Stimulus Package and its Effect on SOEs

Written by Julen Madariaga on June 30th, 2009

I enjoyed reading this article by Evelyn Chan on the Carter Center blog.  It is clear and well written and in my opinion it is right on the money. It’s the article I would have liked to write on the stimulus package (h/t  CDT)

When it comes to Chinese economy I have always been a bit of  a pessimist. This year I am getting to understand better the situation of public finance - I recently read the informative Finance and Factions, by Victor Shih-  and now the outlook looks even bleaker. On the surface China is doing well, but the more you look into the details the more unsustainable it looks. Which is exactly how systems look when they are about to snap.

And yet somehow I will not be surprised if in 10 years time we look back and find that we are still in the same situation.  After all, there were experts writing similar predictions already 10 years ago…

Sharing is free, support my work:

  • Twitter
  • Facebook
  • email
  • Google Bookmarks
  • Digg
  • del.icio.us
  • Haohao
  • StumbleUpon
  • Technorati
  • LinkedIn
  • Netvibes
  • Reddit
  • Posterous
  • Live
  • QQ书签
  • MSN Reporter
  • 豆瓣
  • Yahoo! Buzz
  • MySpace
  • FriendFeed
  • Print



Comments so far ↓

  1. Jun
    30
    1:12
    AM
    oiasunset

    Laughable! Huang Yasheng and Pei Minxin are the most ignorant “China commentators” that I have ever seen, always chanting their “private enterprises are all good and SOEs are all evil” slogan.

    They have never seen first-hand the scene of Chinese private enterprises. Trust me, those are not your western or even Indian style innovative entrepreneurs. They are corrupt, arrogant, out-right stupid and completely lacking business ethics. Today’s SOEs have far better corporate governance and social responsibility.

    If you don’t have business experience with both, read something like the recent McKinsey report on Chinese SOEs - you will be surprised.

    Just to show what an idiot Huang Yasheng is: he claims that the SOEs are solely responsible for over-capacity. I suggest you pull a comparison of the world’s top 80 steel makers in 2008 and in 1998 - you will be stunt by the meteoric capacity expansion of Chinese private steel makers.

    Want to check another sector? Go check out Shandong Weiqiao Aluminium. The private textile makers decided that it wanted to get into aluminium business - in 3 years it became among China’s top-3, without even bothering to apply for formal NDRC approval. A smelter blow-up in 2007 killed 17 people on spot and they carried on. When I was compiling a term-sheet for Weiqiao, I was astonished by the complete lack of any remotely relevant experience among ALL their 20 senior managers - no cosmetic workover (trust me I’m good at that) can manage to shed a positive light on them.

    The SOEs are the far better-managed ones. Idiots like Huang and Pei simply don’t get it. Yet you are buying into them because of your pre-conditioned western conviction about private enterprises. It doesn’t work that way in China. And that’s why they were always deadly wrong.

    [Reply to this comment]

    oiasunset Reply:

    Remember: whenever someone (like Huang and Pei) mix business comments with ideology, you can safely ignore them. It is a common sense!!!

    [Reply to this comment]

  2. Jun
    30
    11:42
    AM
    uln

    Hi,

    I am fully aware of the ideological content in the works of Huang and Pei, as I am aware of the ideological content in virtually any book on economy I’ve read. I have written about this before: I have a problem with economics. I am very interested in it, and yet sometimes I find it difficult to believe in this “science with an agenda”.

    So OK, as my post implied, I take all this predictions with a pinch of salt.

    Now having said this, I think calling these professors ignorant is going a bit too far. You might disagree with them, but at least you should acknowledge they put a lot of work in their analysis of China and they are not simply “commentators” like me, they actually do research. I think they have some really sound arguments, but anyway I would be interested to see what alternative readings you propose, I will try to read some to get a more balanced view.

    From my own POV: SOEs are a big part of my clients in China and I am very familiar with the way they work. I think their management is far from perfect, but like you imply they are a bit more “civilized”, while some of the local private ventures are more likely to go wild in the fields of safety, health,environment, etc.

    Having said this, the solution is not necessarily to push for more SOEs, but rather to control better and to enforce the regulations in all the local factories, mines, etc, and to fight against corruption and collusion of businesses with local political interests… and I find myself agreeing again with the Article in subject.

    [Reply to this comment]

  3. Jun
    30
    12:18
    PM
    oiasunset

    ULN,

    Believe me or not, in my profession I’m a fierce critic of the Chinese economy. The problem I’ve got with Huang and Pei is not that they criticise the Chinese economy, but that they get their stories wrong and they blame the wrong things. They have no on-the-ground experience with the Chinese economy yet they continue to churn out bullshits from their armchairs in the US.

    I’m sure you are familar with all the jokes about economists - it is a miserable profession admittedly. People have totally different views about the same thing and they all look like having their points. That is normal. But the baseline is to get the facts right (which Huang and Pei are utterly unable to manage to do) and use your own common sense.

    For example: Lang Xianping - the famous, provocative and TV-savvy economist. I find myself agreeing with most of his observations, but totally disgreeing with his conclusions. I respect him for his sharp sense of identifying problems, even though I beg to differ on his logic and recommendations.

    What I’d suggest is not to read any China-related “economics” books, but to read through all fundamental economics theories. Identify the theory you feel most confident with (based on your life observations and, yes, your ideology orientations), dig yourself into that camp and start to apply that theory and your COMMON SENSE to the Chinese economy you are witnessing.

    Trust what you see, you are doing far better research on the ground of China than Huang and Pei are doing in the US.

    [Reply to this comment]

  4. Jun
    30
    12:35
    PM
    oiasunset

    As for my view, I believe that the Chinese stimulus is utterly un-necessary. I also believe that, for the Chines economy to have long-term, sustainable growth, we need a sharp correction now - 0% GDP growth will be a good thing for rebalancing the economy.

    The current crop of Chinese private enterprises need to be wiped out, much like the shabby village and township enterprises of the 80s did. The VTEs had vanished almost over-night because their inferior products were not fit for a consumer society. Today’s Chinese private businesses will vanish because their inferior capital/resources efficiency are not fit for an emerging investor/ownership society. Regulation is one thing, the bigger problem is that the mentality of current Chinese private enterprises is fundamentally flawed, no regulation can change that - they are heading for self-destruction.

    [Reply to this comment]

Leave a Comment