Prof. Zheng Yongnian: SOEs driving force for China-U.S. trade, not an impediment

SOEs are deeply-rooted in history and can be reformed in future

This is based on the speech by Prof. Zheng Yongnian at an online roundtable meeting on China-U.S. economic and trade relations (Nov. 2, 2021) jointly organized by China Center for International Economic Exchanges and the Brookings Institution.

In the speech, Prof. Zheng talked about his view of the differences in the political economy between China and the United States, the pressure of reform faced by China’s state-owned enterprises (SOEs), the role that SOEs could play in rebalancing China-U.S. trade, the potential significance for China’s SOE reforms by way of joining the CPTPP, and China’s recent regulation of its Big Tech companies.

Prof. Zheng is currently the Presidential Chair Professor, Acting Dean of the School of Humanities and Social Science and the Founding Director of the Advanced Institute of Global and Contemporary China Studies (GCCS), the Chinese University of Hong Kong, Shenzhen (CUHK-SZ).

He previously served as the former Director of the East Asian Institute, National University of Singapore (2008-2019), and the former Research Director and Professor of the China Policy Institute, University of Nottingham (2005-2008).

Prof. Zheng has long been an influential voice in the Chinese mainland. For example, he was invited to speak at a meeting with the top leadership last year on China’s 14th Five Year Plan, as reported by the prime-time news program on China Central Television (CCTV) then.

The translation below has been reviewed and approved by Prof. Zheng.

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《国企不是中美经贸关系的阻力，而是推动力》

SOEs is a driving force for – rather than an impediment to – China-U.S. economic and trade relations

这些年来，中国的国有企业、国有部门已经成为中美之间贸易矛盾最重要的来源。换句话说，就算不是最重要的来源，也是我们必须直面的问题。站在一个学者的角度，我认为西方对于中国的国有企业其实是有很多误解的。我是研究政治经济学的，这些年也一直在研究国有企业，所以我也有一些观点要和大家分享。

Over the years, China’s state-owned enterprises (SOEs) and the state sector have become the main source of trade conflicts between China and the United States. In other words, it is a problem that we must face squarely even if it is not the most important source (of trade conflicts). From the perspective of a scholar, I think the West has many misunderstandings of Chinese SOEs. Political economy is my area of study, and I have been studying SOEs over the years. I, therefore, have some views to share with you.

中国不会放弃国有体系

China will not abandon the state-owned enterprises system

第一点，国有部门实际上是中国宏观经济稳定的一个重要来源。国有企业在中国并不是新鲜事，已经有两千多年的历史了。从汉代开始，如果从资本和所有制来分类，中国始终存在着三种类型的资本，居第一位的就是国有资本，居第三位的主要是中小型和微型企业，也就是私营部门，在这两者中间的是公私合营合作的企业。中国有四个短暂的时期，国家完全主导经济生活。第一个阶段是两汉之间的“王莽改革”，第二个阶段是宋朝的“王安石变法”，第三个阶段是明朝第一个皇帝朱元璋时期的改革，最后一个阶段就是改革开放之前的那段时期。除了这四个短暂的时期，中国一直是一个非常平衡的经济体，是国有部门和非国有部门之间共存和良好合作的经济体。

First, the state sector is in fact important for China’s macroeconomic stability. In China, the origins of SOEs can be traced back more than two thousand years ago. Since the Han Dynasty, there existed three types of capital in China according to classification in terms of capital and ownership. 

Ranking at the top is the state-owned capital, and ranking third is mainly small and medium-sized and micro-enterprises, namely the private sector. Between the above two are public-private partnerships. 

In China, there were four short periods in which the state completely dominated the economy. The first stage is the “Reform by Wang Mang” in between the Western Han and Eastern Han Dynasties. The second stage is the “reforms of Wang Anshi” in the Song Dynasty. The third stage is the reform under the reign of Zhu Yuanzhang, the first emperor of the Ming Dynasty. The last stage is the period before China’s Reform and Opening-up was initiated. Except for these four short periods, China has been a highly balanced economy, in which the state sector and non-state sector coexist and cooperate smoothly.

中国的经济哲学其实和西方的经济哲学是不同的。在中国，国家一直把经济管理看成是自己的一项关键职能；但是西方自近代以来，经济和政治之间分离，政治不可干预经济，政治和经济演变成为一对矛盾体。中国和西方的经济制度是建立在不同的经济哲学体系之上的。

The Chinese philosophy of economics is actually different from the Western philosophy of economics. In China, the state has always regarded economic governance as its key function. However, since modern times, economy and politics have been separated in the West, where politics is not allowed to interfere with the economy. The two have become a contradiction. The economic systems of China and the West are built on different economic philosophical systems.

所以，我并不认为中国会放弃国有体系。现在中国是混合所有制经济，有三个层次的资本、三种经济形式、三种所有制形式共存。自中国改革开放以来，我们也见证了很多的经济危机，包括1997-1998年的亚洲金融危机、2007-2008年的全球金融危机，还有现在的新冠疫情危机。国有部门在中国经济的复苏过程当中发挥了重要的作用，使得中国经济生活迅速回到正轨。同时，也很难说，中国现在是西方所说的“国家资本主义”，因为私营部门现在比国有部门在所有的领域都要大得多，包括所创造的国民所得、收入、创新和雇佣的员工等等。这是我要强调的第一点。

Therefore, I do not think that China will give up the state-owned enterprises system. China now is an economy of mixed ownership, where three levels of capital, three economic forms, or three forms of ownership coexist. 

Since China initiated the Reform and Opening-up, we have also seen many economic crises, including the 1997-1998 Asian financial crisis, the 2007-2008 global financial crisis, and the COVID-19 crisis. The state sector has played an important role in the recovery of China’s economy, putting China’s economy back on track. At the same time, it is hard to say that China now operates what the West calls “state capitalism”, in that the private sector is far larger than the state sector in all areas, including the domestic product generated, income, innovations, jobs, etc. This is the first point I want to stress.

国有企业是中美经贸的推动力

SOEs are a driving force for China-U.S. economic and trade relations 

第二点，国有部门现在面临巨大的改革压力。这个压力不仅仅是来自美国或者是西方，而是来自内部，并且至少有两个来源。第一个压力来源是私营部门。中国社会一直在争论国有部门是不是太大了。如果借用毛主席所用的概念来说，就是国有部门和私营部门之间存在着矛盾。因为私营部门非常重要，如果政府的政策对私营部门造成不利的影响，那么就会产生很多的压力，也会对国有部门造成压力。第二个压力是源于政府和国有企业是不同的实体，政府有时候会让国有企业来完成非经济的职能。比如说在“一带一路”项目中，国有企业也需要承担更多超出经济职能的责任，而不仅仅是自身的盈利考虑。但是，事实上，国有部门也是需要赚钱的，所以国企老总有很大的压力。如果你去问国企的那些负责人，他们也面临很大的压力。

Second, the state sector now comes under huge pressure for reform. This pressure not only stems from the United States or the West, but also from within, and there are at least two sources. 

The first source of pressure is the private sector. In China, there is always a discussion/debate over whether the state sector is too big. If we borrow the expression that Mao Zedong used to put it, there is a contradiction between the state sector and the private sector. The private sector is crucially important. If government policies exert an adverse effect on the private sector, there will be tremendous pressure (to the economy), and it will also cause pressure for the state sector. 

The second source is attributed to the fact that the government and SOEs are different entities, and the government sometimes orders the SOEs to fulfill non-economic activities. For example, under the Belt and Road Initiative, SOEs are sometimes required to bear more responsibilities apart from economic functions, rather than merely considering their own profits. However, the state sector also needs to be profitable. Therefore, the heads of SOEs face great pressure, if you talk to them.

第三点，国有企业是可以改革的。很多西方人认为中国是没有办法和能力去改革国有部门的，但是我并不这么认为。如果来看一下中国的历史，自从改革开放以后，比如说朱镕基总理就推进了非常激进的改革，改革了国有部门和国有企业，这个改革是非常成功的。但是现在中国需要新的对国有企业的改革措施。之前有一些学者也提到了中国加入CPTPP（跨太平洋伙伴全面进展协定）的问题，我也参与了很多关于CPTPP的讨论，包括与决策者和经济学家的讨论。中国确实需要加入CPTPP来推进国内改革，而不仅仅是要融入世界。中国入世为中国的国有企业改革带来了很多的活力。中国希望，至少很多的中国学者都希望，通过加入CPTPP能够为中国带来新一轮的国有企业改革。

Third, SOEs can be reformed. Many Westerners think that China has no means and capability to reform the state sector, but I think otherwise. 

This can be proved by previous practices. For example, after the Reform and Opening-up were initiated, former Premier Zhu Rongji pressed ahead with radical reforms and reformed the state sector and SOEs, with tremendous success. 

China now needs new measures for the reform of SOEs. 

Some scholars mentioned the issue of China’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). I also participated in many discussions about CPTPP, including with policymakers and economists. It is indeed necessary for China to join the CPTPP to advance domestic reforms, not merely to integrate into the world. China’s accession to the WTO brings great dynamism to the reform of the SOEs. China hopes or at least many Chinese scholars hope that accession to the CPTPP can bring about a new reform of state-owned enterprises in China.

最后一点，我认为国有部门、国有企业不应该成为中美经济关系的一个障碍，而是推动力。从实证经验的角度来讲，如果来看过去四十年，国有企业在平衡中美经贸关系——尤其是贸易方面，发挥了非常重要的作用。在和美国的所有经贸谈判当中，美国总是会让中国的国有企业来购买很多的美国产品，像今天的石油交易。如果中国没有这么大的国有企业，美国就没有办法让中国来如此大量地购买美国商品。我希望美国朋友能够重新认识中国的国有企业，中国的国有企业越强大，越能够平衡中美之间的贸易。

Finally, I think that the state sector and SOEs should not become a barrier to China-U.S. economic relations. Instead, it shall be a driving force. From the perspective of empirical experience, over the past four decades, SOEs played a vital role in balancing China-U.S. economic and trade relations, especially trade. In economic and trade negotiations with China, the United States always requires Chinese SOEs to buy a wealth of American products, as in the oil deals. Were it not for the large state-owned enterprises, there was no way for the United States to require China to buy American goods on such a large scale. I hope that my American friends gain a new understanding of Chinese SOEs. The stronger the Chinese SOEs, the better they can balance the trade between China and the United States.

中国企业改革进入新阶段

China enters a new stage in corporate reform 

中国的企业改革进入了一个新阶段。中国目前对民营企业的一些政策，比如说在私营部门引入的一些监管政策，也引起了外界很多的猜测和误解，中国国内对此也有一些看法。中小企业在任何国家都很重要，中国这样做也是为了中小企业的健康发展。中国政府的一个新政策宣言是追求共同富裕，要达到这个目标，垄断是不好的。对美国也是如此。中国的一些民营部门，像在IT（高科技）部门，一些企业平台做得太大了，就有一些不太公平的竞争行为。因为他们并不像美国的马斯克那样追求高科技发展，相反，他们是在跟中小企业去抢蛋糕。那么大的民企也跟中小企业去抢这个蛋糕？所以现在他们遇到很大的压力。中国的教育部门也一样，我们知道，有一些非正式的民办培训机构，由于之前没有过严格的监管，过度膨胀了，这对中国长期的发展是不利的。我个人是非常赞赏政府推出这样一些大力的监管举措。当然这些举措并不是针对私营部门，不是去破坏或者摧毁私营部门，而是通过监管来夯实我们实体经济长远发展的基础，为私营部门的发展构出一个更稳健的基础。

China has entered a new stage in enterprise reform. China’s current policies on private enterprises, for example, some regulatory policies introduced for the private sector, have fueled speculation and caused misunderstanding. 

In this regard, this view is also shared among some people in China. Small and medium-sized enterprises (SMEs) are vital for any country, and China does this for the healthy development of SMEs. 

A new policy adopted by the Chinese government is to create prosperity for all. Monopoly is not conducive to accomplishing this goal. The same is also true for the United States. In China, some private sectors, such as in the information technology sector, have excessively big corporate platform (companies), and there is unfair competition. The big platforms compete against SMEs but do not pursue high-tech development such as what Elon Musk does in the United States. 

On the contrary, they are competing with SMEs’ for the “cake”. (How come) such big private enterprises compete with SMEs? Therefore, they are now under great pressure. 

The same is true for China’s education sector. As we know, some unofficial private training institutions carry out excessive expansion because of a lack of rigorous regulation. This is detrimental to China’s long-term development. I  personally very much applaud the government’s vigorous regulatory measures in this regard. 

Of course, these measures are not targeted at the private sector, nor to destroy or damage the private sector. The aim is to lay a firm foundation for the long-term development of China’s real economy and build a more stable basis for the development of the private sector through regulation.

国有企业也是要改革的。中国宣誓加入CPTPP对国有企业会有深刻的影响。我觉得政府还是希望借此在国有部门开展一些大刀阔斧的改革。近年来，中国的国有部门也在讨论学习新加坡淡马锡模式。我所身处的深圳就有国资在学习新加坡模式，探索如何把国有企业作为一个市场化的实体来管理。

Also, SOEs need to be reformed. China’s accession to the CPTPP will have a profound impact on the SOEs. I think the government still hopes to take this opportunity to take bold measures to reform the state sector. In recent years, there have been discussions on learning from Singapore’s Temasek model in China’s state sector. In Shenzhen, state-owned assets organizations are drawing on the Singapore model, exploring how to manage SOEs as a market entity.

今天，处于中国领导人关注的第一位是国内的政策，因为国内的稳定非常重要。我们知道对外政策是国内政策的一个延续，所以中国领导人肯定要先着眼于国内。在国内政策中，治党是非常重要的，然后是实现共同富裕。如果在中美之间做一个比较，我们会看到中国的政党和美国的政党是非常不一样的。中国共产党是唯一的执政党，而不是像西方对政党的一种理解，例如美国的民主党和共和党。政党在中国的语境下是一种政治的过程。在中国的文明里头，我们把政党看作是一个跟文化有关的概念，而不是像传统的西方民主政党的概念。政党是中国的政治主体，追求人民的共同富裕。拜登把他自己的外交政策叫做是“中产阶级的外交政策”。同样，中国领导人在考虑自己的政策导向的时候，肯定也需要把国内发展利益放在首位。对外来说，中美关系处于最重要的政策位置。这从毛主席以来都是如此。中美关系是主要的，处理好了中美关系，其它次要的就比较好处理了。

Today, the top priority for the Chinese leaders is domestic policy, because domestic stability is paramount. It is known that foreign policy is a continuation of domestic policy, and therefore Chinese leaders surely focus on the domestic landscape. In terms of domestic policy, Party governance is highly important, followed by common prosperity. 

If we make a comparison between China and the United States, it can be seen that the political parties are wholly different between China and the United States. The Communist Party of China is the only governing party, while the West has a different understanding of political parties, such as the Democratic Party and the Republican Party in the United States. 

Political parties are a political process in the context of China. The Chinese civilization regards political parties as a concept relating to culture, which is different from the concept of parties in the traditional Western democracy. 

In China, the political party is the main body of politics and aims to seek common prosperity. Biden calls his own foreign policy the “foreign policy for the middle class.” Likewise, when considering policy orientation, Chinese leaders put domestic development and interests at center stage. In terms of external relations, China-U.S. relations are in the most important policy position. This has been the case since Chairman Mao. China-U.S. relations are important. If China-U.S. relations are properly handled, it is easy to handle other subordinate issues.

所以，如果一定要对中国领导层的政策次序排列的话，那么首要的是国内的治党和可持续发展，然后是国际关系中的中美关系。

Therefore, if there is a ranking for the policy order for the Chinese leadership, domestic Party governance and sustainable development come first, followed by China-U.S. relations in international relations.