In the news: SOEs big but not strong, ban on new government buildings and AstraZeneca employee questioned
July 25, 2013 | BY
clpstaff &clp articles &As 85 Chinese corporations make the Fortune Global 500 list, many are wondering how much power state-owned enterprises actually have. The government has stepped up its corruption crackdown and AstraZeneca has visited by the authorities amid the GSK bribery investigations
SOEs are big - but not strong
Caixin reported that 85 Chinese corporations made the latest Fortune Global 500 list. About 90% of those companies are state-owned enterprises (SOEs) and only seven are private businesses. The article argues that SOEs tend to be big, but not strong, as their profitability is lower than the average company in the top 500. In addition, SOEs are often structurally inefficient because of their size and, without state subsidies, it would be hard for them keep their balance sheets looking healthy.
On the surface, the government is pushing private companies to grow domestically and engage in outbound investment, but in reality, they want SOEs to grow as well. The government views consolidation as the best route to growth. This leaves very little room for private companies and, as the article says, the inefficiency of SOEs will only continue. Controls needs to be relaxed, at least somewhat, in order to let private companies into the space and let the SOEs downsize, which would let them increase their and improve their profitability.
Five year ban on new government buildings
The jointly-issued directive from the Central Committee of the Communist Party and the General Office of the State Council calls for an across-the-board halt to the construction of any new government buildings in the next five years. The ban also covers structures like training centres or hotels. There is also a strict warning that repair costs will be scrutinised to ensure that the money is not for new buildings.
This follows on from the massive crackdown on bribery. Since the leadership transition, Xi Jinping and Li Keqiang have been adamant that their administration will not tolerate bribery. Government spending has long been viewed by the public as frivolous, especially on entertainment venues. Everything in China depends on enforcement, but the fact that all repairs have to be approved shows the government is trying to remove loopholes from the start. If more of these directives come out, there is a good chance that Communist Party corruption will diminish.
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AstraZeneca targeted amid GSK bribery investigation
China Daily reported the news that police have visited the Shanghai office of AstraZeneca and taken one of the employees away for questioning. Authorities are investigating AstraZeneca's rival, GlaxoSmithKline (GSK), for bribing officials and doctors to boost sales and raise the prices of its medicines. The news of the investigation comes at the same time as a widespread probe from the National Development and Reform Commission (NDRC) into price fixing at several large drug companies.
Not surprisingly, drug makers (foreign and domestic) in China have decided that taking a low profile is the best way to weather the storm ahead. It remains to be seen if there is any misconduct at AstraZeneca, but the GSK investigation means companies need to be extra careful as investigations may spread. All the companies under investigation must be consulting different public relations experts to create a strategy on how to handle the various news stories. This is an area where foreign companies are likely to have an advantage over their domestic counterparts.
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