SAAB – Swedish Automobile, Sweden Government, Pang Da and Youngman Take Note: United States China Economic and Security Review Commission (USCC) Report – “An Analysis of State-owned Enterprises and State Capitalism in China.”

“All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him.”  Sun-Tzu; 6th Century C.E.

Publisher’s note:  As can be readily inferred from this latest United States China Economic and Security Review Commission Report, companies doing business, or seeking to do business with China must never, ever, forget they are dealing with a communist, dictatorial regime that has created a facade of privatization to lure foreign business entities to their shores with the ominous, insidious intent to extract proprietary technology and process.  And then, unceremoniously, discarding of the carcass while simultaneously preserving, with the skill of a taxidermist,  the external aesthetics and internal workings of firms (read; GM) deemed critical to their ideological, militaristic and economic mission.   Too late, too many companies and their governments, most recently SAAB-Swedish Automobile and Sweden, are finding this to be a sad, if not shocking, reality.

Indeed, Sun Tzu should be required reading for anyone desirous of doing business with the world’s oldest continuing civilization.  To not do so is tantamount to mounting a military campaign without weapons…   

– Myron D. Stokes

A Timeless Engineering Marvel: The Great Wall of China Image credit: CND.org

From the USCC Release:

Washington, D.C.  –   Today (10/27/11) the U.S.-China Economic and Security Review Commission released a new report, “An Analysis of State-owned Enterprises and State Capitalism in China.”

China’s breathtaking economic growth, has often led observers to assume that the
country’s economic system has been transformed into a capitalist economy dominated by
private enterprise.  Although China’s reliance on private enterprise and market-based
incentives has been growing, and the CCP’s treatment of private enterprises and
entrepreneurs has been changing, it is a mistake to minimize the current role of the
State and the CCP in shaping economic outcomes in China and beyond.  The Chinese
government and state-owned enterprises (SOEs) remain potent economic forces.  Indeed,
some of China’s SOEs are among the largest firms in China and the world.  They are
major investors in foreign countries.  They have been involved in some of the largest
initial public offerings in recent years and remain the controlling owners of many
major firms listed on Chinese and foreign stock exchanges.

Previous reports and analyses by academics and policy experts have estimated that
Chinese SOEs, and other state-affiliated enterprises, hold a lower share of China’s
non-agricultural GDP than that estimated in this report, which provides a
comprehensive analysis of that country’s control and influence over its economic
enterprises.   This report tracks testimony heard by the Commission that China’s
privatization reforms have, in some cases, reversed and that the state sector is
strengthening.

The report concludes that:

·         SOEs and entities directly controlled by SOEs, accounted for more than 40
percent of China’s non-agricultural GDP. If the contributions of indirectly controlled
entities, urban collectives, and public Township and Village Enterprises (TVE) are
considered, the share of GDP owned and controlled by the state is approximately 50
percent.

·         The share of GDP accounted for by the non-state sector, including foreign
invested firms without ties to the government of China, is also approximately 50
percent.

·         Based on the current direction of economic policy making in China the state
sector will continue to play an important role in China, even if its share of GDP
shrinks further.

·         China’s SOEs are potentially formidable competitors because they benefit
from a number of government preferences in China.  Based on recent U.S. regulatory
filings by SOE-owned entities, SOEs and their subsidiaries benefit from preferred
access to bank capital, below-market interest rates on loans from state-owned banks,
favorable tax treatment, policies that create a favorable competitive environment for
SOEs relative to other firms, and large capital injections when needed.  Further,
Chinese SOEs also appear to dominate China’s expanding government procurement market.

·         When it joined the WTO in 2001, China promised that the government would
not influence, directly or indirectly, the commercial decisions of SOEs. China does
not appear to be keeping this commitment. The state very much does influence SOE
commercial decisions and the most recent five-year guidance does not herald that this
is changing. If anything, China is doubling down and giving SOEs a more prominent role
in achieving the state’s most important economic goals.

·         For some U.S. firms whose participation in China’s economy facilitates the
government goals, China will continue to be a profitable market. For others,
especially those in strategic and emerging industries that the government is
targeting, the Chinese market may become far less hospitable. (italics ours)

-Endit-

This report was prepared for the Commission by Capital Trade, Incorporated.  It can
be found online at:
http://www.uscc.gov/researchpapers/2011/10_26_11_CapitalTradeSOEStudy.pdf

Press Contact:

Jonathan Weston

202-624-1487

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