Shifts in the state’s industrial sector

In China, the industrial sector has suffered important changes over time, going
through a “tug of war” situation between state owned enterprises (SOEs) and the
private sector, and between the rural and urban areas. This is important as there are
few economies as political as China’s.
After 1956, under Mao’s rule, all private firms in the countryside were collectively
owned. There were sharp constraints on off-farm labour, and emphasis on grain
production and self-sufficiency, which led to limited income and growth outside the
farming sector, resulting in risk of famine in Sichuan and Anhui provinces in 1976.
Before the reform era started, SOEs tried to be self-sufficient, situation that led to
low specialization and hoarding, thus, contributing to low growth and null service
sector development aside from bicycle repair and barber shops. It is important to
bear in mind that the heavy investments were made in the central provinces (as the
government feared war) and were taken to the coastal provinces in the reform era,
which facilitated trade and efficiency.
After the reform era began in 1978 township and village enterprises (TVEs), mainly
collectively owned and funded by local governments or local credit cooperatives,
became an important actor in Chinas economy. TVEs grew rapidly, as they were
under contract to urban SOEs wanting to expand outside state control, this added to
low welfare and employment costs made them much more competitive than the
state’s enterprises.
In 1984, when the government decided it was a good time to start exporting, SOEs
were unwilling to respond to foreign expectations despite government’s support, this
caused the TVEs to fill that void and start exporting, this let them accumulate large
amounts of foreign currency, from which the government let the enterprises keep a
larger share as an incentive to trade.
During the decade of the 1980s not only did TVEs exported in the place of several
SOEs, but also the TVEs in the rural Pearl river delta, Min river region and lower
Yangtze river made joint ventures and trade deals with foreign enterprises, mainly
from Hong Kong and Taiwan, which meant another important income and source of
trading power for Chinese rural enterprises.
All of this resulted in the TVEs providing 50% of the total product purchased by state-
owned trading companies in 1994 and made the TVEs the fastest growing sector in
China, with 30% of annual growth, meaning more than two thirds of increased
exports.
In the 1990’s TVEs competitiveness began to decline due to over employment and
heavy social responsibility, resulting in the privatization of some of these small
enterprises in the Jiangsu province during 1994, keeping the collective-owned name
through fees paid to the local officials.
From 1994 to 2003 the power of SOEs and TVEs started to decrease, losing a share
over the GDP from 14% in 1978, to 6% in 1987 and less than 1% in 1996. With the
public sector burdened by responsibilities and over employment, the 15 th party
congress in 1997 called for a change in the SOE ownership structure, resulting in a
mass privatization in the summer of 1998 despite government calls for gradualism,
ending up in over 85 million jobs loss due to asset stripping and state bureaucracy.
The public sector’s share over labour force decreased from 24% to 7% between
1996 and 2003.
In 2003 the State-owned Asset Supervision and Administration Commission
(SASAC) emerged to manage the big SOEs that the government kept, controlling
around 33% of the total industrial assets. SASAC’s companies obtained IPOs in NYC
and HK, but its number of companies went from 196 to 110 between 2003 and 2015.
To round up the discussion, it is important to know that in 2005 new regulations that
favour public sector over private sector were introduced, all of this after the entrance
to the WTO in 1999 and before the announcement of the One Belt One Road
initiative, in which clearly Chinese government wants to strengthen itself and its
enterprises, which are now badly organized and compete among themselves, mainly
in the energetic sector.