The Economist - UK (2021-11-20)

68 Business TheEconomistNovember20th 2021

formedjoint ventures withstate­owned

companiesby2019,upfrom45,000atthe

turnofthecentury.

The jump inprivate companieswith

stateinvestmentsincethenhasaccounted

fornearlyallofChina’sincreaseinnew

registeredcapital.Publicinvestmentsin

private­sector companies surged from

$9.4bnin 2016 to$125bnin2020,though

lookssettofallthisyear,accordingtodata

fromDealogic,a researchfirm(seechart2).

Thismeansthegrowthofbusinessin

thecountryisinextricablylinkedtothe

state.Thetechindustryhasbeena notable

focus.Regulationhaslonghemmedinthe

sector, as has the occasional bringing

downofa tycoonbyoneortwonotches.

Thisisnowconsideredinsufficienttoen­

sureentrepreneursarekeptinline.

Thusextendingthegovernment’sreach

directlyintomoreprivatecompaniesvia

financialinterestsisemergingasa mecha­

nismtocontrolthem.Government“gold­

enshares”,tiny investmentsthat givea

highdegree of control overcompanies,

havebeenrumouredforyears;onlyrecent­

lyhavetheybeendisclosedinthelikesof

WeiboandByteDance.Itislikelythisfea­

tureofstateinvestmentwillexpand,says

NanaLioftheAsianCorporateGovernance

Association,aninvestorinterestgroup.

Unwittinglytaggingalongfortheride

havebeenglobalinvestorswhohadonce

spentfreelytogaina footholdintheboom­

ingChinesemarket.Americansandothers

areunlikely to becomfortable withthe

newarrangements.Moremightgetsnared:

cac, theultimatepowerbehindthestate

investmentsinstartups,wasrecentlygiv­

entheauthoritytovettheoverseasshare

listingsoflargeChinesetechgroups.

Whatmightthenewregimemeanfor

thefirmsinvolved? ciif’schairman,Wu

Hai,hasproclaimedthefundtobefirmly

partofChina’s“nationalteam”,a catchall

forthemostimportantstate­ownedenter­

prises.TheCommunistPartyhasprovided

generousfinancialandpolicysupportfor

ciif­backedfirms,saysSunXinofKing’s

CollegeLondon.But,headds,theseinvest­

mentsalsotightenregulatoryscrutinyand

haveevenimposedgreaterdirectcontrol

bythePartyovertheirmanagement.

Yetciif’s objectiveswouldfitawkward­

lyina venture­capitalfirm’spitchbook.It

hascommitteditselfnottopursue“exces­

siveprofitability”initsinvestments.That

echoes recent missives by top officials

concerningthe“savagegrowth”and“dis­

orderly expansionofcapital” at China’s

techgroups.Itsareaoffocus—aichips,ro­

botics, quantum computing and block­

chain—dovetailwiththesectorsthegov­

ernment prioritisedin its14thfive­year

plan, one of thestate’s most important

policy documents. Companies have no

doubttakennote.

ByteDancehasclaimedtheciifinvest­

menthaslittleinfluenceoveroperations.

Ifthatistruethenitsomehowfoundit

wiseofitsownvolitiontomirrornewstate

policy.TikTok’sownerhasofficiallylimit­

edworkinghoursto10am­7pmonweek­

days;thechangecomesafterthestatebe­

ratedMrMaandAlibabaforvocallysup­

portinga “996”workschedule,orworking

9am­9pm six daysa week. The firm is

amongthosewhosefoundershavedepart­

edduringthecrackdown.

AsMrXi’smodelforstatecurbingof

techdarlingsbecomesclearer,sotoohave

thepotentialdrawbacks.Oneofthemis

theclumsinessbuiltintosomeofthePar­

ty’s increasingly dogmaticpractices. For

thepasttwodecadeslinksbetweencom­

paniesandlocalgovernmentshavebeen

centralto theChineseeconomicmodel.

Thesepartnershipshavehistoricallybeen

focusedonbusiness,notPartyideology.

More recentlythere have been signs

that local governments are preoccupied

morewithideologicalexercises,saysMr

Hsieh.Theseincludefrequent“studyses­

sions”,wherePartyofficialsgathertoread

and discuss the merits of Xi Jinping

Thought. Forging connections between

stateandprivatecompanieshasbecome

moredifficultandrequiresinformalcon­

nectionswithmoreseniorleaders,hesays.

Another problem isthe level of risk

aversion among the new government­

linkedshareholders.China’smodelwasre­

centlydescribed asa“venturecapitalist

state”by ArthurKroeber,aneconomist.

Themodelmimicsa massivecorporatein­

vestor,takingsmallstakesinvariousearly­

stagecompanies;ciifitselfisstaffedwith

executiveswithtechandstartupinvesting

experience.Yetthestatehasalltheriskap­

petiteofa timidbureaucrat.Private­sector

executives working with government­

linkedfirmshavedescribedofficials’grow­

ingfearofmakingmistakes.Losingpublic

moneyoninvestmentdoesnotappearto

bethebiggestworry,saysNisGrünbergof

theMercatorInstituteforChinaStudies,a

think­tankinBerlin.Rather,therealblun­

derwouldbefailingtocontrolcompanies

thatruncountertoPartyideologies.

ThusanuncomfortableprospectforMr

Xi’sneweraofpartycontroloftheecon­

omy:fearbystate­capitalistsoffallingfoul

ofideologicaldiktatscouldlowerinvest­

mentreturnsandthrottlecorporatedyna­

mism.ciif’s boardappointeetoByteDance

hasnoclearbusinessexperienceonhisré­

sumé,accordingtoMsLi,buta background

incommunistpropaganda.Fordoingbusi­

nessinChinathesedays,aninsider’ssteer

onhownottorunafoulofthePartymay

proveinvaluable.n

Proteanspikes

China,state/privatejointventures

Source:“Specialdealsfromspecialinvestors:the rise of state-

connectedprivateownersinChina”,NBERworking paper, Aug 202

1

Stateownersoperatingjoint

ventureswithprivateowners

Averagenumberofprivateownersa

stateownerhasjointventureswith

14,400 11,400 12,800

2000 2010 201

Commanding the heights

China, state investment in private companies

$bn

Source: Dealogic *To November th

2

120

100

80

60

40

20

0

21*201918172016

RoyalDutchShell

A simple solution

P

ity ben van beurden. The boss of Roy­

al Dutch Shell is an affable man steering

a  Scylla­and­Charybdis  course  between

oil­loving  shareholders  on  one  extreme

and  carbon­hating  ones  on  the  other.  His

latest  task  is  to  convince  investors  that

Shell’s  strategy  of  doubling  down  on  oil

and gas production while bulking up on re­

newables  is  viable,  even  as  Third  Point,  a

hedge  fund,  demands  it  breaks  itself  up.

And for seven years he has run a company

with  one  foot  in  the  Netherlands  and  the

other in Britain—with Brexit in between. 

On  November  15th  Shell  offered  share­

holders some badly needed simplification.

It asked them to vote next month for a pro­

posal  to  ditch  a  dual  Anglo­Dutch  share

structure,  haul  the  headquarters  back  to

Britain, and scrap the Royal Dutch name. It

marks a homecoming of sorts. The original

moniker  dates  back  to  the  19th  century,

when  the  company’s  forebear,  Marcus

Samuel,  dealt  in  sea  shells  along  the

Thames.  But  the  reaction  in  parts  of  the

Netherlands  has  been  apoplectic.  Some

Making the energy shift less taxing