China's SOE monopoly fallacy

Against this backdrop, I propose two new perspectives on the SOE monopoly issue:

From the perspective of global competition

In the modern global era it is shortsighted and limiting to only examine the SOE monopoly issue within China.

China is currently the second biggest economy in the world and the biggest economy, America, must have something to teach us about the subject of monopolies. In 2006, Whirlpool Corporation, America's biggest manufacturer of home appliances applied to acquire Maytag Corporation, the country's third biggest home appliances maker. Those critical of the proposed acquisition voiced fears that it would give Whirlpool a monopoly in the North American market; however after an anti-monopoly examination, the U.S. Justice Department held that the home appliances market referred to the global market, not only the domestic one. It was decided that the acquisition would help Whirlpool to produce better products and improve its global competitiveness and the acquisition was subsequently approved.

China has not been free from global competition since its entry into the WTO. International companies such as Intel, Microsoft and IBM dominate China's computer processor, software and server industries and its retail market is led by Wal-Mart and Carrefour. In light of this, it seems sensible to shift our focus towards foreign monopolies rather than simply call for our dominant SOEs to be privatized and split, which would limit their competitiveness against foreign enterprises.

From the perspective of China's development path

Since the People's Republic of China was founded in 1949, China has built itself up from almost nothing to become the world's second biggest economy. China's unique development path and political system have led to this remarkable achievement.

There is no question that modern enterprises, with the concept of private property rights at their core and the pursuit of profits as their goal, have contributed greatly to the development of material civilization. The system of modern enterprises has, however, spun out of control, putting the pursuit of profits ahead of individuals and national interests.

Comparatively, the nature of our SOEs tends towards "public property rights" rather than "private property rights." The overarching goal is not the pursuit of profits but the pursuit of all the people's interests; with those major SOEs in monopoly position generally offering cheap, quality services and products. This has contributed to China's rapid and stable economic development and will likely offer lessons in a wider, global sense.

The author is the director of the research department of ChinaSOE Magazine.

This article was translated by Liu Qiang. The original unabridged version was published in Chinese

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