Progress of the private sector among the largest companies in China under Shir

Progress of the private sector among the largest companies in China under Xi Jinping

The issue of corporate ownership, even in China. There is a well-established difference in behavior between private-sector firms and state-owned enterprises (SOEs), if only the former are driven to a greater extent for the purpose of maximizing profits, resulting in higher productivity gains (Lardy 2014), Lardy 2019). The widespread presence of the Chinese Communist Party, and even its determination to control certain aspects of the behavior of private sector companies – for example, censorship and access to security services in data – does not offset the significance of that division. Thus it is important to find an accurate picture of the respective shares of the private and public sectors in China, as it is in other jurisdictions (Büge et al 2013, Abate 2020).

In our study on China’s largest companies (Huang and Véron 2022), we have collected and analyzed data on the variable shares of public sector and private sector among China’s largest companies for more than a decade. The data shows that China’s private sector has grown not only in perfect terms but also as a proportion of the country’s largest companies, measured by revenue or (for those listed) market value, from very low levels when President Shi was confirmed. The next top leader in 2010 is a significant part today. SOEs still dominate among the largest companies in terms of revenue, but their dominance is declining. Widely used to describe China’s economic trends, the Chinese phrase “progress of the state, retreat of the private sector” does not present the main picture of what is going on under President Shir in the Chinese business world so far. In recent years.

The rapid growth of the private sector among the largest companies in China

Unlike many other countries, China’s largest companies are often not listed on stock exchanges. This is true of both the public sector and the private sector, although most of the activities of many unlisted SOEs are conducted in the majority owned listed subsidiaries. Thus, we examine both listed and listed companies using the two partially overlapping rankings of the largest companies in China.

The first sample is ranked by revenue, a proxy for a company’s activity. We use data compiled by business magazine Fortune for its annual Fortune Global 500 rankings, from which the paper extracts companies from mainland China. The group has grown rapidly, from 15 companies in the 2005 ranking (based on 2004 revenue) to 130 in the 2021 ranking (based on 2020 revenue). Their total revenue increased from 2. 2.8 trillion in 2010 to 8 8.8 trillion in 2020 Their total headcount in 2020 was 21 million, slightly less than twenty percent of China’s total urban employment, a ratio that has been relatively stable over the past decade.

The second sample is limited to mainland Chinese companies whose shares are listed on stock exchanges, including companies such as Shanghai, Shenzhen, Hong Kong and / or New York, Alibaba and Tencent who have adopted variable-interest-ownership in foreign sector ownership in certain sectors such as Internet services. China’s strict rules. We have compiled an annual ranking of the top 100 Chinese listed companies based on year-end market capitalization from 2010 to 2021. Their total headcount and revenue levels are significantly lower than in the first sample, as would be expected because it does not include some giant companies. Yet nonprofits are unlisted SOEs, and conversely they include some high-growth young companies that have a lot of promise but are still relatively small. Together, these largest 100 listed companies represent about two-fifths of the total market capitalization of all Chinese listed companies.

The ownership of this largest Chinese company involves a range of investor divisions. These include, among others, the Chinese state at the central and local levels, directly through government ministries or departments (such as the central government’s finance ministry) or indirectly through specialized agencies (such as state-owned asset supervision and administration), central and local level commissions or SASAC), state Investment firms (such as the Central Huijin Company, China Securities Finance Corporation, and the National Integrated Circuit Industry Fund), or SOEs that combine commercial and investment activities (such as the China National Tobacco Corporation)); Founders of private-sector companies and / or their relatives, management, and corporate pension funds; Private sector companies such as Alibaba and Tencent are acting as venture capitalists.Economist 2018); And foreign investors, such as diversified companies such as Softbank of Japan or Charoen Pokfund of Thailand, and global asset managers such as BlackRock or the Canadian Pension Fund.

For the purpose of our study, the private sector is conservatively defined as companies that we label “non-public enterprises” where state-owned enterprises hold less than 10 percent of equity capital. Within the public sector, a distinction is made between those we label SOEs, where the state owns a majority stake on the one hand, and what we call a “mixed-ownership enterprise,” where the state holds an equity share of 10. And 50 percent, on the other hand.

With these definitions in mind, Figures 1 and 2 illustrate the rise of the private sector among the largest companies in China, measured by revenue (all companies) and market value (listed companies), respectively. As is clear in Figure 1, SOEs still dominate revenue among the largest companies, far more than the Chinese economy as a whole. But in the mid-2000s, the share of the private sector continued to grow, from zero to 19 percent in the 2021 ranking of Fortune, based on 2020 revenues.

Figure 1 Chinese companies share total revenue in Fortune Global 500 rankings, according to ownership, 2004-20

As for the market value of the largest listed companies (Figure 2), the private sector represented only 8 percent in 2010 but rose above the 50 percent threshold in 2020, slightly behind in 2021 (48 percent) despite some major crackdowns that year. Such as internet platforms and post-school tutoring. Thus, last summer’s regulatory storm using the market price indicator rarely stopped in contrast to the advancement of the private sector. In fact, it could not only offset the growth of private sector shares in the previous year, where the end level of 2021 was better than the end of 2019.

Figure 2 Shares of the total market capitalization of the 100 largest listed companies in China by ownership, 2010-21

Figure 3 shows a similar growing trend for other metrics based on the same corresponding sample of the company.

Figure 3 China’s private sector is growing across a number of important metrics

Displacement of SOEs by well-performing private firms, not privatization

The growth of the private sector among China’s largest companies is not the result of long-term planning or top-down decisions, but of bottom-up dynamics. Deng Xiaoping, the Chinese leader who was the chief architect of the Chinese market embrace in 1978, erred in predicting in 1980 that “whatever the proportion of private investment, it will cover only a small percentage of the Chinese economy.” Will not affect. ” In the 1990s, in the face of the need to restructure the damaged public sector, China made a deliberate choice to keep state concerns at bay under Premier Zhu Rangji, and even many small SOEs were boycotted or privatized. This policy has become widely known by the four-letter phrase “hold the big, leave the small” while preserving public property as the “core of China’s economic model”. Consistent with these preferences, the first major Chinese companies to enter the global corporate rankings, based on revenue or market value, were all from the public sector by the end of the 2000s.

Privatization was virtually non-existent among the largest companies in China, and had mixed results when it happened (Harrison et al. 2019). Nor did the state go the way of providing comparative advantage to the private sector. In contrast, President Xi announced in 2016 that SOEs need to be “stronger, better and bigger”. Explaining the observed trend rather than national policy shows that private sector companies have become more dynamic and profitable than the public sector. Chinese scholar Nicholas R. Despite having a policy environment that Lardy has described as “displacement of SOEs” by private sector companies, which is clearly not in their favor (Lardy 2019).

The rise of private-sector champions reflects, but is not limited to, the spectacular growth of Internet content and e-commerce platforms. We find many more areas where the private sector has become stronger, including manufacturing (e.g., electronics, electric cars, batteries, steel and chemical), consumer goods and services, pharmaceuticals and life-science companies. In our sample, the platform’s share of the overall market value of China’s largest listed private sector companies peaked nearly five years ago, and has been declining since then (before the regulatory storm) as large private-sector companies in other industries. Grew faster. In contrast, financial services, telecom, energy and transportation are dominated by SOEs.

Of course, the structural trend of private-sector progress, which has marked the past decade of growth for China’s largest companies, is not a failed safe prediction of what will happen next. But more than once in the past there have been claims of a return to domination of the public sector and China’s private sector has already moved on. There is no strong indication that this time is different.


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Huang, T. and N. Veron (2022), “Private Sector Progress in China: The Developed Ownership Structure of the Largest Companies in the Xi Jinping Era”, Peterson Institute for International Economics Working Paper 22-3.

Lordy, N. (2014), Market on Mao: The Rise of Private Business in ChinaPeterson Institute for International Economics, Washington, DC.

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Economist (2018), “Alibaba and Tencent become China’s most powerful investors”, 2 August.

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