The focus of the small piece is to investigate the different implications of China’s institutional reforms and SOEs reforms for China and Australia, not just focus at the corporate level. Since the SOEs have visible and invisible privileges in China, it might be a smarter choice for an Australian company to engage in business with a Chinese SOE rather than with a private company for the purpose of making money in the Chinese market.

As for whether it is monopolistic, it depends on how you define it. It would be more accurate to say that Chinalco, as a SOE, has some privileges that its private competitors could never have.

For the other comments of yours:

‘First, I don’t believe that all SOEs are monopolistic.’

—-Yes, you are correct, but…it seems I didn’t say ‘all SOEs are monopolistic’. I suggested that ‘SOEs are dominant in some of the most lucrative sectors and strategically important sectors’, and ‘private sectors competitors experience difficulties…… due to a host of visible and invisible barriers’. Most monopolistic sectors are related to SOEs. So ‘China’s national interest therefore lies in the opening up of monopolistic sectors and through SOE reform’.

‘Second, I don’t think the performance of SOEs were as bad as Zhang described’.

—- You are correct regarding the SOEs’ performance. But it seems you misunderstood my point. As I suggested, SOEs’ profitability problem (or performance) was a problem ‘before the late 1990’, and now no longer a problem. ‘Some SOEs are among the most profitable firms in the world’. Now, the important reason why the SOEs should be restructured is not because the SOEs are not profitable, but probably too profitable: China needs to establish a fair play market economic system without the bias against the private economy. The opportunity cost of the SOEs’ profitability is high.

“Another point that struck me ….is the argument that ‘the motivation of China’s SOEs is actually quite simple —-to secure a supply of resources’”.

—-You are absolutely correct, and I completely agree with you that China’s SOEs have different motivations for overseas investments. But in the context of this article, I meant the investments in resource sectors, especially the cases conducted by the central companies.

Once again, thank you very much! This small piece is not a strict academic paper, so some expressions may be not that accurate. I wish my explanations are helpful for clarifying my position.

Best regards!

YS

I thought the potential advantages to Rio if that deal had gone through would be it would have a closer strategic partner in China to work in its interest, since Chinalco would benefit more if Rio benefit from increased share of the Chinese market. That would be very important. The Rio board had pointed out this point when it supported the deal.

That aside, I find some other arguments in this article confusing.

First, I don’t believe that all SOEs are monopolies, like firms in the steel industry where I had some experience, and in the non-ferrous metal industry which Chinalco belongs, if my understanding is correct (if there are any SOEs in the steel industry). Yes, in some sectors, SOEs are monopolies, possibly in the post and communications sectors.

Second, I don’t think the performances of SOEs were as bad as Zhang described. Government subsidies are only one of the financial relations between SOEs and the government. One also needs to look at many other things, such as whether they were taxed more heavily, whether they have other burdens such as many social responsibilities, like housing for employees, providing schools and hospitals, and even urban infrastructures, etc.

Another point that struck me as surprising is the argument that “the motivation of China’s SOEs is actually quite simple: to secure a supply of resources”. I am not sure that is always the case. It somehow implies that the SOEs act like one China Inc. That itself is an illusion. The SOEs are separate entities and each of them has its own interest, and that interest differs from one to another. They don’t act like a China Inc. Quite the opposite, they act for their own interest.

In the Chinalco – Rio case, for example, Chinalco was unlikely to act to secure the supply of resources. It was acting in its own interest. It is an aluminium firm. Rio’s most valued assets in Australia are iron ore. Iron ore is not a resource for Chinalco per se. It was motivated by perceived values of the assets and expected returns from investment. It had the funding capacity and Rio had the need to raise capital and reduce debt at the time the proposal was made. Chinalco was a shareholder of Rio, so it understood the situation. It appeared that it wanted to increase its interest in Rio to maximise its own profit, possibly to 19%. I am not sure 19% holding can secure the supply of resources from Rio.