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Why More Chinese Firms On The Fortune 500 Is Bad News For China

Not good news...
Not good news...
By Feng Xingyuan and Xia Huihan

In the latest edition of Fortune Magazine"s "Global 500," exactly 85 Chinese corporations have made the list. That’s an increase of 16 companies compared with last year.

But let's take a closer look at the numbers. Of the companies listed, 90% are stated-owned enterprises (SOEs), and just two of the new batch on the list are private businesses. Among the 85 Chinese firms, 45 of them are central enterprises, 33 are state holdings, and only seven are private.

Furthermore, Caixin"s investigation on the companies listed confirms that Chinese SOEs tend to be big rather than strong. Their overall profitability is lower than the top 500's average -- and the very fact that these enterprises keep growing is actually not good news for China's overall economy.

Feng Xingyuan, researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, argues that to safeguard China's "economic security," most SOEs should aim to stop growing, since they are often structurally inefficient and post continual losses.

Market mechanism

Although SOEs show substantial book profits, this includes many deductions such as rents, taxes and preferential funding that should have been included in the costs originally, Feng Xingyuan says.

The balance sheets are also skewed by the fact that these firms are often administrative monopolies that can benefit from state subsidies. Without all these advantages, SOEs' performance are far below the average level of Chinese companies as a whole.

Moreover, the state-owned firms are often at the head of the industrial supply chain, allowing them to "pinch private enterprises and consumers' necks" to sell them products and services at a high price, Feng argues.

China's state-owned firms started growing bigger with the beginning of the SOE reform in 2006 in which the government promoted the "advance and retreat" merger strategy to achieve scale, with the private companies forced to "go backwards."

The harm for the Chinese economy includes inefficiencies and a lack motivation to control costs, with their workers’ salary and non-monetary income generally higher than the national average. The complex system of nepotism and recruiting standards of these firms -- sometimes even stipulated in writing -- are at odds with the requirements of the market economy.

Feng Xingyuan argues that SOEs shouldn't set foot in the sectors where a private company can perform well by competing within the free market. As Li Keqiang, China's Premier put it recently, the government should abide by the principle of decentralization -- or subsidiarity -- and resolve to leave day-to-day business to the market and society.

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The Trudeau-Modi Row Reveals Growing Right-Wing Bent Of India's Diaspora

Western governments will not be oblivious to the growing right-wing activism among the diaspora and the efforts of the BJP and Narendra Modi's government to harness that energy for political support and stave off criticism of India.

The Trudeau-Modi Row Reveals Growing Right-Wing Bent Of India's Diaspora

Canadian Prime Minister Justin Trudeau and Indian Prime Minister Narendra Modi at the G20 Summit in New Delhi on Sept. 9

Sushil Aaron


NEW DELHICanadian Prime Minister Justin Trudeau has brought Narendra Modi’s exuberant post-G20 atmospherics to a halt by alleging in parliament that agents of the Indian government were involved in the murder of Hardeep Singh Nijjar, a Canadian national, in June this year.

“Any involvement of a foreign government in the killing of a Canadian citizen on Canadian soil is an unacceptable violation of our sovereignty,” Trudeau said. The Canadian foreign ministry subsequently expelled an Indian diplomat, who was identified as the head of the Research and Analysis Wing (RAW), India’s foreign intelligence agency, in Canada. [On Thursday, India retaliated through its visa processing center in Canada, which suspended services until further notice over “operational reasons.”]

Trudeau’s announcement was immediately picked up by the international media and generated quite a ripple across social media. This is big because the Canadians have accused the Indian government – not any private vigilante group or organisation – of murder in a foreign land.

Trudeau and Canadian state services seem to have taken this as seriously as the UK did when the Russian émigré Alexander Litvinenko was killed, allegedly on orders of the Kremlin. It is extraordinarily rare for a Western democracy to expel a diplomat from another democracy on these grounds.

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