Socialism with Chinese Characteristics

The Chinese have been studying Western models of State Owned Enterprises for about 30 years. To get a clear picture of what is, and is not, working at various periods of history and why.


This has then been translated into their concept of Socialism with Chinese Enterprises. That requires these SOE’s to play a key controlling role in key sectors of the economy, be minded of their social responsibilities and create profits for their shareholders, which includes all their existing staff and families welfare and pensions, dividends for their staff from profits, and dividends to the state welfare funds who will hold shares in soe’s to fund their payments for Welfare.


These Chinese SOE’s also will have to work at being global leaders in their sectors in market share, in technology, R and D, and playing relevant roles in the SCO and BRI based world.


Up till now they have been monopolies. They will still enjoy protected market share but their monopolies are not considered healthy, and they will begin to experience competition from Chinese companies, then foreign companies, probably led by Japanese and Indian and other SCO and BRICS nations’ companies


The mixed ownership will involve other SOE’s becoming shareholders, as well as Welfare Funds. Some foreign owners will join in as well but they will be specifically chosen for the characteristics of their sectors. And SCO and BRI will have the inside track. ( in the 1990’s Taiwan had an inside track with Japan and South Korea as the West shunned China. This time Taiwan may have lost its leading position. The market of the future is the China market and Taiwan appears to have kicked it, encouraged by other nations. Mistake)


This could result in a considerable inflow of FDI into China over the next 10 years.


Some may view this as privatization but it is not. It is a new method of cross ownership of SOE’s with the shareholders playing a role of invigorating the managements.


This may seem confusing but it is a system whereby the large private sector companies and the SOE’s will increasingly look alike. So the major private companies and the SOE’s will also provide some shares for the equity markets, and be large suppliers of bonds to finance their businesses.


That growing similarity of the large private sector and the SOE’s is the process of going to the next stage of the Socialism that China is building. My guess from now to 2035 is the period of building all this, and from then to 2049 creating a very aligned set of major companies, where the large private sector and the soe’s become one and the same.


China will become the world’s largest market, and now Europe can take advantage with Japan, India, and South Korea with SCO and BRI nations. Probably the usa will drop its attempt to contain China and engage. They could follow the British Empire and ruin their leading position through military moves which can cripple nations in short periods.


We can imagine what President Xi is thinking when he is managing this unheard of future form of the Chinese enterprises, and he is taking calls from President Trump urging him to buy more soybeans.


The West needs to get its act together and start building a new era of capitalism. For now our capitalism is characterised by the companies buying their own shares, and being bought up by Private Equity and Hedge Funds who split up our major global companies whilst China is going the other direction.


The West needs a new form of global companies, but it is difficult while PE waits to see a little profit on show and jumps. In China they will not perform this role. I wrote about this about 20 years ago – the Chinese PE will help the State and Government build and reshape sectors, and organize serious development plans for global participation, where major companies lack the skills.


Increasingly we are seeing one world two systems but the Western cat can catch mice just as well if they reorganize to meet the markets and their social responsibilities. Small state, no planning inequality – they lead to populism and a weight round the economy.


The USA plan seems to rest on the West being the major markets going forward but using protectionism against companies like Huawei, on the basis of security or other excuses, is a recipe for blunting competitive forces and a slow slippage to mediocrity.


Protectionism in the West will lead to the West’s share of global markets diminishing, and there is a real risk that it will fall below the scale needed for competitive costings. The West once had 66pc of the China trade and investment. It is now close to 30pc. That is the indicative nature of the chaos we are facing.


We need some serious thinking by our Economists who appear to have shrunk into their shells. They are cowered by media and other political forces to avoid the issues, except Martin Woolf in the FT can see the dangers. G7 needs to come to the rescue with a bold new global development plan for its major companies or face diminishing markets.


This is not set in stone. China may yet hit real problems. The unforeseen may happen. But SCO and BRI seem to be a well based part of this new puzzle. I feel China is really leading and on plans that go out 50-100 years. The good news is they really do not want to rule the world because they are sure there is ultimately only decline in that. They want to be a global leader but just a major Asian nation.


I could say we shall see, but I doubt I will unless medical innovations are around the corner. The world of A.I. is around the corner and then a completely new world develops. 5G is vital to that. If we shut out Huawei and base ourselves on slower European technologies we shall slip further behind. We must manage any security issues of Huawei and embrace the latest technologies without fear or favour.


Happy Chinese New Year. We are very lucky being interested in China because we are seeing the future first.  10 years ago there were no high speed trains in China, now they account for 70 percent of the worlds capacity. It is good that China’s leaders are in the world. The attempts to characterize them in Hong Kong and other places in the most demeaning terms might lead them to turn away from us. That would be very bad for us. We are a part of the world whose finances are still very precarious, and which lacks serious development plans.


We need to take great care what we wish for.





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