U.S.-China Economic and Security Review Commission October 26, 2011 An Analysis of State‐owned Enterprises and State Capitalism in China By Andrew Szamosszegi and Cole Kyle __________________________________________________ Prepared by Capital Trade, Incorporated Washington, DC Table of Contents I. Executive Summary ................................................................................................................. 1 II. Introduction ............................................................................................................................ 4 III. Overview of state capitalism in China .................................................................................... 5 A. Economic footprint of SOEs ............................................................................................... 11 1. Output and value added ............................................................................................. 12 2. Fixed investment ........................................................................................................ 14 3. Employment and wages ............................................................................................. 16 4. Taxes/revenues ........................................................................................................... 19 5. The observable SOE share of output .......................................................................... 20 B. Comparison of the observable state sector and the private sector .................................. 22 IV. Sub‐national SOEs ................................................................................................................. 26 V. China’s strategic and pillar SOEs ........................................................................................... 33 A. Strategic industries ............................................................................................................ 34 B. Pillar industries .................................................................................................................. 38 C. Is the banking sector strategic? ......................................................................................... 43 VI. State support for SOEs: evidence from U.S. regulatory filings ............................................. 44 VII. Support from state‐owned banks ...................................................................................... 48 A. Regulatory and legal framework ........................................................................................ 48 B. Favorable treatment towards SOEs ................................................................................... 51 C. Less favorable access for the private sector ...................................................................... 52 D. Near‐term prospects ...................................................................................................... 53 VIII. The role of SOEs in Chinese government procurement .................................................... 55 A. Issues in China’s procurement market .............................................................................. 55 B. Measuring the SOE share of government procurement in China ..................................... 58 C. SOE Procurement in the United States .............................................................................. 59 IX. The SOE role in China’s five‐year development plans .......................................................... 61 X. The SOE role in technology transfers .................................................................................... 66 Capital Trade, Incorporated October 26, 2011 A. Aviation .............................................................................................................................. 68 B. High speed rail ................................................................................................................... 70 XI. Are SOE leaders market‐driven or Party driven? .................................................................. 72 A. SOE reforms in China and the role of SASAC ..................................................................... 72 B. The role of the COD ........................................................................................................... 75 C. The market or the state? ................................................................................................... 76 XII. Effects of SOE institutional interests on market access norms in China ........................... 78 A. Key players ......................................................................................................................... 78 B. Impact on foreign access in China ..................................................................................... 82 XIII. SOEs as conduits for foreign policies ................................................................................. 85 XIV. Overall assessment of SOEs and state capitalism in China ................................................ 90 XV. Attachment 1: SASAC list of Central SOEs ......................................................................... 95 XVI. Attachment 2: Calculation of SOE share of China’s GDP ................................................... 99 XVII. Glossary of Terms ......................................................................................................... 102 XVIII. Bibliography.................................................................................................................. 105 Page ii Capital Trade, Incorporated October 26, 2011 Table of Figures Table III‐1: Business registration categories defined in CSY‐2010 .................................................. 8 Table III‐2: State‐ownership data in CSY‐2010: specified and unspecified data on enterprises .... 8 Table III‐3: Various indicators of the size of China's private sector .............................................. 23 Table III‐4: Various indicators of the size of China's private sector, based on an expanded definition, 2009 ............................................................................................................................. 23 Table III‐5: Comparison of the private sector and the observable state sector ........................... 24 Table IV‐1: SOE employment by urban area, levels and shares, 2009 ......................................... 27 Table IV‐2: SOE fixed investment by urban area, levels and shares, 2009 ................................... 28 Table IV‐3: The SOE and SHE share of value added, business and other taxes and charges by region, 2009 .................................................................................................................................. 29 Table IV‐4: Number of industrial SOEs and SHEs and the number construction SOEs, by region 30 Table V‐1: Revenues of key defense‐oriented SOEs, 2010 ........................................................... 35 Table V‐2: Top SOE share of revenues in China’s coal industry, 2010 ......................................... 35 Table V‐3: Top SOE share of revenues in China’s air transportation sector, 2009 ....................... 36 Table V‐4: Top SOE share of revenues in China’s power sector, 2010 ......................................... 36 Table V‐5: Top SOE share of revenues in China’s petroleum and petrochemical industry, 2010 37 Table V‐6: Top SOE share of revenues in China’s shipping industry, 2010 .................................. 37 Table V‐7: Top SOE share of revenues in China’s telecom services industry, 2010 ..................... 38 Table V‐8: Top SOE market share in China’s automobile industry, 2010 ..................................... 39 Table V‐9: Top SOE share of crude steel production in China, 2010 ............................................ 39 Table V‐10: Top SOE revenue share in China’s construction industry, 2010 ............................... 40 Table V‐11: Top SOE revenue shares in China’s non‐ferrous metals industry, 2010 ................... 41 Table V‐12: Top SOE revenues in the machinery and equipment industries, 2010 ..................... 42 Table V‐13: Top SOE revenues in the information technology and science and technology fields, 2010 .............................................................................................................................................. 43 Table V‐14: Assets held by state‐controlled banks and other banks in China, 2009 ................... 44 Table VI‐1: Central SOEs and ownership shares of selected companies raising capital in U.S. financial markets, 2010 ................................................................................................................. 45 Table VIII‐1: Estimated SOE share of China's procurement expenditures, 2009 ......................... 59 Table XIII‐1: Sectoral composition of China’s recent foreign investments, July 2009‐June 2011 86 Table XIII‐2: Sectoral composition of China’s foreign investments as of June 2011 .................... 87 Table XVI‐1: Calculation of SOE share of GDP‐‐with adjustment for state‐holding enterprise participation in construction, 2007 .............................................................................................. 99 Table XVI‐2: Calculation of SOE share of GDP‐‐without adjustment for state‐holding enterprise participation in construction, 2007 .............................................................................................. 99 Table XVI‐3: Worksheet