We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China
Lin, Li-Wen, Milhaupt, Curtis J., Stanford Law Review
III. THE PARTY-STATE AS CONTROLLING SHAREHOLDER
Atop the national groups is SASAC, ostensibly "the world's largest controlling shareholder." (100) Controlling-shareholder regimes are prevalent throughout the world, (101) and, in this sense, China's variety of capitalism shares an important trait with corporate capitalism in many other developing and recently developed countries. In contrast to state control in China, however, the controlling shareholder in other countries is often the founder or members of his family. (102) But as one scholar recently argued, "it is easy to overstate the extent to which the interests of the government as a controlling shareholder differ from those of private controlling shareholders." (103) This is because, regardless of identity, all controlling shareholders face similar incentives. The size of their ownership stakes provides incentives to monitor managerial performance more closely than do shareholders in dispersed ownership systems. But controlling shareholders also have unique incentives to maximize "private benefits of control" by engaging in transactions that expropriate wealth from minority shareholders. (104)
Macro-level generalizations and comparisons with other controlling-shareholder regimes, however, are likely to mislead, because several aspects of China's regime make it highly distinctive. First, it is uniquely encompassing in scope. In no other country is a single shareholder--private or public--so pervasively invested in the leading firms in the national economy. SASAC directly or indirectly controls a majority stake in virtually every leading firm in every critical industry in China, from telecom to energy and autos to steel. (105) More importantly, as we explain below, it is misleading to attribute to SASAC the same bundle of control rights associated with controlling shareholders in other regimes.
A. SASAC as Controller
The complexity of SASAC's control rights in the national champions cannot be understood without at least a thumbnail sketch of the agency's origins. The national SOEs were carved out of central-government ministries in the corporatization process, which transformed governmental organs into joint stock companies. Initially, control shares in the SOEs were held by the ministries from which they had been created, which led to predictably negative results. (106) The State Council experimented with different control structures for national SOEs, eventually leading to the creation of SASAC.
SASAC, established under the State Council in 2003, represents a second attempt to consolidate control rights over the national SOEs. SASAC has a long list of formal functions and responsibilities, including preserving and enhancing the value of state-owned assets, restructuring central SOEs, appointing and removing top SOL executives, and drafting regulations on the management of SOL assets. (107) It has a staff of about 800 employees organized into diverse bureaus ranging from enterprise restructuring to foreign affairs. (108) But despite outward appearances of consolidated control over the SOEs it formally supervises, SASAC is a work in progress, and the SOEs' legacy of shared control rights was not overcome simply by SASAC's establishment. This is particularly true given SASAC's location in the government organizational chart: although SASAC is a ministry-level agency, so are fifty-three of the most important SOEs under its supervision. (109) SASAC faces potential resistance not only from the firms it supervises but also from the competing agendas pursued by other important ministries, such as the Ministry of Finance. (110) As one commentator notes, "In practice, SASAC has faced an uphill struggle to establish its authority over the SOEs that it supposedly controls as a representative of the state owner." (111)
Until recently, there was no overarching legal authority governing SASAC in its role as controlling …
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Publication information: Article title: We Are the (National) Champions: Understanding the Mechanisms of State Capitalism in China. Contributors: Lin, Li-Wen - Author, Milhaupt, Curtis J. - Author. Journal title: Stanford Law Review. Volume: 65. Issue: 4 Publication date: April 2013. Page number: 734+. © 1999 Stanford Law School. COPYRIGHT 2013 Gale Group.
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