With global trade stunted by economic crisis, many of China's coastal manufacturing companies are hit hard. On the other hand, State-owned enterprises are maintaining a strong foot-hold in monopolistic areas such as grain import and export, petrochemicals, electric power, telecommunication, transportation. . . these has shielded them from impacts of the global slump and help them retain huge revenues.
4 trillion investment, 7 billion credits pour into SOEs
The Chinese government has set aside 4 trillion yuan investment mainly for infrastructures and key project construction. The fund is mainly channeled downwards to large-scale, robustly-funded and administratively-privileged SOEs. In the first half of 2009, China's newly-added credit exceeded 7 trillion, a far higher level than normal. Statistics show that these capitals mainly flowed to SOEs: abundantly-funded SMEs snatched money away from struggling private enterprises that are starving for funds.
Economic crisis creates buying-out opportunities for SOEs
Many crisis-hit enterprises were running at deficit and hardly able to continue, a large portion of them were eventually acquired by SOEs. Private airline companies, as a whole, were almost scooped up by SOEs. In the iron and steel sector, private iron and steel companies who formerly constitute two thirds of the national total were acquired by some low-output, low-efficiency state-owned steel companies one after another. SOEs even extended to competitive sectors such as food and real estate industry. The private-owned diary giant Mengniu were acquired by state-owned COFCO Limited. During land auctions in the first half of 2009, cases of obscure SOEs bidding for private-owned giants at stunning prices were not uncommon.
Fairtheworld comments
Fairtheworld.com believes that, amid the financial crisis, SOEs' domestic and overseas expansion is a mixed phenomenon. On the one hand, these enterprises can take advantage of the crisis to purchase underpriced global resources for expanding aboard. On the other hand, domestically, SOEs gobble up funds and credits that could have been used to save ailing private enterprises that are vast in number, and go further to acquire them.
SOEs, while monopolizing some of the strategic industries, also have a stomach for competitive sectors, and are striking down private enterprises using administrative measures and capital advantages. This will cause a recession of the market economy, leading to monopoly in all industries. Monopoly means corruption and low-efficiency, which will drag down China's international competitiveness seriously.
Therefore, we should be vigilant on these situations. SOE expansions should be constrained to a fixed range of industries and be ordered to stay outside competitive industries. Also, improved credit system is needed to provide financial backings for private enterprises. Private enterprises are not only the powerhouse of China's economy but also a main source of job opportunities; only by allowing private enterprises to flourish can China enjoy an enhanced international competitiveness.
