.

As researchers like Nicholas Lardy point out, if China wants to continue its economic success in the next decades, the country needs to open up, and become a more market-led economy. For now it seems it's heading in the opposite direction.

[Edit typo.]