Western politicians often express outrage at the idea of state-owned Chinese companies receiving massive government subsidies that enable them to gobble up overseas assets.
Now a new study has found that most large Chinese companies—not just the state-owned ones—are receiving handsome government subsidies. Beijing research house Fathom China examined 50 large Chinese private sector companies and discovered that 45 of them were in receipt of some form of state subsidies, even though they lacked a major government shareholder.
Much of the government assistance is local. Municipal governments in China often extend a helping hand to large private sector firms in their districts to assist them in developing products and hiring extra staff. This creates jobs and supports the local economy, helping politicians meet the GDP targets that are imposed on them by Beijing. (Before any US politicians get outraged, they might want to read this.)
“For large private companies, there is a surprising amount of government money available,” the report’s authors wrote. For example, Volvo owner Geely Automobile got half of its net profits from state subsidies in 2011.
Here is Fathom’s list of the biggest subsidy recipients among privately held Chinese companies, as a percentage of net profits.
Companies that receive high subsidies are a big investment risk. Subsidy “profit” is not a secure source of income for any Chinese privately held company. The nation has a new leadership concerned about corruption and crony capitalism, so politicians who were once a reliable source of subsidies may not stay in power for long.
Chinese tycoons in charge of privately-held companies often fall out of political favor. Resources tycoon Liu Han’s Sichaun Hanlong Group is one. A less recent example is that of Yang Rong, an automobile baron who was once ranked China’s third richest man by Forbes. He fled China for the US in 2002 after suddenly finding himself accused of economic crimes.
As Fathom China concludes: “governments that give can also take away.”