Last year, we noted that the Chinese government’s reform proposals for state-owned enterprises (SOEs) reflected conflicting objectives.  On the one hand, they appeared to propose limitations on traditional means of state control, primarily ownership, by encouraging more SOEs to undertake “mixed ownership” reforms, through which they would operate more like non-state corporations, at least in theory.  On the other hand, the proposals sought to enhance state control by formalizing and expanding the authority of China’s political leadership, the Chinese Communist Party, within SOE management.

While progress on ownership reform objectives has been halting at best, the expansion of Party authority in SOEs is becoming a reality.  In May, the State-Owned Assets Supervision and Administration Commission – the state shareholder of China’s large, central SOEs – published an article in the authoritative Party journal Seeking Truth, explaining that major corporate decisions would need to be approved first by the firm’s Party committee.  Only then would these decisions be forwarded to the board and management for approval.  Bloomberg reports that Chinese SOEs have in fact begun amending their articles of incorporation to clarify Party authority over major operational decisions.

At least with respect to China, then, using state ownership or the absence thereof as a convenient indicator of likely state interference in the commercial operations of firms, or in certain sectors of the economy, is increasingly insufficient.  Whether the objective is to identify “public bodies” in a countervailing duty investigation, or to measure broader economic distortions in antidumping “market economy” discussions, authorities should be wary of the evolving means of government interference in market competition and international trade.