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6 White Paper on the Business Environment in China
market-oriented and they must keep strengthening their vitality ics of current SOE-related policy claim that “without further
and influence.” 26 reform of the state sector, China’s growth will stagnate. They
call for equal opportunity for private firms, which provide most
According to author and former AmCham China (Beijing) of the new jobs in China.”26
chairman James McGregor, the group of “117 huge central
SOEs,” of which many are monopolies, “have evolved over the The Chinese government’s oft-repeated call for indigenous
past decade so that the party controls these SOEs more than the innovation and the development of key high-tech industries is
government does.”27 exceedingly unlikely to be answered successfully by complacent
SOEs and those entrepreneurs who are the nation’s best hope in
Mr. McGregor explains: achieving a substantive economy based on innovation “are un-
able to get financing so they often live off loan sharks.”27 Banks
The Central Organization Department of the party ap- in China offer SOEs preferential treatment, often at the expense
points the top leaders and they outrank the bureaucrats of private enterprises.
who are nominally supposed to be the SOEs’ regulators.
The party is also able to use the SOEs for preserving Overseas expansion no easy task
political power as much as for building the economy.
That’s the heart of [what McGregor terms] the Author- In more global terms, Wall Street Journal commentator
itarian Capitalist system in China today.27 Stanley Lubman argues that, “The need to better understand
China’s system goes beyond abstract arguments about the fu-
Mr. McGregor, who has been in China for 25 years and has ture of the global economy. The continuing expansion of the
witnessed the nation’s extensive changes since ‘opening up’, pos- state sector of China’s economy limits the private sector and
its that some officials “saw the Russian oligarchs taking over state favors state-owned enterprises (SOEs) over foreign companies
assets as private individuals—and the party decided it would be in some domestic markets. As SOEs extend their investments
the oligarchy. And so in 2003 they formed the SASAC [State- abroad, nations in which China seeks to invest need to become
owned Assets Supervision and Administration Commission] more aware of frequent links between state ownership and state
to bring the state shares under central control. Then in 2006 control.”25
there was a directive that took about two dozen key industrial
and technology sectors and made them fully state controlled or China’s increasing support for SOEs at the expense of mar-
majority state controlled. Finally, you have the global financial ket-based competition in a variety of industries—“China going
crisis and the 600-billion-dollar stimulus program. That money in a direction that the West didn’t think China was going in”27
flushed into SOEs—and they were off and running.”27 after joining the WTO in 2001—is likely to be a source of in-
creasing friction between the P.R.C. and the rest of the world.
Curiously, this has all happened as many observers—the au-
thors included—expected that the Chinese government would At the above-mentioned 18th Communist Party Congress,
continue to open markets and cultivate a more dynamic and “[SASAC leader Wang] and other state-firm bosses emphasized
sustainable economy based on private enterprise. “[The Chinese their importance to what they called ‘national economic secu-
economy] was headed toward a more free market economy with rity’ in their gathering, laying out plans for further investment
more private companies. But the country has strongly reversed and overseas expansion.”26
course to building up state-owned enterprise that is increasingly
incompatible with global trade regimes and threatening to mul- Historically, Chinese companies that are given licenses to
tinationals.”27 invest abroad have been SOEs or otherwise related to the gov-
ernment. But the government’s intimacy with companies—and
The move is even more curious because, in the words of Mr. not only SOEs—which are looking to invest in abroad has been
McGregor, “SOEs add zero growth—zero job growth, zero in- a source of considerable suspicion among foreign regulators in
novation. The private sector is what Deng [Xiaoping] used to recent years. Several high-profile acquisitions of foreign compa-
pull this country out of a hole and they’re going to have to use nies by Chinese firms have been halted, blocked or aborted in
the private sector to move it to the next step.” Moreover, while recent years.
it is unlikely that these SOEs will become “the new General
Electrics in 10 or 20 years […] they can destroy a lot of com- In September 2012, President Obama issued “an executive
panies and distort global markets and business practices along order prohibiting a Chinese company from owning and oper-
the way.” 27 ating a wind farm near the Naval Weapons Systems Training
Facility in Boardman, Ore [which] is said to be home to a fleet
According to Reuters, “Chinese reformers and Western gov- of unmanned drones and planes specializing in electronic war-
ernments say [SOEs’] sheer size and market dominance creates fare.” This was the first time in 22 years that a president had pre-
a drag on the economy through vast opportunity for corruption vented a foreign acquisition of a US business.28
and waste, leading to higher costs for consumers,” and that crit-
The Chinese company in question—machinery giant Sa-
34 ny—“is controlled by China’s second-richest man, Liang Wen-
market-oriented and they must keep strengthening their vitality ics of current SOE-related policy claim that “without further
and influence.” 26 reform of the state sector, China’s growth will stagnate. They
call for equal opportunity for private firms, which provide most
According to author and former AmCham China (Beijing) of the new jobs in China.”26
chairman James McGregor, the group of “117 huge central
SOEs,” of which many are monopolies, “have evolved over the The Chinese government’s oft-repeated call for indigenous
past decade so that the party controls these SOEs more than the innovation and the development of key high-tech industries is
government does.”27 exceedingly unlikely to be answered successfully by complacent
SOEs and those entrepreneurs who are the nation’s best hope in
Mr. McGregor explains: achieving a substantive economy based on innovation “are un-
able to get financing so they often live off loan sharks.”27 Banks
The Central Organization Department of the party ap- in China offer SOEs preferential treatment, often at the expense
points the top leaders and they outrank the bureaucrats of private enterprises.
who are nominally supposed to be the SOEs’ regulators.
The party is also able to use the SOEs for preserving Overseas expansion no easy task
political power as much as for building the economy.
That’s the heart of [what McGregor terms] the Author- In more global terms, Wall Street Journal commentator
itarian Capitalist system in China today.27 Stanley Lubman argues that, “The need to better understand
China’s system goes beyond abstract arguments about the fu-
Mr. McGregor, who has been in China for 25 years and has ture of the global economy. The continuing expansion of the
witnessed the nation’s extensive changes since ‘opening up’, pos- state sector of China’s economy limits the private sector and
its that some officials “saw the Russian oligarchs taking over state favors state-owned enterprises (SOEs) over foreign companies
assets as private individuals—and the party decided it would be in some domestic markets. As SOEs extend their investments
the oligarchy. And so in 2003 they formed the SASAC [State- abroad, nations in which China seeks to invest need to become
owned Assets Supervision and Administration Commission] more aware of frequent links between state ownership and state
to bring the state shares under central control. Then in 2006 control.”25
there was a directive that took about two dozen key industrial
and technology sectors and made them fully state controlled or China’s increasing support for SOEs at the expense of mar-
majority state controlled. Finally, you have the global financial ket-based competition in a variety of industries—“China going
crisis and the 600-billion-dollar stimulus program. That money in a direction that the West didn’t think China was going in”27
flushed into SOEs—and they were off and running.”27 after joining the WTO in 2001—is likely to be a source of in-
creasing friction between the P.R.C. and the rest of the world.
Curiously, this has all happened as many observers—the au-
thors included—expected that the Chinese government would At the above-mentioned 18th Communist Party Congress,
continue to open markets and cultivate a more dynamic and “[SASAC leader Wang] and other state-firm bosses emphasized
sustainable economy based on private enterprise. “[The Chinese their importance to what they called ‘national economic secu-
economy] was headed toward a more free market economy with rity’ in their gathering, laying out plans for further investment
more private companies. But the country has strongly reversed and overseas expansion.”26
course to building up state-owned enterprise that is increasingly
incompatible with global trade regimes and threatening to mul- Historically, Chinese companies that are given licenses to
tinationals.”27 invest abroad have been SOEs or otherwise related to the gov-
ernment. But the government’s intimacy with companies—and
The move is even more curious because, in the words of Mr. not only SOEs—which are looking to invest in abroad has been
McGregor, “SOEs add zero growth—zero job growth, zero in- a source of considerable suspicion among foreign regulators in
novation. The private sector is what Deng [Xiaoping] used to recent years. Several high-profile acquisitions of foreign compa-
pull this country out of a hole and they’re going to have to use nies by Chinese firms have been halted, blocked or aborted in
the private sector to move it to the next step.” Moreover, while recent years.
it is unlikely that these SOEs will become “the new General
Electrics in 10 or 20 years […] they can destroy a lot of com- In September 2012, President Obama issued “an executive
panies and distort global markets and business practices along order prohibiting a Chinese company from owning and oper-
the way.” 27 ating a wind farm near the Naval Weapons Systems Training
Facility in Boardman, Ore [which] is said to be home to a fleet
According to Reuters, “Chinese reformers and Western gov- of unmanned drones and planes specializing in electronic war-
ernments say [SOEs’] sheer size and market dominance creates fare.” This was the first time in 22 years that a president had pre-
a drag on the economy through vast opportunity for corruption vented a foreign acquisition of a US business.28
and waste, leading to higher costs for consumers,” and that crit-
The Chinese company in question—machinery giant Sa-
34 ny—“is controlled by China’s second-richest man, Liang Wen-
