School of Business

International Business Regions: China

China’s Public & Private Enterprises

Lecture: Week 6

Pearson College London XXXX 2

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Learning Outcomes• Financial reform and economic growth

• Public SOEs

• Private Companies

• ‘Economic Taoism’

• China’s uber wealthy elite & Hurun Rich List

• Chinese companies ‘Go Global’

• Corruption

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School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Economic Growth since 1992“We don’t ride in anyone else’s car!”

– Deng Xiaoping

“Strategic Sectors”

– Aviation, Power, Infrastructure and Telecoms.

‘Economic Taoism’

Money is the new ‘god’

TVEs

Foreign Enterprises

1999 Private Ownership

2003 Rule of Law

Competition, Innovation & Productivity

Drivers for growth in private enterprise

Desire of millions to seek a better life when society is stable after decades of turmoil!

Pearson College London XXXX 4

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

State Owned Enterprises (SOEs)What SOEs are for?

• NOT about profit but about control (finance, construction, media)

• To have an international presence and to create global stars or champions

Stakeholder emphasis: government is Number 1

Benefits of being an SOE

• Cheaper financing from state-owned banks

• Favouritism from local governments in land sales

• A lighter touch from regulators.

Image source: http://chinadigitaltimes.net

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Pearson College London XXXX 5

1978 Share of GDP 2004 Share of GDP

Private SectorPublic Sector

70%Private

30%OtherPublic Sec-tor

10%

>90%

Source of statistics: Linda Yueh: China’s entrepreneurs

Source of statistics: ‘China Uncovered’ - Jonathan Story, p 10

Change in emphasis 1979/2004“Private firms have become the main source of economic growth, the sole source of increasing employment, and the major contributor to China’s growing and now large role as a global trader.”

- Nicholas Lardy

Pearson College London XXXX 6

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Zhua Da Fang Xiao ( 抓大方小 ) Campaign

• “Grasp the large, and let go the small”

• SEOs and communes had accounted for almost all output in the country

• 10s of millions of people were laid off

• These ‘national champions’ hold most of the shares on Shenzhen and Shanghai equity markets and are listed in world financial markets

• By 2007 – China featured 24 / Global 500 leading enterprises

• Retained earnings was the prime source of funding of 155 SOEs that remained under government control

Image source: www.economist.com

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School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

2004

“China has not built a truly competitive global firm. Its industrial policy of the past two

decades must be judged a failure.”

- Peter Nolan

Image source: www.economist.com

Pearson College London XXXX 8

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Chinese Brands

Pearson College London XXXX 9

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Who are these people?

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

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Growth sectors include• IT (including online retail)• & Telecomms• Property• Renewables • Entertainment• After-School Tutoring• Cosmetics• Investments• Cars• Pharmaceuticals• Manufacturing

Characteristics• Dynamic• Up the value chain• Chinese characteristics• Respond to market trends• Seeking overseas markets,

technology, margins

Private Companies – large corporations

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International Business Regions: ChinaChina’s Public & Private Enterprises

Entrepreneurs: Wealth in a decade

• 354 USD billionaires in China versus 3 people in 2004• US $1.4tr Total wealth (> GDP of Spain, South Korea)• English language spoken by 3 of top 6

• 51 years Average age of Top 10 • 12% women• 166 are delegates to 12th NPC or CPPCC; 8 are vice

chairmen to All-China Federation of Industry & Trade• 40% of Top 50 have senior political appointments• 25% estimated to be Party Members• 18 are in varying degrees of trouble with the authorities

Source: ir.huronconsultinggroup.com

Pearson College London XXXX 12

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

‘Zouquchu’ 走去出 ‘ Go Out’ Campaign

• Government policy & commercial necessity

• Channel for FOREX reserves

• Hunt for natural resources

• Build ‘soft power’

• Investment into the UK up 9 x in a decade

• 2014: Mainly property investments in the UK

• Deals in UK 2014 surpassed last 14 years combined

Image source: www.chinadaily.com.cn

Pearson College London XXXX 13

School of Business

International Business Regions: ChinaChina’s Public & Private Enterprises

Scandal & Corruption• Death sentence for Liu Han of Hanlong for mafia ring in

Chongqing

• 2 from 2014 and 2 from 2013 list awaiting sentencing

• ‘Disappeared’

• In prison