China’s Public Sector On The Defensive

One of the recurring themes of China’s reforms and opening up over the past thirty years has been the expansion of China’s private sector, usually at the expense of the public sector, or government-invested industries. This is a theme which has been often overlooked in the west, even by westerners in China, as they are more focused on the relationship with western companies, specifically Western Foreign-Owned Enterprises (WFOEs). There are three important components in the Chinese economy: state-owned enterprises, private companies and WFOEs. For the most part, the WFOEs are only allowed to play a peripheral role with all kinds of restrictions placed on them from time to time. It is highly unlikely that the Chinese government will allow them to play major roles in any sector.

The most important and vibrant part of the economy are the Chinese private sector. In spite of being out of power politically, occasionally suppressed, lack of capital and resources, it has managed to the point where it now employs more people than the public sector.

Let’s take a closer look at the media industry, just to cite an example. All official media, including newspapers, magazines, books, television and radio are owned, in one way or another, by the government. These might be the central government, provincial government or municipal governments. The performance and careers of these government officials are often measured by how these media perform: if they perform, the careers of these officials go up, if they perform less than well, then it goes into their performance evaluation, and has an effect on their careers.

The challenge for the official media in China now is that they are, generally speaking, losing audience to smarter and more creative challengers from the private sector in fields like online gaming. When this happens, and audience and circulation go down, these officials have to think of ways to address the situation. If that doesn’t work, they cover up the bad numbers.

Virtually all of the challengers in the Internet media field are private companies which are venture capital funded. In short, they are all private sector. When the audience moves to the private sector companies, public sector media companies tend to lose first audience, then revenue.

Many westerners look at the media ownership issue in China too much from a political and social oppression angle.

Actually, there is a lot more to it than that. It’s about what industries will still stay in Chinese state ownership, and how they will remain competitive in the hyper-challenging Chinese market. The official media has tried to counter-balance this trend by showing women in bikinis and other devices, but the trend to the private sector media (or user-generated media) is continuing. This is what Chinese ministries are thinking about all the time.

After all, if there are no longer competitive industries in the state’s company portfolio, how will it get revenue?

3 Responses to “China’s Public Sector On The Defensive”

  1. Well said… Great information, keep up the great work!

  2. I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

  3. JD says:

    Major Chinese companies often parade as “the private sector” but a close look at their beneficial owner is usually worthwhile. The private sector in China is a lot less prevalent than advertised and the state-owned sector remains the backbone of the economy.