China's SOE monopoly fallacy

By Guo Songmin
0 Comment(s)Print E-mail, June 3, 2013
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The reform and development of China's state-owned enterprises (SOEs) has achieved remarkable progress in recent years with 59 SOEs making the 2011 Fortune 500 lists and Sinopec, CNPC and State Grid placing in the top 10. From 2002 to 2012, the total revenue of SOEs at the central level rose from 3.36 trillion yuan to 22.5 trillion yuan

Some neo-liberal scholars argue that SOEs benefit from their monopoly status and hamper the healthy development of private companies and that if a "genuine market economy" is to be established SOEs should withdraw from competitive industries. These arguments attribute the superior performance of SOEs to their privileged monopoly status and equate the anti-monopoly position with privatization. The "SOEs monopoly theory" is, however, outdated as it cannot account for the fact that China's private economy grows faster than its state-run economy.

The "SOEs monopoly theory" simply runs contrary to the facts. Although those SOEs in the fields of electricity, oil and gas, telecommunications, railways, tobacco and some social services enjoy a relatively high level of monopoly, the majority of SOEs face fierce competition, as evidenced by the construction, real estate, automobile, manufacturing, information, financial, commerce and social services industries. In realistic terms, more than 90 percent of SOEs must compete in order to survive.

Competition also exists within monopoly industries. In China, the production of oil and gas is mainly controlled by three SOEs: Sinopec, CNPC and CNOOC. Oil products are mainly produced by Sinopec and CNPC, which are locked in fierce competition with one another.

Looking at the question of monopolies from a global perspective, the concern generally focuses on whether companies are exploiting their monopoly status to restrict free competition. In China, however, criticism of SOEs has long been focused on the size of the SOEs and management corruption in SOEs.

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