Greg Autry

Fighting for space, not over it.

Still Commies After All These Years

It being International Worker’s Day and all it seemed like a good time to review the anachronism that is the Chinese Communist Party. In the Western World, particularly in board rooms, the halls of academia, and shallow business bestsellers it has become popular to repeat the favorite CCP propaganda line that Deng Xiaoping sent China on an irreversible path toward a modern, free market economy. Many Americans who’ve toured Shanghai and Beijing think they are seeing an open economy with a vibrantly growing private sector. Of course, like a lot of things that come out of China these days, the facade of Capitalism quickly falls apart upon closer inspection. This isn’t real Chinese capitalism like you’d see in Taiwan or Hong Kong.

(photo – Greg Autry, 2010) 

Some Facts:

The State Sector Accounts about HALF of China’s GDP – According to most economic analysis State Owned Enterprises are responsible for between 45-50% of China’s economy. Consider this recent testimony to the US China Commission by Andrew Szamosszegi

Far from privatizing, the State Owned portion of the economy has been INCREASING in recent years as corrupt officials use their inside track with China’s huge State Owned Banks to corner all the ready capital. Moody’s analytics calls this process a “two-speed economy.”

The size of State Owned Companies is increasing far faster than private firms as the government sheds its smaller, non-profitable enterprises and concentrates resources in heavy industrialized firms. These big SOEs also attract $billions in U.S. joint venture capital from the likes of General Electric and General Motors. Meanwhile the size of private firms has hardly progressed at all. On average SOEs are 13x bigger than China’s nominally private firms.

China’s response to the economic crisis was to dump even more money into the state sector driving a process the Chinese call “Guo Jin, Min Tui” (国进民退) or “The State Advances and the People Retreat.

Maoism and old fashioned Marxist-Leninism has been enjoying a renaissance in China, as evidenced by the spectacular rise of hardline communism advocate Bo XiLai to a position where he threatened the very security of the state. Even members of the intellectual elite have embrace the “New Left.”

In China it has always been hard to draw a firm line between an SOE and private firm or even tell how involved the Party controlled military is in a business. Huawei being a notorious example of that.

 

Finally, let’s look at the reality of what are some of the good, ‘ol fashioned Communist firms:

All of China’s Big banks

All Important Resource Companies

All Big Military Suppliers

China’s Biggest Airlines

China’s Biggest Retailer  – yes, ironically even China’s biggest retailer isn’t WalMart, but a State Owned Chain who has used its connections to make life hell for the American firm and other Western competitors.

 

This List Doesn’t Lie
When some buddy of yours cracks “China’s economy is more open than America’s” or the next time you get stuck in a plane seat next to a meathead in a suit  who just bought some blather by Thomas Friedman in the airport “book store” and starts praising the “new”, “modernizing”, “liberalizing”, and “efficient” Chinese economy, hand that fool this list and ask them “Is this what a vibrant Capitalist Economy looks like to you?”

 

Top 20 Chinese Firms (according to Fortune Global 500) :

1. Sinopec (CNOCC) – State Owned oil company

2. China National Petroleum Corporation (PetroChina) – State Owned oil company

3. State Grid Corporation – State Owned utility

4. Industrial and Commercial Bank of China – State Owned bank

5. China Mobile – State Owned telecom provider

6. China Railway Group – State Owned railroad

7. China Railway Construction – State Owned railroad builder

8. China Construction Bank – State Owned bank

9. China Life Insurance – State Owned issuance (Nationalized, the “real” China Life is in Taipei)

7. Bank of China – State Owned bank

10. Agricultural Bank of China – State Owned bank

11. Bank of China – State Owned bank

12. Dongfeng Motor[1] – State Owned car company

13. China State Construction Engineering – State Owned construction firm

14. China Southern Power Grid – State Owned utility

15. Shanghai Automotive – State Owned Car company

16. China National Offshore Oil – State Owned colonial style oil exploration firm

17. Sinochem Group – State Owned Chemical company

18. China FAW Group – State Owned truck and bus firm

19. China Communications Construction – State Owned telecom construction

20. Baosteel – State Owned steel founder

It is often tricky to figure out that a firm like China Life, China Telecom, or Shanghai Auto is State Owned because the Chinese run a scam they call an “IPO” and sell powerless, minority shares in these opaque state monstrosities to naive Western investors and unscrupulous mutual fund managers. If you’ve got some sort of “Global Growth Fund” or “Asian Opportunity” B.S. in your 401k, you’re probably loaded with this crap. The fact is that these are nothing like public companies. Their CEO’s are appointed by the Central Organization Department of the Chinese Communist Party, not by the token board of directors and your shares have exactly zero real voting power. When the CCP decides your shares are worthless, they will be. Check out “The Party” by Richard McGregor for the whole horror show on this.

If you go to the Fortune site, you can just click on each firm in the list and look down to see if its ownership is “50% or more government owned.”

Even most large nominally “private” firms are headed by a Party member or even the princeling grandkid of some old Commie who slogged through the Long March with Mao and his harem. They all work together in one of the world’s most closed good ‘ol boys club behind their great wall of Guanxi (关系). By the way, don’t let any Chinese tell you that word means “friendship.” The literal translation is more like: “to block a connection” and in the real world of Chinese business Guanxi most often used to define a social network setup to screw outsiders;  and that’s exactly what the Communist Party’s Guanxi system has been doing to the West for a generation.

While the luxury loving leaders of the “People’s Republic” do trample all the well meaning, albeit naive, qualities of Marxism – like wealth redistribution and social equality – the China body politic remains pure Leninist, with the usual back room dog fights, purges, censorship, propaganda and a brutally repressive police state.

Bottom line: When it says “Communist” right on the label, it probably is.

 

Greg Autry serves Senior Economist with the American Jobs Alliance and is co-author (with Peter Navarro) of Death by China: Confronting the Dragon – a Global Call to Action. He blogs regularly with Navarro on the Huffington Post.

 


[1] Note: Noble Group of Hong Kong omitted since it is not a PRC firm, but a legacy Hong Kong company.

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