USTR: China’s state-owned companies engage in unfair competition

The United States Trade Representation (USTR) highlighted that China’s state-owned companies compete unfairly against foreign companies in that Asian country.

While many provisions of China’s WTO accession agreement indirectly discipline the activities of state-owned and state-invested enterprises, China also agreed to some specific disciplines.

In particular, it agreed that laws, regulations and other measures related to the purchase of goods or services for commercial sale by state companies or with state investment, or related to the production of goods or the supply of services for commercial sale or for commercial sale non-governmental purposes by state companies and with state investment, they would be subject to the rules of the WTO.

China also agreed affirmatively that state-owned enterprises and state-owned enterprises would have to make purchases and sales based solely on commercial considerations, such as price, quality, marketability and availability, and that the Chinese government would not influence the business decisions of the state-enterprises. property and state investment.

In subsequent bilateral dialogues with the United States, China made new commitments.

In particular, China pledged to develop a market environment of fair competition for companies of all types of ownership and to provide them with non-discriminatory treatment in terms of credit granting, tax incentives and regulatory policies.

However, according to the USTR, instead of taking steps to give effect to its commitments, China established the State-Owned Assets Supervision and Administration Commission (SASAC) and adopted the State-Owned Company Assets Act. as well as many other measures that require state ownership and control of many major industries.

USTR

In addition, in its report Barriers to Foreign Trade 2021, the USTR highlighted that the Communist Party of China received a decisive role in the main commercial decisions, personnel changes, project arrangements and movement of funds of state-owned and investment companies. state.

In the opinion of the USTR, these measures allow the Government and the Party of China to intervene in the business strategies, management and investments of these companies, to ensure that they play a dominant role in the national economy to develop the «socialist market economy. «China and China’s industrial plans.

Separately, the Chinese government has also issued a series of measures restricting the ability of state-owned and state-owned companies to accept foreign investment, particularly in key sectors.

In its Third Plenary Decision of 2013, China passed a series of far-reaching economic reform pronouncements, calling for the market to be «decisive» in allocating resources, reducing Chinese government intervention in the economy, accelerating the opening of China to foreign goods and services, and improve transparency and the rule of law to enable fair competition in the Chinese market.

Partial results

He also called for the reform of China’s state-owned enterprises.

An example of these reform efforts included China’s announcement that it would classify these companies into commercial, strategic, or public interest categories and require that state-owned and state-owned commercial enterprises earn reasonable returns on capital.

But this plan, pursuant to the USTR, also allowed for divergence of commercially driven outcomes to meet widely interpreted national security interests, including energy, food, resource, cyber, and information security interests and public service requirements.

Similarly, in recent years, China has carried out reforms through efforts to achieve «mixed ownership.»

These efforts included pressuring private companies to invest in or merge with state-owned and state-investing companies as a way to inject innovative practices and create new opportunities for inefficient or state-invested state enterprises.

Competence

China has also previously indicated that it would consider adopting the principle of «competitive neutrality» for SOEs.

However, the USTR noted, China has continued to pursue policies that further enshrine the dominant role of the state and its industrial plans when it comes to the operation of state-owned and state-invested companies.

For example, the USTR noted, China has adopted rules that ensure that the Chinese government continues to have full authority over how SOEs and SOEs use state capital allocations and over projects undertaken by SOEs.

Overall, while China’s efforts sometimes appear to indicate a high-level determination to accelerate the economic reforms needed for state-owned and state-invested enterprises to operate on the same terms as private commercial operators, those reforms, according to the USTR, they have not materialized.

«It seems clear that China’s past policy initiatives were not designed to reduce the presence of state-owned and state-owned companies in China’s economy, nor to force them to compete on the same terms as private companies,» he said.

Artificial advantages

Rather, the USTR argued, the objectives of the reform were to consolidate and strengthen state-owned and state-invested enterprises and place them on a more competitive base, both in China and globally, through the continued provision of preferential access to state capital and the use of other policies and practices designed to give them artificial advantages over their private competitors.

According to the USTR, this unfair situation is exacerbated for foreign companies, as both China’s SOEs and China’s state-owned and private companies benefit from a wide range of other state interventions and supports designed to promote economic development. development of Chinese industry.

«These interventions and supports work, to a large extent, by restricting, taking advantage, discriminating or creating disadvantages for foreign companies and their technologies, products and services,» concluded the USTR.