Big Business in Asia: The Power of Chinese State Monopolies


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Status: 09.10.2022 07:15 am

Large monopolists have formed in China’s state-controlled economy, for example in the oil and telecommunications sectors. This also has huge implications for competitors in the West.

By Eva Lamby-Schmitt, ARD Studio Shanghai

Glowing hot liquid steel is poured into a mold. This happens non-stop at the Baoshan steel factory in Shanghai. By going through different rolls, the newly formed steel sheets, called plates, get thinner and thinner until they are just thin sheet metal. The sheet metal is rolled up, a robot writes a number on it and then the steel is exported all over the world.

State propaganda praises success

In recent years, several Chinese steel companies have been merged into one large state-owned company. The China Baowu Steel Group is the largest steel producer in the world. At more than a billion tons per year, China produces more than half of the world’s steel.

A propaganda film about state-owned companies in China shows how they shape the country. “This is the way to make dreams come true. This is our way,” it reads. The state monopolists control the country’s major industries such as steel, construction, oil and gas, telecommunications and banking. The result is monopolies and price dictates. Competition is being abolished, innovation through private competition hardly takes place.

Tech giants as a warning example

What happens when private companies become too big and too powerful for the Chinese state and party leadership is seen in the tech industry in China. For years, her ascent was supported politically and in part financially by the state. But then the state and party leadership slowed down emerging private companies.

For example, Ant, the financial services provider of e-commerce giant Alibaba, wanted to go public two years ago. It would have been the largest IPO in world economic history. But the government stopped the IPO. Alibaba founder Ma Yun aka Jack Ma has largely had to withdraw from the public eye. It has become too powerful, says Andy Xie, a Chinese economist in Shanghai.

“In China, it is ultimately the government that decides whether a company succeeds or fails,” he says. “If you compete in the market and have some success, but the government thinks your success is against the interests of the government or affects political stability, then the government will immediately make you disappear.”

Impenetrable Power Structures

The Communist Party’s power extends to corporate boards—even places you might not expect it at first glance. “That’s because the state conglomerates have set up structures where the state-owned company is often in the background,” explains economist and China scientist Doris Fischer of the University of Würzburg.

However, among these actors are also many private companies – i.e. joint stock companies or limited liability companies – that fail to demonstrate that there is a state-owned enterprise or a company controlled by a party member or party-related persons in the background. “This merger allows the Chinese government to be relatively confident that it controls a large part of the economy,” Fischer said.

The rest of the world is left behind

The fact that politics dominate the economy also means that certain sectors in China receive special support, that especially state-owned companies have easier access to the market and to bank loans. Foreign companies doing business in China see it as unfair competition.

“In this regard, there are ideas that the WTO tools could be used through dumping or anti-dumping processes,” says Fischer, pointing to an alternative way: “If China systematically favors state-owned companies for certain sectors, then we need to somehow find a way to exclude these companies when in doubt.” Giving these companies such an advantage allows them to offer prices that European companies can’t compete with – “because we just don’t have that kind of corporate support”.

Chinese state monopolies

Eva Lamby-Schmitt, ARD Shanghai, September 30, 2022 10:57 am

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