Right balance between SOEs and private firms needed

Source:Global Times Published: 2018/9/28 19:43:40

Illustration: Luo Xuan/GT

The US-China trade dispute has escalated with the US imposing 10 percent tariffs on $200 billion worth of Chinese products on Monday.

To keep track of the trade war, some people only pay attention to what US President Donald Trump and major government officials have said or done, which is far from enough. It is worth noticing that some people in the Western world sympathize with Trump's hardline trade policy toward China, even though they realize that it will push up the cost for foreign companies to do business in China and interrupt their production chain.

The US president has a set term in office, but people's opinions often last longer. Many of them believe Chinese policies do not put the private sector and State-owned enterprises (SOEs) on an equal footing. Turning this view around will require consideration at China's end.

Western countries have different views about the relationship between the private and State-owned sectors in China.

The growth and development of SOEs is inseparable from the nation's welfare, national security and the effectiveness of government - this is the common mindset in China. Indeed, China's SOEs bear a large share of public service functions, such as rescue and relief, building infrastructure, and poverty reduction among others. The government will naturally reciprocate by providing SOEs with preferential policies and subsidies due to the contributions they make.

In the Chinese economic ecosystem, this situation is understandable. But the SOEs are abnormal competitors in the eyes of Westerners because their profits do not depend solely on providing competitive products and services. Meanwhile, the private sector does not get such substantial support. Private firms have to seek every opportunity from the market and improve their efficiency and competitiveness in order to succeed. For Westerners, private businesses are more admirable.

Before the trade friction with the US, some Western countries had already put restrictions on overseas mergers and acquisitions by Chinese SOEs. The trade war has made the trend worse.

Private companies in the West have been reluctant to be bought up by Chinese SOEs. One major concern is the uncertainties following the purchase since they are not familiar with the operating systems of the SOEs. It is hard for them to predict what will happen to their companies.

This does not mean that supporting SOEs is wrong. But there are two sides to the coin. SOEs can play a crucial role in breaking sanctions and embargos imposed by foreign powers but they can also easily become a clear target when other countries try to find penalty targets.

If there were more private companies in industries such as agricultural products, energy and high-tech products like chips, it could split up the import and export volume, instead of having a few SOEs standing out.

As long as the government does a good job on quality control, private companies can help share the risks when the US is imposing tariffs.

When dealing with the interaction between SOEs and the private sector, it would be wise not to put all the eggs in one basket. Especially when the nation is in the midst of a trade conflict, SOEs and the private sector should be treated equally. Also, support should be given to private companies so that they can build up broad production chains on the global level.

Facing the complications brought by the trade war, China will have to remain calm while listening to and analyzing Western concerns. The concerns should be differentiated from the accusations and efforts to hold China back. Ignoring all the concerns would disappoint those Western entrepreneurs who sympathize with China, and discourage them from defending China's development model.

The trade war will be temporary. Building a "community with a shared future for mankind" is the long-term goal. It requires China to firmly unite with other people, including Westerners.

If private companies in China cannot be certain their property rights are well protected, and if Chinese people feel insecure about the money they make, it will be even harder to gain trust from people in the West. Creating an environment that breeds confidence will be important amid the trade row. It will ease the losses in the short term and give China the upper hand strategically in the long run.

The article was compiled based on a speech by Zha Daojiong, professor of International Political Economy with the School of International Studies at Peking University, at the 128th National School of Development Policy Talk. bizopinion@globaltimes.com.cn

Posted in: INSIDER'S EYE

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