U.S.-China Economic and Security Review Commission October26,2011 AnAnalysisofStateownedEnterprisesandState CapitalisminChina By AndrewSzamosszegiandColeKyle __________________________________________________ PreparedbyCapitalTrade,Incorporated Washington,DC TableofContents I. ExecutiveSummary.................................................................................................................1 II. Introduction............................................................................................................................4 III. OverviewofstatecapitalisminChina....................................................................................5 A. EconomicfootprintofSOEs...............................................................................................11 1. Outputandvalueadded.............................................................................................12 2. Fixedinvestment........................................................................................................14 3. Employmentandwages.............................................................................................16 4. Taxes/revenues...........................................................................................................19 5. TheobservableSOEshareofoutput..........................................................................20 B. Comparisonoftheobservablestatesectorandtheprivatesector..................................22 IV. SubnationalSOEs.................................................................................................................26 V. China’sstrategicandpillarSOEs...........................................................................................33 A. Strategicindustries............................................................................................................34 B. Pillarindustries..................................................................................................................38 C. Isthebankingsectorstrategic?.........................................................................................43 VI. StatesupportforSOEs:evidencefromU.S.regulatoryfilings.............................................44 VII. Supportfromstateownedbanks......................................................................................48 A. Regulatoryandlegalframework........................................................................................48 B. FavorabletreatmenttowardsSOEs...................................................................................51 C. Lessfavorableaccessfortheprivatesector......................................................................52 D. Neartermprospects......................................................................................................53 VIII. TheroleofSOEsinChinesegovernmentprocurement....................................................55 A. IssuesinChina’sprocurementmarket..............................................................................55 B. MeasuringtheSOEshareofgovernmentprocurementinChina.....................................58 C. SOEProcurementintheUnitedStates..............................................................................59 IX. TheSOEroleinChina’sfiveyeardevelopmentplans..........................................................61 X. TheSOEroleintechnologytransfers....................................................................................66 CapitalTrade,Incorporated October26,2011 A. Aviation..............................................................................................................................68 B. Highspeedrail...................................................................................................................70 XI. AreSOEleadersmarketdrivenorPartydriven?..................................................................72 A. SOEreformsinChinaandtheroleofSASAC.....................................................................72 B. TheroleoftheCOD...........................................................................................................75 C. Themarketorthestate?...................................................................................................76 XII. EffectsofSOEinstitutionalinterestsonmarketaccessnormsinChina...........................78 A. Keyplayers.........................................................................................................................78 B. ImpactonforeignaccessinChina.....................................................................................82 XIII. SOEsasconduitsforforeignpolicies.................................................................................85 XIV. OverallassessmentofSOEsandstatecapitalisminChina................................................90 XV. Attachment1:SASAClistofCentralSOEs.........................................................................95 XVI. Attachment2:CalculationofSOEshareofChina’sGDP...................................................99 XVII. GlossaryofTerms.........................................................................................................102 XVIII. Bibliography..................................................................................................................105 Pageii CapitalTrade,Incorporated October26,2011 TableofFigures TableIII1:BusinessregistrationcategoriesdefinedinCSY2010..................................................8 TableIII2:StateownershipdatainCSY2010:specifiedandunspecifieddataonenterprises....8 TableIII3:VariousindicatorsofthesizeofChina'sprivatesector..............................................23 TableIII4:VariousindicatorsofthesizeofChina'sprivatesector,basedonanexpanded definition,2009.............................................................................................................................23 TableIII5:Comparisonoftheprivatesectorandtheobservablestatesector...........................24 TableIV1:SOEemploymentbyurbanarea,levelsandshares,2009.........................................27 TableIV2:SOEfixedinvestmentbyurbanarea,levelsandshares,2009...................................28 TableIV3:TheSOEandSHEshareofvalueadded,businessandothertaxesandchargesby region,2009..................................................................................................................................29 TableIV4:NumberofindustrialSOEsandSHEsandthenumberconstructionSOEs,byregion30 TableV1:RevenuesofkeydefenseorientedSOEs,2010...........................................................35 TableV2:TopSOEshareofrevenuesinChina’scoalindustry,2010.........................................35 TableV3:TopSOEshareofrevenuesinChina’sairtransportationsector,2009.......................36 TableV4:TopSOEshareofrevenuesinChina’spowersector,2010.........................................36 TableV5:TopSOEshareofrevenuesinChina’spetroleumandpetrochemicalindustry,201037 TableV6:TopSOEshareofrevenuesinChina’sshippingindustry,2010..................................37 TableV7:TopSOEshareofrevenuesinChina’stelecomservicesindustry,2010.....................38 TableV8:TopSOEmarketshareinChina’sautomobileindustry,2010.....................................39 TableV9:TopSOEshareofcrudesteelproductioninChina,2010............................................39 TableV10:TopSOErevenueshareinChina’sconstructionindustry,2010...............................40 TableV11:TopSOErevenuesharesinChina’snonferrousmetalsindustry,2010...................41 TableV12:TopSOErevenuesinthemachineryandequipmentindustries,2010.....................42 TableV13:TopSOErevenuesintheinformationtechnologyandscienceandtechnologyfields, 2010..............................................................................................................................................43 TableV14:AssetsheldbystatecontrolledbanksandotherbanksinChina,2009...................44 TableVI1:CentralSOEsandownershipsharesofselectedcompaniesraisingcapitalinU.S. financialmarkets,2010.................................................................................................................45 TableVIII1:EstimatedSOEshareofChina'sprocurementexpenditures,2009.........................59 TableXIII1:SectoralcompositionofChina’srecentforeigninvestments,July2009June201186 TableXIII2:SectoralcompositionofChina’sforeigninvestmentsasofJune2011....................87 TableXVI1:CalculationofSOEshareofGDPwithadjustmentforstateholdingenterprise participationinconstruction,2007..............................................................................................99 TableXVI2:CalculationofSOEshareofGDPwithoutadjustmentforstateholdingenterprise participationinconstruction,2007..............................................................................................99 TableXVI3:Worksheet1Calculationofconstructionindustryvalueadded,without adjustmentforstateholdingenterpriseshare,2007................................................................100 Pageiii CapitalTrade,Incorporated October26,2011 TableXVI4:Worksheet2Incorporationofstateholdingenterprisevalueaddedinthe constructionindustry,2007........................................................................................................100 TableXVI5:Worksheet3CalculationofSOEvalueaddedforservicesindustries,2007.......101 FigureIII1:StructureofrelationshipsamongSOEs,SASACsandcentralandlocalgovernments6 FigureIII2:BreakdownoflistedChinesenonfinancialfirmsbyidentityofthelargest shareholders,2004.......................................................................................................................10