Arthur Kroeber

As China’s autumn meeting on decisions for the next five year looms, private capital has clearly brought to heel and is deployed to support the state economy, says economist Arthur Kroeber, author of China’s Economy: What Everyone Needs to Know® to the South China Morning Post. “State enterprises are guaranteed a “dominant” role in the economy,” Kroeber said.

The South China Morning Post:

The current drive aims to reinforce state control over the biggest companies not only by bringing private capital into the fold, but also to indoctrinate private entrepreneurs with the Communist Party’s dictated way of investments, analysts said.

“Private sector firms have been given clear “rules of the road” about how to deploy their capital – less leveraged investments in speculative overseas assets; more equity support for domestic SOEs,” said Arthur Kroeber, co-founder of the China-focused research service Dragonomics in Beijing.

Look no further than in the recent case of state-owned China United Network Communications Group (CUNC), whose restructuring is backed by investments from the country’s most high-flying tech entrepreneurs including Jack Ma and Pony Ma. Announcement of the plan has pushed shares of its Hong Kong listed entity, China Unicom to a two-year high…

 “It is important to be clear we are not talking about the resurgence of a large-scale privatisation agenda here (regarding the latest SOE reform)…the ultimate policy direction is clearly stated in the Third Plenum decision – state enterprises are guaranteed a “dominant” role in the economy,” Kroeber said…

One sure factor is, private entrepreneurs are directing their investments into sectors that the party deems important, over acquiring assets abroad.

As such, it was announced on Monday that a group of state and private companies will invest a total of

6.9 billion yuan (US$1.04 billion) in COFCO Capital, a subsidiary of state-run agribusiness COFCO Group.

“The government is quite serious about a “deleveraging” agenda which involves SOEs reducing their debt/equity ratios, not by reducing debt, but by increasing equity. And here is quite a lot of capital in the private sector that can be put to use in repairing SOE balance sheets,” Kroeber said.

More at the South China Morning Post.

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