A huge criticism leveled against China is that its economy is largely driven by state owned enterprises (SOEs) and that Chinese demand is really government demand.
But Andy Rothman, CLSA’s China macro strategist, says that this picture has changed over the past few years and that 60 per cent of GDP comes from non-state companies, in a US Global Investors webcast. Rothman said the decision to shrink the role of the state came in the mid-1990s:
“Starting in 1995, over a six-year period, the government laid off 46 million state sector workers. Think about it, it’s an enormous number. And I gave you some numbers before. For example, in 1990, 60 per cent of urban employment was state firms. Now it’s only 19 per cent.
So, what we’ve seen is far fewer state companies employing far fewer people, but a big scaling-up of the size and concentration of these in a handful of sectors that are very capital intensive.
So, the state firms continue to dominate things like petro chemicals and telecommunications and aviation and power, and the financial system as well. But, in everything else, the privately-owned companies are doing their business with very little government interference, and interfacing directly with consumers.”
Rothman also presented a chart (see below) to show the smaller role that SOEs have in employment, and fixed asset investment (FAI), which is a measure of capital spending and an indicator of investment trends.
Rothman said CLSA, on a monthly basis, breaks out investment data in China by the ownership of the company and that in the last 24 straight months the rate of investment by private companies had outpaced that of SOEs. “This is really a country where the economy is increasing driven by privately-owned small and medium-sized firms. They’re driving all the new job creation in China these days.”
Photo: US Global Investors / CLSA
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Note this chart was reproduced with the permission of US Global Investors