State capitalism in China Of emperors and kings

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http://www.economist.com/node/21538159

WHEN China joined the World Trade Organisation (WTO) in December 2001, many people hoped that this would curb the power of its state-owned enterprises. Ten years on, they seem stronger than ever. President Hu Jintao can expect to hear about this at the Asia Pacific Economic Co-operation summit this weekend. Hillary Clinton, America’s secretary of state, has warned stridently of the dangers of state capitalism. A Congressional report released on October 26th railed against the unfair advantages enjoyed by state-owned firms and lamented that China is giving them “a more prominent role”.

Indeed it is. In a new book called “China’s Regulatory State”, Roselyn Hsueh of Temple University documents how, in sectors ranging from telecommunications to textiles, the government has quietly obstructed market forces. It steers cheap credit to local champions. It enforces rules selectively, to keep private-sector rivals in their place. State firms such as China Telecom can dominate local markets without running afoul of antitrust authorities; but when foreigners such as Coca-Cola try to acquire local firms, they can be blocked (though this week China did approve Yum! Brands’ bid to acquire Little Sheep, a Chinese restaurant chain).

In the dozen or so industries it deems most strategic, the government has been forcing consolidation. The resulting behemoths are held by the State-owned Assets Supervision and Administration Commission (SASAC), which is the controlling shareholder of some 120 state-owned firms. In all, SASAC controls $3.7 trillion in assets (see chart). The Boston Consulting Group (BCG) calls it “the most powerful entity you never heard of”; though it does not always get its way. Some state-owned firms have powerful friends and are hard to push around.

In some ways, SASAC aims to modernise its enterprises. Peter Williamson of Cambridge’s Judge Business School points approvingly to the steel industry. China was once littered with small, uneconomic steel firms; SASAC has urged them to merge, creating three “emperors” and five “kings”. That, says Mr Williamson, means there are enough steel firms to foster competition at home; yet they are big enough to venture overseas. What the government’s plan lacks, however, is any idea that private steelmakers might compete, in China, with the emperors and kings.