China’s Champions: Why State Ownership Is No Longer Proving A Dead Hand

Private Chinese companies have been investing abroad for a while, but now even state-owned companies are making their mark outside of the Mainland. From the Financial Times :

When the Aluminium Corporation of China acquired a 9 per cent stake in Rio Tinto last month, the Chinese state-owned company pulled off a number of firsts. Not only was it the biggest ever overseas investment by a Chinese group, it was also the largest ever dawn raid on the London stock market.

Yet while most of the attention focused on what the share purchase meant for BHP Billiton’s efforts to acquire Rio Tinto, the acquisition heralded another important trend – the quiet revolution under way in the Chinese state sector, which has produced a new generation of confident companies with global ambitions.

A decade ago, China’s state-owned sector looked like an economic disaster waiting to happen. In the aftermath of the 1997 Asian financial crisis, average profit margins in Chinese state companies fell to close to zero, and many reported huge losses. The government felt it had no option but to embark on a brutal programme of closures that left tens of millions without jobs.

In a related article, the Boston Globe looks at the rise of authoritarian governments, including China’s, as new economic forces that represent “a change that is reshaping the dynamics of global business:

In the past five years, governments around the world have been transforming themselves into deal makers and business players on a scale never seen in the modern era. In China, state-owned oil giant PetroChina has become the largest company in the world, worth more than $1 trillion. In Russia, state-owned Gazprom has grown into the world’s largest gas company. States are also wielding influence by directly buying into major private firms: The investment fund run by the Arab emirate of Abu Dhabi is now the world’s largest, and recently spent $7.5 billion to become the top shareholder of the American financial giant Citigroup. Singapore’s state-controlled wealth fund, Temasek Holdings, sank $5 billion into Merrill Lynch, the largest US brokerage. By 2015, according to an estimate by Morgan Stanley, such state-owned funds will control a staggering $12 trillion, far outpacing any private investors.


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