China's corporate landscape is continuing to evolve in ways unexpected and expected. I recently came across what looks like same very boring data on the number of companies and their registered capital from the State Administration of Industry and Commerce. The data from 2013 is fascinating, but even more cool is what happens when you compare it to the same data from 10 years ago.
First, the 2013 data, summarized in the table below.
I draw a few conclusions from this data. Just in terms of the numbers of companies, the private sector dominates the scene. There are 11.6 million private firms (私营企业) and over 42 million smaller individual proprietorships (个体户). China has lots of SOEs, but far more private firms.
However, SOEs have a far larger combined amount of capital than private firms. Although only 4.1% of firms are SOEs, SOEs account for 46.6% of registered capital. This translates into very different average firm size, with SOEs being larger than private companies by a factor of 6. SOEs still tower over private companies literally and figuratively.
Finally, there are a large number of foreign-invested firms in China, over 440,000 at last count. It is possible that a significant chunk of these are Mainland Chinese firms who have registered in Hong Kong and then re-invested back in the Mainland in order to receive special benefits, but my guess is the proportion of firms using this trick is declining as the advantages of being an MNC in China drop. In any case, the average MNC in China has over RMB 27 million in registered capital, 50% more than SOEs and 9 times more than the average private firm. Think Walmart vs. the local grocer, Hilton vs. Home Away Motels.
When the corporate landscape is viewed over time, though, things take on a different look.
Over the last decade the number of SOEs has been cut in half,while the number of private firms has increased over three-fold, the number of propreitorships and foreign-invested firms have almost doubled.
When you look at registered capital, the story shows a smilar pattern of change in the direction of the private sector.
SOEs' share of total registered capital has fallen from 62.3% to 46.6%, while that for private firms has risen from 14.9% to 38.0%. If you include smaller proprietorships, the private sector now accounts for over 40% of all registered capital, just under the amount for SOEs. At the same time, the share belonging to MNCs has dropped, from 21% to 13%. MNCs are on average much larger than private companies, or even SOEs, but their share of overall registered capital is dwindling.
The next conclusion that jumps out at me as that although SOEs' share of the overall registered capital has dropped, their average size, measured by capital, has jumped six-fold, while the increase for others has been more modest. Many SOEs have died off, but those that remain are on average larger and more powerful. They are hard to be displaced by their competitors.
In sum, the private sector is growing, in absolute and relative terms, while SOEs are shrinking in numbers of companies but growing in terms of average size. And multinationals are on average large, but their relative significance in the economy is dropping.
How do trends in economic capital translate into policy or political capital? Beijing is clearly trying to protect SOEs and their role in certain segments of the economy, particularly strategic sectors. At the same time, the private sector is gradually being allowed to expand its footprint across regions and in previously blocked sectors, and we can expect such policies to be gradually widened still further.
And finally, the situation for MNCs is clearly changing. They constitute a smaller share of registered capital than in the past. This may explain why special privileges they enjoyed have been eroded. From another perspective. It could also help explain why they appear to be under attack more from the bureaucracy and the media. There are now domestic competitors ready to take their place in just about every area of the economy. Regardless of whether the changing status of MNCs is fair or not, if economic capital translates into political capital, we shouldn't expect their treatment, relative to SOEs and private companies, to substantially improve.
Of course, that assumes a straightforward correlation between economic and political capital. Since I'm no Marxist, I know that is not entirely accurate. (I'm a liberal, so I know there is some truth to this.) MNCs are well organized, are represented by powerful governments, and have a large swath of global media in their corner. So despite all the problems they are facing, no one should count them out by any means. MNCs are in China to stay.