Title page
Contents
Acknowledgements 2
Acronyms 5
Executive Summary 6
1. The evolving landscape of state enterprises in industrial supply chains 7
2. State enterprises as recipients of industrial subsidies 10
2.1. State enterprises tend to obtain more subsidies than their private peers 10
2.2. State enterprises can also obtain other, non-pecuniary advantages 14
2.3. Despite receiving more government support, state enterprises tend to underperform 22
3. State enterprises as providers of industrial subsidies 28
3.1. State banks as providers of below market borrowings 28
3.2. Government investment funds as providers of below-market equity and below-market equity returns 36
3.3. State energy utilities as providers of below-market energy 42
4. Implications for trade policy and broader considerations 48
4.1. Can trade rules help address the support provided to and by state enterprises? 48
4.2. Support to and through state enterprises has broader implications for trade policy but also the environment 51
References 53
Annex A. The OECD's MAGIC database 58
Annex B. Additional figures and tables 60
Annex C. State enterprises can fall outside the scope of competition rules in countries of the Gulf Cooperation Council 65
Annex D. Large central state enterprises have emerged in China since 2012 following a consolidation wave initiated by the SASAC 66
Annex E. Mergers conditionally approved in China by the SAMR since 2021 67
Annex F. List of sampled banks covered in Section 3.1.2 of this report 68
Annex G. The lack of a harmonised definition of NPLs across countries limits meaningful cross-country comparisons 69
Annex H. Overview of the OECD methodology for identifying SEs disciplines in PTAs 71
Table 1. Different types of subsidies affect different elements of companies' income statements 25
Figure 1. State enterprises account for a growing share of revenue in industrial sectors 8
Figure 2. State enterprises receive relatively more support than their private competitors 10
Figure 3. State enterprises face lower risk spreads on their debt 12
Figure 4. State enterprises are relatively large beneficiaries of below-market energy inputs 13
Figure 5. Chinese SEs are larger recipients of subsidies than other China-based firms 14
Figure 6. Profitability tends to decrease with the proportion of government ownership 23
Figure 7. State enterprises tend to have higher levels of debt relative to their assets 24
Figure 8. Subsidies may generate a misleading view of firm performance 26
Figure 9. State enterprises in industrial sectors tend to be less productive 27
Figure 10. State ownership of banking assets is especially significant in China 29
Figure 11. The composition of China's banking assets 30
Figure 12. Corporate loans to the manufacturing sector are the largest and have recently increased faster 32
Figure 13. The volume and ratio of NPLs for manufacturing loans are higher than the bank-wide ratio and had been higher than real-estate loans until China's property crisis 33
Figure 14. The value of total NPLs in China may be considerably higher than the NPL ratio alone would suggest 35
Figure 15. Average lending rates of major banks in China have been slightly above or below the PBOC's one-year benchmark 36
Figure 16. The institutional structure of GGFs in principle and in practice 41
Figure 17. State power providers generally have had lower returns on assets than private peers 43
Figure 18. Firms based in regions known to provide energy subsidies have lower input costs than competitors based elsewhere 44
Figure 19. Une usine à gaz!: Providers of below-market energy can also be recipients in a complex subsidy chain 48
Figure 20. PTAs with SE disciplines have increased over time, but remain geographically concentrated 49
Boxes
Box 1. State enterprises versus state-owned enterprises 7
Box 2. Measuring government ownership of industrial firms 11
Box 3. Implicit loan guarantees benefitting state enterprises: Some examples from credit-rating assessments 12
Box 4. The state-led consolidation of state enterprises in China 16
Box 5. State ownership and influence across China's banking system are pervasive 29
Box 6. China's 'special-mention loans' and the NPL ratio 33
Box 7. The 'in-principle' institutional design of government guidance funds 39
Box 8. Many state-electric utilities have been used to shield end-users from soaring energy prices 46
Annex Tables
Table A A.1. Overview of the OECD MAGIC database's firm sample 58
Table A B.1. Top 10 sampled companies by revenue (2022) in each key industrial sector covered 60
Table A B.2. Cement and automobiles are two sectors where government ownership seemingly correlates positively with financial performance 63
Table A D.1. Manufacturing M&As in China involving at least one central SE since 2012 66
Table A E.1. Mergers conditionally approved in China by the SAMR since 2021 67
Table A G.1. The five-category loan classification system in China 70
Annex Figures
Figure A B.1. State enterprises in the sample have grown faster than private peers 63
Figure A B.2. State enterprises tend to be more leveraged than their private peers 64
Figure A B.3. Interest coverage appears worse once accounting for subsidies 64