China has tens of thousands of state-owned enterprises (SOEs). Of these companies, just under 100 are “central” SOEs, which means they are under the supervision of central state agencies in Beijing. Central state-owned enterprises are massive, employing tens or hundreds of thousands of people across China and the world. Their assets and project portfolios are often huge. This includes companies like China National Petroleum Corporation and PowerChina.
China’s largest overseas investment projects are often implemented by subsidiaries of central SOEs. Most of these SOEs are under the supervision of the State-owned Assets Supervision and Administration Commission (SASAC), which in turn is under the authority of the State Council. These central enterprises operate in the sectors considered of strategic or fundamental importance for the national economy by the Chinese central government, such as energy, transportation, telecommunications, minerals, etc. There are a few examples of central SOEs operating overseas that are not managed by SASAC. These include the China State Railway Group, which is jointly managed by the Ministry of Finance and the National Railway Administration. When looking into a state-owned company, it is important to identify which state institution they report to. A good place to start is checking whether it belongs to one of the central SOEs supervised by SASAC, with the full list here.
In addition to central SOEs, there are also thousands of sub-national level (provincial and municipal) SOEs. They are often important economic actors in their regions, and many provincial and municipal SOEs are now active overseas. Examples include Shanghai Construction Group, Yunnan Construction Engineering Group and Anhui Conch Cement. These companies come under the authority of the provincial and municipal versions of the SASAC. For a list of websites of the various subnational SASAC offices see here.
Central SOEs typically have tens of second-tier subsidiaries and through them can have hundreds of third-tier subsidiaries, which might have diverse ownerships. Therefore, even if a company is a subsidiary of an SOE, it is useful to try to confirm its shareholder breakdown to assess which shareholders have leverage over it. Many SOEs have listed subsidiaries on the Shanghai, Shenzhen, Hong Kong and other international stock exchanges. Selling shares to the public helps companies attract investment, which can come from Chinese and non-Chinese investors. However, the SOE parent usually holds on to a controlling share in the listed company. The listed subsidiaries are also subject to the rules of those stock exchanges, especially regarding information disclosure, which makes them a good entry point for research.
Many central SOEs now have websites in both Chinese and English (and sometimes other languages of the countries where they have operations). It is also increasingly common for them to publish annual reports and sustainability reports.
Several SOEs have signed up to global good practice initiatives such as the United Nations Global Compact, and SASAC has issued regulations and guidelines that apply to SOEs when operating overseas. For more discussion on this, see:
Historically, SOEs have dominated Chinese outbound investment, but the number of private enterprises investing overseas has grown rapidly. Some of these enterprises are publicly listed on stock exchanges.
Private enterprises of various sizes are investing outside China. This includes large enterprises such as Tsingshan Holdings, the world’s largest stainless-steel maker, all the way down to individual investors engaging in a single overseas project, such as a plantation, mine or factory.
Although SOEs and large private enterprises are the most visible Chinese overseas investors, there are many thousands of smaller Chinese companies active overseas. Smaller companies can be difficult to identify, and it is often challenging to find information regarding their ownership, structure and operations. To further complicate the matter, sometimes companies registered in other countries, but involving Hong Kong, Macao, or Taiwan investors, or other ethnically Chinese investors, are confused as mainland Chinese companies.
Identifying whether a company is state-owned is just a first step. If possible, you should look more closely at a company’s ownership structure to understand better the power dynamics at play and what pressure points this may create. For example, some former SOEs that have privatized or sold their shares publicly still have state shareholders. These companies are managed differently to SOEs, and are not subject to SASAC oversight, but may still have strong state support and privileged access to finance. Some well-connected private companies may also have access to preferential policies and government support.
Practical Advice: Differentiate between project developers and project contractors
Contracting has become a major source of revenue for Chinese companies, especially SOEs, that are awarded contracts for construction, equipment supply, and other services. Chinese companies win contracts for projects implemented by other Chinese companies, but also by non-Chinese companies and public projects. Chinese enterprises are also among the top recipients of contracts for projects funded by multilateral institutions like the World Bank.
While attention often falls on the owner or developer of a project and the banks financing that project, the role of contractors in Chinese overseas projects is very important—especially larger infrastructure and industrial projects.
Developers own the project (wholly or in part) and are responsible for its overall construction and operation. They usually invest their own funds and raise finance from banks and other sources to pay for a project. However, they will generally not do everything themselves, and they will hire contractors to work on specific parts of the project and provide equipment and other services. These companies work according to the terms of their contract and may not have a long-term stake in the project.
Developers have environmental and social obligations that run through the life of the project, including construction and operation. A contractor’s responsibilities are limited to the period in which they are contracted for work. Generally speaking, developers are likely to be more responsive to approaches from affected people and civil society groups as they have ultimate responsibility for the project, and will have a long-term presence, often operating a project for many years. Contractors are less likely to be responsive and may defer responsibility to the company that has hired them to conduct the work.
However, contractors still bear responsibility to abide by local laws and regulations, as well as their own internal policies and commitments. In cases where contractors are responsible for major works, they will also be bound by project environmental management plans developed to mitigate project impacts. There are also specific regulations and social responsibility guidelines for Chinese contractors. For this reason, it is important to engage both developers and contractors if you have concerns about a project.
For more discussion on this issue, see International Contracting.
Comparing chinese State-Owned and Private Enterprises
- Profit-driven, but strongly influenced by state policy and directives
- Directly under the oversight of the state
- Benefit from preferential policies, including access to finance and insurance for overseas projects
- Senior executives appointed, appraised and monitored by the government
- Dominate strategic sectors, including energy, mining, oil and gas, telecommunications, and shipping
- Many now have websites in English (and other languages of countries where they are active); most have WeChat accounts and some are on Twitter and Facebook
- Website may include annual reports and corporate social responsibility / sustainability statements
- Increasingly aware of reputational risks, but still investing in high-risk projects
- Under government pressure to improve corporate social responsibility performance and publish corporate social responsibility reports
- Very active in overseas contracting
- Major SOEs are increasingly signing on to voluntary human rights, social and environmental initiatives such as the UN Global Compact
- Central SOEs and major subnational SOEs often have publicly listed subsidiaries on stock exchanges and are subject to rules of public disclosure
- Some lower-tier SOE subsidiaries share characteristics with private enterprises as the share of the parent SOEs might be small and they are not subject to as stringent state supervision
- May be publicly listed on stock exchanges
- In some cases, state actors may hold minority stakes
- Profit-driven, market-oriented
- Less state influence over investment decisions
- The state is increasingly encouraging private enterprises to go out and invest overseas, but many do not have as favorable access to state-backed financing
- Often have websites in English, especially if investing overseas
- Websites may include corporate social responsibility / sustainability statements
- May post annual reports and sustainability reports, especially if the company is publicly listed or has publicly listed subsidiaries
- Becoming increasingly concerned about image and corporate brand
- May invest in a single project, e.g. plantation or small-scale mine
- Less likely to conduct thorough environmental and social due diligence on their project or local partners
- Very small companies investing in resources (e.g., small-scale mining) frequently operate in violation of local regulations
- Usually no website in English, sometimes no Chinese website
- Tend to be less concerned about company reputation
- Activities are sometimes informal; investment may not be registered according to regulations of China or the host country
- Unlikely to make reports public; often limited transparency and access to information