WEBVTT - The Chinese Economy Demystified: The State Owned Enterprise 0:00:05.080 --> 0:00:08.320 Welcome, Dick. It happened here. I'm your host, Na Wong, 0:00:08.960 --> 0:00:11.040 and today we're going to be talking about something a 0:00:11.080 --> 0:00:14.880 little bit different. In the last half decade, a growing 0:00:14.880 --> 0:00:18.320 political focus on China has transformed a cottage industry of 0:00:18.360 --> 0:00:23.799 American China watchers into a sprawling metropolis of pseudoanalysis, a 0:00:24.000 --> 0:00:27.040 veritable machine that turns out racialized fear of the Chinese 0:00:27.120 --> 0:00:31.000 other and transforms it into economic papers that close with 0:00:31.080 --> 0:00:35.760 quote unquote policy solutions about the so called China problem. 0:00:36.040 --> 0:00:38.879 In these circles, a consensus is emerging about what they 0:00:38.920 --> 0:00:42.440 call Chinese state capitalism and its supposed risk of the 0:00:42.520 --> 0:00:47.120 United States. China's economy, they argue, is not a free 0:00:47.120 --> 0:00:51.320 market economy like that of the United States. Instead, China's 0:00:51.400 --> 0:00:53.920 large array of state owned industries and its willingness to 0:00:54.000 --> 0:00:58.440 use investments to incentivize specific kinds of research while protecting 0:00:58.480 --> 0:01:02.680 companies from pure market competition means that the state, and 0:01:02.720 --> 0:01:06.000 not the market, dictates the course of the Chinese economy. 0:01:06.920 --> 0:01:10.360 Under these assumptions, the Chinese economy poses two major threats 0:01:10.360 --> 0:01:14.520 to American companies in the American security state. First, state 0:01:14.560 --> 0:01:18.000 owned industry is subsidized by the state will inevitably outcompete 0:01:18.080 --> 0:01:21.800 American companies because American companies can't match the sheer quantity 0:01:21.840 --> 0:01:24.880 of capital held by the Chinese state, which violates the 0:01:24.880 --> 0:01:27.920 fairness and competitiveness of the free market by making companies 0:01:27.959 --> 0:01:32.280 compete on unequal grounds. Second, the close ties between the 0:01:32.360 --> 0:01:36.080 Chinese government and state owned industries and even private Chinese 0:01:36.080 --> 0:01:39.000 companies means that their technology will be used by the 0:01:39.040 --> 0:01:44.480 CCP to strengthen its military by stealing American technology. The 0:01:44.560 --> 0:01:47.880 problem with this consensus at a fundamental level is that 0:01:47.920 --> 0:01:51.720 it's utterly uninterested in how Chinese state owned enterprises known 0:01:51.760 --> 0:01:56.320 as soees actually functioned. And this is a real problem 0:01:56.920 --> 0:01:59.760 because Chinese sos are not what you or the people 0:01:59.840 --> 0:02:04.120 righting American forum policy think they are. So today we're 0:02:04.120 --> 0:02:05.960 going to take a dive into the belly of the 0:02:06.040 --> 0:02:10.800 state and figure out how soos actually function and determine 0:02:11.000 --> 0:02:13.880 what this actually does to the prevailing theories about how 0:02:14.040 --> 0:02:17.040 Chinese economy works and what it means for both the 0:02:17.080 --> 0:02:21.000 American and Chinese working classes. But before we get into 0:02:21.040 --> 0:02:23.400 the structure of the SOE, we need to talk about 0:02:23.440 --> 0:02:28.560 state capitalism. State capitalism is an old term. Most of 0:02:28.560 --> 0:02:30.560 the people writing about it will trace it back to 0:02:30.639 --> 0:02:35.359 Lenin's New Economic Policy, a massive shift towards the market 0:02:35.680 --> 0:02:39.200 in the Soviet economy of the early twenties. The New 0:02:39.280 --> 0:02:43.919 Economic Policy relegalized private capitalist firms, albeit in a much 0:02:43.960 --> 0:02:47.960 reduced capacity, with a very large state sector driving the 0:02:47.960 --> 0:02:52.000 economy as a whole, a condition Lenin dubbed state capitalism. 0:02:52.919 --> 0:02:55.880 But even using state capitalism to describe both the New 0:02:55.919 --> 0:02:59.520 Economic Plan and the current situation in China reveals a 0:02:59.520 --> 0:03:04.440 profound misunderstanding of both Lenin's NEP and the modern Chinese economy. 0:03:05.440 --> 0:03:09.720 For one thing, during the NEP, state owned industries accounted 0:03:09.720 --> 0:03:13.399 for at least seventy percent of Soviet industrial output, increasing 0:03:13.400 --> 0:03:16.960 to seventy seven percent by the end of the policy. Meanwhile, 0:03:17.080 --> 0:03:21.200 despite the height behind Chinese state capitalism, china state sector 0:03:21.240 --> 0:03:25.520 represents a measly forty percent of China's economy, uniquely high 0:03:25.560 --> 0:03:28.640 for a capitalist economy, but quite literally the inverse of 0:03:28.639 --> 0:03:31.160 the relationship between capitalist frames and the state. In the 0:03:31.320 --> 0:03:36.000 USSR that sixty percent of China's GDP is private and 0:03:36.040 --> 0:03:38.320 only forty percent is generated by the state. And don't 0:03:38.320 --> 0:03:41.000 look too closely at that forty percent, because only thirty 0:03:41.000 --> 0:03:43.640 percent of it is from actual state industries, the other 0:03:43.680 --> 0:03:46.640 ten percent resulting from the regular function of the state itself. 0:03:47.600 --> 0:03:51.160 Shows what actually drives the Chinese economy, not the state 0:03:51.200 --> 0:03:55.440 at all, but the market. This is very important because 0:03:55.440 --> 0:03:57.600 the story of the Chinese economy in the last forty 0:03:57.680 --> 0:04:00.440 years is not simply the story of a state run 0:04:00.520 --> 0:04:04.320 command economy transforming into a market economy. It is also 0:04:04.920 --> 0:04:09.640 and arguably primarily, the story of the market consuming the 0:04:09.680 --> 0:04:13.480 state from the inside out. This becomes more clear the 0:04:13.560 --> 0:04:16.680 closer you look at how state owned enterprises are actually structured, 0:04:17.560 --> 0:04:20.080 and it is here the weakness of the very term 0:04:20.200 --> 0:04:24.800 state owned enterprise comes into focus. Academics and journalists write 0:04:24.800 --> 0:04:27.880 about state owned enterprises as if the word means one 0:04:28.000 --> 0:04:31.240 specific thing, but the reality is that there are an 0:04:31.440 --> 0:04:34.800 enormous number of different kinds of sos, with different structures 0:04:35.000 --> 0:04:39.040 and different relationships to the state. When regular people think 0:04:39.080 --> 0:04:41.640 about state ownership, it tends to invoke the specter of 0:04:41.640 --> 0:04:45.920 the USSR in a Soviet style sooe, and will take 0:04:45.960 --> 0:04:48.880 as an example of Chinese SOE the Socialist period, which 0:04:48.880 --> 0:04:54.520 functions similarly. The firm is literally a government department. For example, 0:04:54.680 --> 0:04:59.160 in nineteen seventy nine, China established the Bureau of nonferest 0:04:59.240 --> 0:05:01.760 Metals and this is the best name you're going to 0:05:01.760 --> 0:05:05.320 get out of the CCP. In this entire episode, that 0:05:05.480 --> 0:05:08.280 bureau was in charge of running a luninium production. The 0:05:08.320 --> 0:05:11.400 government ministry simply ran the mines and the refineries and 0:05:11.440 --> 0:05:14.760 the factories directly, and everyone working in the factory was 0:05:14.760 --> 0:05:19.320 a direct government employee paid by the state. This is 0:05:19.360 --> 0:05:22.320 also pretty close to how the American Post Office is structured. 0:05:23.080 --> 0:05:27.279 But Soviet SOEs crucially were not firms that competed for 0:05:27.400 --> 0:05:30.560 money in the market. They worked towards a production plan 0:05:30.600 --> 0:05:34.160 and were assigned resources based on their output. In this way, 0:05:34.279 --> 0:05:37.560 they're closer to a municipal water service than most modern SOEs. 0:05:38.160 --> 0:05:40.560 Their job, in theory was to make a thing or 0:05:40.600 --> 0:05:45.680 a service, not make money. Modern Chinese soees, despite sharing 0:05:45.800 --> 0:05:50.040 the same name as or socialist period predecessors, are very different. 0:05:51.080 --> 0:05:54.680 For one thing, Modern Chinese SOEs, as well as a 0:05:54.680 --> 0:05:57.440 lot of other state owned companies like the Saudi government's 0:05:57.440 --> 0:06:00.760 oil companies Saudi a Ramco, are not directly part of 0:06:00.800 --> 0:06:04.839 the government at all. Instead, they're structured as regular corporations 0:06:04.839 --> 0:06:08.320 whose stock happens to be owned by the governments. This 0:06:08.440 --> 0:06:11.359 shareholding relationship is one of the most common kinds of 0:06:11.400 --> 0:06:15.279 modern SOEs, but as we'll see, they make ownership and 0:06:15.320 --> 0:06:20.200 management structures increasingly complex. The other major difference from Soviet 0:06:20.279 --> 0:06:23.239 firms is that companies like Saudi a Ramco and modern 0:06:23.320 --> 0:06:26.839 Chinese soez are for profit companies. I don't exist to 0:06:26.839 --> 0:06:30.000 provide a service, they exist to make money. This gets 0:06:30.120 --> 0:06:33.880 very weird very quickly. For one thing, while we tend 0:06:33.920 --> 0:06:36.280 to think of state owned enterprises as belonging to the 0:06:36.360 --> 0:06:42.800 national governments, municipal, provincial, and even disher Can county governments 0:06:42.800 --> 0:06:46.400 in China have their own SOEs. On a conceptual level, 0:06:46.440 --> 0:06:49.640 this makes sense. China's economy is the size of a continents, 0:06:49.640 --> 0:06:54.080 and individual provinces have the geographic size, population, natural resources, 0:06:54.080 --> 0:06:57.479 and economy of entire nations, which means that provincial soees 0:06:57.520 --> 0:07:01.440 can rival national firms. But this also means that state 0:07:01.440 --> 0:07:05.040 owned industries from different levels of government are directly competing 0:07:05.080 --> 0:07:08.360 with each other on the market. This is something beyond 0:07:08.360 --> 0:07:11.520 the experience of previous theorists of the state and capitalism. 0:07:12.120 --> 0:07:15.400 Frederick Engels, the close friend of Karl Marx, was able 0:07:15.440 --> 0:07:19.880 to predict the rise of capitalist state owned industries writing quote. 0:07:20.000 --> 0:07:23.560 At a further stage of evolution, this form also becomes insufficient. 0:07:23.960 --> 0:07:27.040 The official representative of the capitalist state will ultimately have 0:07:27.080 --> 0:07:31.400 to undertake the direction of production. This necessity for conversion 0:07:31.440 --> 0:07:34.280 into state property is felt first in the great institutions 0:07:34.320 --> 0:07:39.000 for intercourse and communication, the post office, the telegrams, the railways. 0:07:39.720 --> 0:07:42.800 If the crisis demonstrates the incapacity of the bourgeoisie for 0:07:42.880 --> 0:07:46.960 managing any longer modern productive forces, the transformation of the 0:07:46.960 --> 0:07:50.360 great establishment for production and distribution into joint stock companies 0:07:50.400 --> 0:07:54.000 and state property shows how unnecessary the bourgeoisie are for 0:07:54.040 --> 0:07:57.080 that purpose. All the social functions of the capitalists are 0:07:57.120 --> 0:08:01.360 now performed by salaried employees. The capitalist has no social 0:08:01.400 --> 0:08:05.960 function than that of pocketing dividends, tearing off coupons, and 0:08:05.960 --> 0:08:09.280 gambling at the stock exchange, with the different capitalists to 0:08:09.320 --> 0:08:12.960 spoil one another of their capital. At first, the capitalist 0:08:12.960 --> 0:08:16.240 mode of production forces out the workers. Now it forces 0:08:16.240 --> 0:08:18.840 out the capitalists and reduces them, just as it reduced 0:08:18.840 --> 0:08:22.160 the workers to the ranks of the surfplus population, although 0:08:22.200 --> 0:08:25.600 not immediately into those of the industrial reserve army, but 0:08:25.680 --> 0:08:28.760 angles imagined the state as a collective capitalist, replacing the 0:08:28.800 --> 0:08:32.439 individual capitalist. What no one could have foreseen was capitalists 0:08:32.440 --> 0:08:35.280 break was capitalism breaking the collective nature of the state, 0:08:35.440 --> 0:08:39.079 entirely hollowing it out until its chunks competed with each 0:08:39.120 --> 0:08:42.040 other on the market. This is the state of modern 0:08:42.120 --> 0:08:47.319 Chinese SOEs. These SOEs are capitalists, firms subject to market discipline. 0:08:47.480 --> 0:08:50.040 They can and will fail and go under if they 0:08:50.040 --> 0:08:53.520 aren't making enough money, and the government can and will 0:08:53.720 --> 0:08:56.439 tear them apart and force the still state owned pieces 0:08:56.440 --> 0:08:59.920 to compete against each other. These state owned industries also 0:09:00.200 --> 0:09:03.000 largely are not supposed to be monopolies. Firms they get 0:09:03.040 --> 0:09:06.440 too large and powerful can and will be broken up 0:09:06.440 --> 0:09:09.280 and the parts once again set to compete against each other. 0:09:10.720 --> 0:09:15.199 Weirder still, these SOEs are also listed on the stock markets, 0:09:15.600 --> 0:09:19.040 meaning individual capitalists, and as we'll see later, even foreign 0:09:19.080 --> 0:09:22.520 firms can buy forty nine percent stakes and nominally state 0:09:22.520 --> 0:09:27.640 owned industries. Now, if the state doing market competition against 0:09:27.720 --> 0:09:31.920 itself wasn't weird enough for you, let me introduce another complication. 0:09:32.800 --> 0:09:36.839 The State Owned Asset Supervision and Administration Commission of the 0:09:36.880 --> 0:09:41.239 State Council and no the state owned Asset Supervision and Administration. 0:09:41.280 --> 0:09:43.360 Commission of the State Council is not a name that 0:09:43.400 --> 0:09:46.160 sounds any better in Chinese. If you have a bureaucracy 0:09:46.200 --> 0:09:49.760 rooted in Leninism, the product is a veritable corricopia of 0:09:49.800 --> 0:09:52.559 the most absolutely dogshit name you've ever heard in your 0:09:52.679 --> 0:09:56.960 entire life. This commission is better known for obvious reasons 0:09:57.000 --> 0:10:00.360 as Sassak, and it is the government body that owns 0:10:00.440 --> 0:10:03.160 the shares of most of the largest firms in China, 0:10:03.200 --> 0:10:07.400 which are known as the national champions. Now you could 0:10:07.400 --> 0:10:10.000 be forgiven for thinking you now understand the structure of 0:10:10.040 --> 0:10:13.720 Chinese soez. Sasak, which is a part of the state, 0:10:14.000 --> 0:10:17.280 owns the SOEs. Bob's your uncle, Everyone goes home for 0:10:17.320 --> 0:10:21.520 the night, and the episode ends right here. Unfortunately, it 0:10:21.600 --> 0:10:24.880 is way more convoluted than that. When I said SASAQ 0:10:24.920 --> 0:10:27.880 owns the shares of the largest firms in China, that's 0:10:27.880 --> 0:10:31.680 only true in a technical sense. What Sasak actually owns 0:10:31.720 --> 0:10:35.160 are the shares of massive holding companies, companies that exist 0:10:35.200 --> 0:10:38.360 on paper but whose existence is purely dedicated to owning 0:10:38.400 --> 0:10:42.160 the shares of other companies. These holding companies own the 0:10:42.200 --> 0:10:44.960 shares of the publicly traded companies. You might have heard of, 0:10:45.040 --> 0:10:48.640 like Sinopek China state owned oil companies. And this is 0:10:48.679 --> 0:10:51.559 where the simplistic narrative of the Chinese soe, a single 0:10:51.600 --> 0:10:55.000 firm owned by the state under its direct political control, 0:10:55.240 --> 0:10:59.080 completely falls apart, because again, the state doesn't really own 0:10:59.160 --> 0:11:02.280 these firms directly. What they own is a holding company 0:11:02.600 --> 0:11:08.280 that owns the stock of the sues. That holding company, however, 0:11:08.600 --> 0:11:12.000 is the actual basis of the organization of Chinese state ownership. 0:11:12.559 --> 0:11:15.480 The building blocks of the Chinese state economy aren't single 0:11:15.520 --> 0:11:19.320 state owned enterprises at all. The economy is actually composed 0:11:19.360 --> 0:11:23.160 of what are called business groups. American listeners may not 0:11:23.200 --> 0:11:25.199 be very familiar with business groups, but there are a 0:11:25.240 --> 0:11:27.960 common sight in what became known as the Tiger economies, 0:11:28.400 --> 0:11:31.559 a series of economies that's all rabid industrial development in 0:11:31.600 --> 0:11:34.440 the post World War two era, largely fueled by the 0:11:34.440 --> 0:11:37.600 demands of American military supply lines for its wars in 0:11:37.679 --> 0:11:42.439 Korea and Vietnam. The two most infamous are the Japanese Keretsu, 0:11:42.880 --> 0:11:45.920 the successor to the old Japanese zaibatsu that dominated the 0:11:46.000 --> 0:11:49.520 pre war Japanese economy and which were to some extent 0:11:49.600 --> 0:11:53.800 broken up after the war, and Korean chabel conglomerates. These 0:11:53.920 --> 0:11:57.120 massive groups of businesses are either owned by the same 0:11:57.160 --> 0:12:00.199 people or families in the case of the chabel, or 0:12:00.280 --> 0:12:03.920 linked by mutual shareholding of each other's companies. Like kedatsu, 0:12:05.920 --> 0:12:09.240 the groups cooperate and coordinate the business strategy instead of 0:12:09.280 --> 0:12:12.160 competing against each other, which allows them to carry out 0:12:12.200 --> 0:12:14.880 a level of long term planning that's sometimes difficult for 0:12:14.960 --> 0:12:19.480 individual for profit companies. Chinese economists sent to Japan to 0:12:19.480 --> 0:12:22.440 study kedatsu in the seventies and eighties returned with policy 0:12:22.480 --> 0:12:26.120 in hands, But the business groups that eventually emerged in 0:12:26.160 --> 0:12:28.920 the Chinese economy after an extended process of trial and 0:12:29.080 --> 0:12:32.960 error are different than their Korean or Japanese counterparts. Where 0:12:33.040 --> 0:12:36.360 chabel are organized around families and Kedatsu are organized around 0:12:36.360 --> 0:12:39.360 a commercial bank that provides financing for the companies and 0:12:39.400 --> 0:12:43.520 the group, Chinese businesses are organized by those holding companies 0:12:43.520 --> 0:12:46.679 one hundred percent owned by Sassak and therefore the Chinese State. 0:12:47.679 --> 0:12:51.640 Those holding companies, also sometimes called core companies, own the 0:12:51.679 --> 0:12:55.160 majority of the stock of a variety of public betraded companies. 0:12:55.520 --> 0:12:59.000 They also own a finance company which finances the companies 0:12:59.360 --> 0:13:02.680 and work with research institutes which carry out scientific and 0:13:02.720 --> 0:13:06.920 research development for the entire group. These research institutes, which 0:13:06.920 --> 0:13:10.520 are often university affiliated, are technically nonprofit, but take money 0:13:10.559 --> 0:13:13.679 from the core companies in exchange for the research development 0:13:13.720 --> 0:13:19.360 they do. Chinese business groups are often massive, organizing hundreds 0:13:19.400 --> 0:13:22.720 of companies who also maintain trade and supply relations with 0:13:22.840 --> 0:13:26.760 hundreds more companies technically outside the group. These groups are 0:13:26.840 --> 0:13:30.120 organized by what's called articles of grouping, which the core 0:13:30.160 --> 0:13:32.800 holding company who owns the stock, and the rest of 0:13:32.800 --> 0:13:36.960 the companies get those companies to sign. These articles form 0:13:36.960 --> 0:13:39.400 a top down structure for the entire group that also 0:13:39.440 --> 0:13:42.880 includes council and management bodies for the entire group, with 0:13:43.000 --> 0:13:46.240 representatives from each of the companies in the group. This structure, 0:13:46.520 --> 0:13:49.760 in theory, is how the CCP transmits policy down from 0:13:49.800 --> 0:13:53.440 single holding companies to all of their downstream subsidiaries and allies. 0:13:54.360 --> 0:13:57.760 And this is important because, at least in theory, business 0:13:57.760 --> 0:14:00.640 groups are supposed to carry out government and dose and 0:14:00.679 --> 0:14:04.040 economic developments, but in the real world this is a 0:14:04.080 --> 0:14:09.080 significant challenge because again, even individual business groups comprise hundreds 0:14:09.080 --> 0:14:12.079 of companies, and the states grasp on them as often tenuous, 0:14:12.600 --> 0:14:14.800 as seen by a wave of state owned companies that 0:14:14.880 --> 0:14:18.040 theoretically are supposed to make things getting into real estate 0:14:18.040 --> 0:14:21.040 speculation a problem the CCP has been attempting to deal 0:14:21.040 --> 0:14:23.080 with since two thousand and eight and only really has 0:14:23.080 --> 0:14:26.240 gotten under control in the last two years. But you 0:14:26.320 --> 0:14:31.640 know who will not do housing speculation instead of making 0:14:31.680 --> 0:14:34.960 ads for you. It is the companies and the products 0:14:35.000 --> 0:14:49.160 and services that support this podcast. And we're back so 0:14:49.280 --> 0:14:52.280 confronted with the enormity of the scale of Chinese business groups, 0:14:52.560 --> 0:14:56.840 how does state control over these groups actually work? In theory, 0:14:57.240 --> 0:15:02.680 regulation operates around two channels. SASAK owns the holding companies, 0:15:02.880 --> 0:15:05.200 which allows it, in theory, to make decisions that a 0:15:05.280 --> 0:15:08.000 shareholder would be able to make it a private corporation. 0:15:08.880 --> 0:15:12.080 There's also a parallel corpus structure directly run by the party, 0:15:12.480 --> 0:15:15.080 and high ranking people in the corpus structure become party 0:15:15.080 --> 0:15:17.720 members and are sent to cadre trainings at places like 0:15:17.720 --> 0:15:22.000 the Central Party School in Beijing. Meanwhile, people swap between 0:15:22.040 --> 0:15:24.840 SASSAK and high level manager positions, and the heads of 0:15:24.920 --> 0:15:28.840 large sos also have positions in the Chinese government itself. 0:15:29.440 --> 0:15:31.560 Trying to explain all of the positions they have and 0:15:31.600 --> 0:15:34.440 the councils they're on and their technical ministerial ranks is 0:15:34.480 --> 0:15:37.440 a disaster because oh boy, if you think the American 0:15:37.480 --> 0:15:40.120 government is confusing, try sorting out who does what in 0:15:40.120 --> 0:15:43.080 a party state. The moral of the story is that 0:15:43.120 --> 0:15:46.240 the CCP tries to keep control over the enormous number 0:15:46.240 --> 0:15:49.040 of companies it technically owns through control of who gets 0:15:49.040 --> 0:15:52.000 appointed as the head of soees through Sassak, which is 0:15:52.000 --> 0:15:55.480 directly a part of the state, and by integrating SOE 0:15:55.600 --> 0:15:59.800 heads into various government and party bodies. They also are 0:16:00.440 --> 0:16:03.200 somewhat embarrassingly given that they owed these companies forced to 0:16:03.240 --> 0:16:05.800 directly go after them through the law and through the 0:16:05.840 --> 0:16:10.600 court system, which works sometimes and also doesn't work other times. 0:16:11.600 --> 0:16:17.960 But this relationship is multidirectional. Leewhen Lynn and Curtis J. Milhoft, 0:16:18.400 --> 0:16:22.640 two scholars who've written extensively about Chinese corporate structure, argue 0:16:22.680 --> 0:16:25.800 convincingly that the deep integration of the Party into soees 0:16:26.440 --> 0:16:29.880 after the state owned industries have been corporatized, that is, 0:16:30.120 --> 0:16:34.280 turned from direct state industries run by state employees to 0:16:34.480 --> 0:16:38.400 profit seeking market corporations own a through shares, was a 0:16:38.440 --> 0:16:41.000 way to buy the Party off and allow these firms 0:16:41.000 --> 0:16:43.680 to become more capitalists in ways that wouldn't have worked 0:16:43.720 --> 0:16:46.840 if the Party wasn't also getting rich off of it. 0:16:46.840 --> 0:16:49.560 It's not just that China has state owned industries. It's 0:16:49.560 --> 0:16:52.600 that the corporatization of state owned industries has made the 0:16:52.640 --> 0:16:57.680 Party and the Chinese state increasingly capitalist, and this raises 0:16:57.680 --> 0:17:02.080 another question. As the Chinese state grows more capitalists, are 0:17:02.120 --> 0:17:06.160 public and private Chinese firms even all that different, Private 0:17:06.200 --> 0:17:08.879 firms also have links to the state through equity, have 0:17:09.040 --> 0:17:12.760 joint ventures with soees, where private companies will own a 0:17:12.760 --> 0:17:14.880 part of a company and an SOE will own another 0:17:14.920 --> 0:17:18.600 part of a company. Private companies expand and get access 0:17:18.640 --> 0:17:22.840 to credit through partnering with local sos. In essence, many 0:17:22.840 --> 0:17:25.119 of the things that are supposed to make sos different 0:17:25.119 --> 0:17:28.080 from private companies are shared by both, from the profit 0:17:28.119 --> 0:17:33.959 motive to state affiliation as milhop to put it quote, functionally, 0:17:34.400 --> 0:17:38.720 SOEs and large pos private enterprises in China share many 0:17:38.720 --> 0:17:42.040 similarities in the areas commonly thought to distinguish state owned 0:17:42.040 --> 0:17:46.160 firms from privately owned firms. Market access received of state subsidies, 0:17:46.240 --> 0:17:50.159 proximity state power, and execution of the government's policy objectives. 0:17:51.000 --> 0:17:53.520 A complete account of Chinese state capitalists, and must explain 0:17:53.600 --> 0:17:59.080 these similarities. Even figuring out what legally is an SOE 0:17:59.600 --> 0:18:03.200 and what's technically still a private firm gets very weird, 0:18:03.359 --> 0:18:09.440 very fast. ZT, for example, a giant Chinese telecom telecom 0:18:09.480 --> 0:18:12.639 company is owned by a bewildering array of shell and 0:18:12.720 --> 0:18:15.520 holding companies, which are in turn owned by other companies, 0:18:15.520 --> 0:18:18.680 some of which are state owned. This is the level 0:18:18.720 --> 0:18:22.120 of ownership confusion we're working at here. If the largest 0:18:22.160 --> 0:18:25.000 stake of a company is owned by a holding company 0:18:25.200 --> 0:18:28.120 that's owned in turn by a combination of two soees 0:18:28.160 --> 0:18:30.520 who own fifty one percent of the stock and a 0:18:30.560 --> 0:18:33.520 private investor's company who owns forty nine percent of the stock, 0:18:34.119 --> 0:18:37.840 is the company state owned? And it gets worse Inzte's 0:18:37.960 --> 0:18:41.400 case because even if you assume, okay, the majority stake 0:18:41.440 --> 0:18:43.800 in this company is owned by an SOE, therefore it's 0:18:43.840 --> 0:18:46.560 state owned, you would assume that the state or a 0:18:46.560 --> 0:18:51.680 state owned company would manage the corporation. Right. Wrong. In 0:18:51.800 --> 0:18:54.560 Zt's case, the soees worked out in agreement with the 0:18:54.600 --> 0:18:58.199 other investor such that ZT is technically state owned but 0:18:58.280 --> 0:19:02.640 privately managed. And this, it turns out, is a very 0:19:02.680 --> 0:19:06.640 common arrangement because of laws about foreign ownership of companies 0:19:06.640 --> 0:19:09.399 operating in China, many state owned enterprises that are actually 0:19:09.480 --> 0:19:13.680 joint partnerships between sos and foreign corporations, where the SOE 0:19:13.920 --> 0:19:16.000 owns fifty one percent of the stock and the foreign 0:19:16.040 --> 0:19:18.879 corporation owns forty nine percent of the stock while running 0:19:18.920 --> 0:19:22.840 the actual company in extracting profits from it even one 0:19:22.920 --> 0:19:27.160 hundred percent. Chinese firms, of which there are many, pose 0:19:27.160 --> 0:19:30.080 a challenge to the traditional conception of sos as run 0:19:30.080 --> 0:19:31.600 by the state for the good of the state and 0:19:31.640 --> 0:19:35.440 its political objectives. This goes back to their structure as 0:19:35.480 --> 0:19:40.560 corporations the state owns by shareholding. This means, as I've emphasized, 0:19:40.720 --> 0:19:44.320 that these sos aren't government ministries, their companies trying to 0:19:44.320 --> 0:19:46.680 make a profit and are run by their own managers. 0:19:47.640 --> 0:19:50.600 These firms have a total workforce of seventy million people, 0:19:50.600 --> 0:19:55.000 which makes direct regulation very difficult in practice. This means 0:19:55.119 --> 0:19:57.680 sos are a lot more autonomous in direct state control, 0:19:58.000 --> 0:20:01.359 even with all the state guards put in place than 0:20:01.400 --> 0:20:05.199 you'd think just from the word state owned industry. Another 0:20:05.200 --> 0:20:07.879 thing that makes sooez more like private companies is that 0:20:07.960 --> 0:20:10.680 money from soez goes back to the company and not 0:20:10.720 --> 0:20:13.359 to the state, to which it pays dividends, but not 0:20:13.480 --> 0:20:16.720 much else. This means that soees have their own revenue 0:20:16.720 --> 0:20:21.200 stream that's not dependent on state budget allocations. Meanwhile, private 0:20:21.240 --> 0:20:26.200 firms like SOEs are operated by members of symbolic party congresses, 0:20:26.640 --> 0:20:29.840 and private firms also get state subsidies and access to 0:20:29.920 --> 0:20:34.120 loans from state banks. A common canard about the unfairness 0:20:34.119 --> 0:20:37.119 of anti competitive Chinese soez it applies to private firms 0:20:37.160 --> 0:20:40.040 as well, And at this point I must point out 0:20:40.040 --> 0:20:43.280 that any company anywhere in the world can make money 0:20:43.320 --> 0:20:46.280 by allying with the state and getting access to state resources. 0:20:46.600 --> 0:20:49.320 The US does this too, especially state and local governments, 0:20:49.359 --> 0:20:51.520 who are all too happy to give enormous tax breaks 0:20:51.720 --> 0:20:55.960 and even provide prison labor to private companies. Meanwhile, tech 0:20:55.960 --> 0:20:58.119 companies like Amazon and Google are kept a float by 0:20:58.160 --> 0:21:01.360 massive government contract to say nothing of the American defense industry. 0:21:01.960 --> 0:21:04.240 In the US, we call this corruption, or at least 0:21:04.520 --> 0:21:07.200 used to until it became legal to literally buy senators, 0:21:07.520 --> 0:21:09.760 a thing that nat Sek Dipshits always seem to forget 0:21:09.760 --> 0:21:12.040 when they talk about the uniqueness of the Chinese economy 0:21:12.040 --> 0:21:15.600 and its relation to subsidies. There are obviously differences between 0:21:15.600 --> 0:21:18.399 the US and Chinese economies, but arguing that businesses having 0:21:18.440 --> 0:21:22.080 ties to the state which they extract benefits from constitutes 0:21:22.119 --> 0:21:26.239 a unique form of capitalism as incomprehensibly absurd. None does 0:21:26.280 --> 0:21:29.320 this have stopped China watchers from the most rabid reactionaries 0:21:29.320 --> 0:21:33.640 and the most stalwart or self described style wart communists 0:21:33.680 --> 0:21:37.000 to declare that China carries out something called industrial policy 0:21:37.040 --> 0:21:40.320 through its soees, which makes it different from other neoliberal states. 0:21:41.200 --> 0:21:46.199 So what is industrial policy? In theory, industrial policy refers 0:21:46.200 --> 0:21:49.280 to the state giving subsidies and funding to specific corporations 0:21:49.280 --> 0:21:53.119 in order to pursue specific economic objectives the market wouldn't 0:21:53.119 --> 0:21:58.119 normally have pursued. These writers point the preferential treatment that 0:21:58.240 --> 0:22:01.760 Chinese sos have credit and subsidies that they receive from 0:22:01.760 --> 0:22:04.480 the government as evidence of the subordination of the market 0:22:04.520 --> 0:22:18.320 to the political which they also claim is essentially a 0:22:18.359 --> 0:22:22.359 form of socialist state planning. My response to this is 0:22:22.359 --> 0:22:24.800 that I will accept that an see getting a subsidy 0:22:25.160 --> 0:22:28.199 is socialist state planning. The moment they agree that the 0:22:28.280 --> 0:22:30.760 US as a socialist state because of its coren subsidies 0:22:31.600 --> 0:22:35.119 despite writing about China somehow turning everyone into anarchical capitalists. 0:22:35.480 --> 0:22:38.560 State subsidies in the form of direct cash transfers, tax breaks, 0:22:38.600 --> 0:22:41.600 preferential legal treatment, technology transfers, and a thousand other forms 0:22:41.600 --> 0:22:44.639 of state aid are as old as capitalism itself and 0:22:44.680 --> 0:22:48.919 are pretty normal even under neoliberalism. People describe these measures 0:22:48.920 --> 0:22:53.240 as industrial policy, using state favor to promote certain industries, 0:22:53.600 --> 0:22:56.680 but corn subsidies put lie to the claim that industrial 0:22:56.720 --> 0:22:59.760 policy is some unique thing of a new era emerging 0:22:59.760 --> 0:23:04.240 in capitalism that had totally disappeared with neoliberalism. American corn 0:23:04.240 --> 0:23:06.439 and other agricultural subsidies are one of the largest and 0:23:06.480 --> 0:23:10.840 most expensive industrial policy regimes in the world, constituting half 0:23:10.840 --> 0:23:14.199 a trillion dollars spent since nineteen fifty five. They are 0:23:14.200 --> 0:23:16.720 also written in as exceptions to most of the world's 0:23:16.720 --> 0:23:21.280 major free trade agreements. We also need to ask what 0:23:21.480 --> 0:23:25.360 is the difference between industrial policy, which is state strategic 0:23:25.400 --> 0:23:29.240 investment in certain sectors to develop their economy, and regulatory capture, 0:23:29.600 --> 0:23:33.439 where control over agencies or even the legislature itself is 0:23:33.600 --> 0:23:37.399 taken over by specialistist groups. This question sounds silly, but 0:23:37.480 --> 0:23:40.080 the results a company in a sector getting handed a 0:23:40.080 --> 0:23:42.680 pile of money in various forms by the state looks 0:23:42.720 --> 0:23:47.840 exactly the same. Those corn subsidies arguably are industrial policy. 0:23:47.880 --> 0:23:50.320 They were technically originally designed to ensure that the US 0:23:50.359 --> 0:23:53.080 would always have a supply of cheap food. But on 0:23:53.119 --> 0:23:55.440 the other hand, the real reason they exist has nothing 0:23:55.440 --> 0:23:58.280 to do with planning whatsoever. They exist because the copala 0:23:58.320 --> 0:24:00.880 of legislatures from farming states have enough power to shut 0:24:00.920 --> 0:24:02.879 down both the House and the Senate if their demands 0:24:02.880 --> 0:24:05.359 aren't met. So every year the state bows to the 0:24:05.359 --> 0:24:09.639 corn lobby and pays them billions of dollars. So is 0:24:09.680 --> 0:24:13.359 this industrial policy or is it regulatory capture? And can 0:24:13.400 --> 0:24:17.320 the two even be distinguished? In capitalist countries? This is 0:24:17.320 --> 0:24:19.359 a question we need to take very seriously. In the 0:24:19.440 --> 0:24:22.679 Chinese case, At the same time, we ask ourselves what 0:24:22.880 --> 0:24:26.239 is the actual objective of the Chinese state? Is it 0:24:26.240 --> 0:24:29.920