Conventional wisdom has it that we are unlikely to see a highly aggressive economic reform agenda adopted by the new leadership that comes to power in a couple weeks. One of the main reasons given is the lobbying power of state-owned enterprises (SOE). Commentators highlight the strong ties between the leadership and SOEs, for example, highlighting that Zhou Yongkang spent so much time at China National Petroleum Corp. that he is essentially the oil industry's advocate on the Politburo Standing Committee. And once he retires, he could be replaced on the Politburo by Su Shulin, formerly a general manager at Sinopec and now governor of Fujian.
Certainly these ties are not insignificant, but we ought not make too much of them. The trend, in fact, is a decline in direct ties between leaders and SOEs. I collected data on all of the Politburo members for the 15th Central Committee (1997-2002), 16th (2002-2007), and 17th (2007-2012), and then made my best guess on the likely composition of the upcoming Politburo. I then culled their bios for work experience in SOEs. The data are surprising:
The biggest reason for the decline in SOE experience is the larger number of Politburo members who have worked their entire careers in the Communist Party and government. This is particularly true for those who have worked their way up through the Communist Youth League. They, of course, owe their rise to Hu Jintao.
SOEs are not well represented anywhere in the official political system. Here is how things break down on the current National People's Congress, China's legislature:
SOEs are certainly over-represented relative to private companies, of which there are far more, but a 9% share of seats is quite small. The NPC is dominated by government and Communist Party officials, not SOE executives.
The Central Committee data show the same results. There are a very small number (less than 10) of SOE managers who are alternate members of the Central Committee, but none are regular members.
This situation may change, but those looking for SOE influence don't make that argument.
So where does SOE power likely come from?
1) The government's ownership and control of SOEs, which gives offiicaldom a stake in making sure SOEs do well. If the financial sector is liberalized and administrative monopolies shrunk, that will hurt SOEs.
2) The above data only focuses on officials themselves and not their family members. It is likely that just about every single member of the Politburo and Politburo Standing Committee has at least one family member who works in an SOE.
3) Even if officials don't overly care about SOEs or have family members in SOEs, it is likely they have friends and colleagues who work in SOEs. Officials are socialized to believe that SOEs are natural and important parts of China's social fabric, and they shouldn't be penalized.
4) SOE senior executives share the same administrative rank or have an even high rank than many of the bureaucrats who are supposed to regulate them. That makes SOEs difficult to control.
The above discussion shows reasons why we shouldn't overstate SOE influence but why we should expect them to still have significant power. My own view is that despite being highly influential in a variety of ways, if the leadership wants to institute substantial reforms that hurt SOE interests, they could, and they would not pay a steep political price for doing so. There are a variety of ways the leadership could manage this kind of opposition, including rotating or firing SOE managers, implementing changes gradually, and compensating SOEs with other kinds of benefits. The question is, does the leadership want to do this? We'll find out soon.
Comments