This is China! BLOG

China SOEs Getting Lean and Mean

Most readers that have been engaged by China’s development since the handover of Hong Kong to the Mainland can remember discussions of how China’s State-owned Enterprises (SOEs) were doomed to collapse and to take the entire society down with them. Now, a recent Financial Times analysis notes:

“Fast-forward 10 years and the situation is almost unrecognisable. In 2007, the combined profit of the 150 or so companies controlled by the central government is expected to have reached Rmb1,000bn (£70bn, $140bn, €90bn). In the five years to 2008, this figure rose by 223 per cent. At the end of last year, the list of the world’s 10 most valuable companies contained four groups controlled by the Chinese state – even if this partly reflected the relatively high valuation of the Shanghai stock market.”

It seems the top SOEs are becoming savvy market players…

“…Chery has also proved skilful at marketing, for example using the internet to create buzz among young car-buyers, and has displayed a ruthless control of costs – neither of which are traditional attributes of state companies. Industry executives have also been impressed by the heavy investment the company has made to boost its engineering capabilities, which will be vital if it is to compete overseas. ‘Chery looks, feels and has the DNA of a private company,’ says Michael Dunne, managing director of consultants JD Power in Shanghai.”

And the top players are becoming appealing to China’s best and brightest:

“’SOEs are increasingly competitive in attracting top executive talent,’ says David Michael, head of Boston Consulting Group’s China office. ‘There are a number of local Chinese managers of multinationals or private sector companies who have gone to work in the state sector.’”

“‘The idea of such “hybrid” companies also helps explain the winners in other capital-intensive sectors, including China’s auto industry. “To develop a car company in China, you need to be able to play both sides, running the business with private sector-type discipline but also getting close to local governments for the land and bank contacts that this brings,’ says Mr Dunne.”

But some SOEs are getting too big for their britches, not doing the Chinese government much of a favor in terms of Face:

“The Chinese government has attempted to improve its public relations in recent years, ordering ministries, with varying success, to explain decisions to the foreign and local media. Petro-China, however, one of the country’s most powerful companies, has shown no inclination to fashion a public message.”