The biases in Chinese SOEs

Chinese state-owned acquirers often seem motivated by non-commercial impulses, which complicates matters. By carrying out directives to “go out and buy” businesses that fit with Beijing’s industrial policy, state-owned companies and even a few of their private counterparts win kudos in the Communist party hierarchy. That helps them tap into official largesse, such as approval for expansion plans and backing from state banks and capital markets.

“State-owned enterprises have high incentives to increase their size, and they use plans outlined by [government agencies] as weapons to expand both domestically and internationally,” says Victor Shih, professor at University of California San Diego. “The bigger they are, the more political weight and more room for rent-seeking can be enjoyed by senior management.”

That is from a longer and excellent FT feature story on Chinese SOEs.


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