Monopoly and Anti‐Monopoly in China Today

• DOI: http://doi.org/10.1111/ajes.12298
• Author: Yi Huang
• Date: 01 November 2019
• Published date: 01 November 2019

Monopoly and Anti-Monopoly in

China Today

By Yi Huang*

abstract. For three decades after liberation in 1949, the Chinese

economy consisted almost entirely of state monopolies. Economic

reforms, starting in 1979, sought to increase the efficiency of the

economy by introducing competitive practices in many sectors of the

economy. But the Chinese economy has been partially administered

by the state for over two millennia. As a result, both state-managed

and private monopolies are still an intrinsic part of the Chinese

economy today. Despite two decades of anti-monopoly reforms, state-

owned enterprises (SOEs) continue to dominate key sectors of the

economy, particularly in resource extraction and financial services.

The government is aware of the inefficiencies and corruption caused

by monopolies, both public and private. But Chinese tradition takes a

balanced view of social harms and weighs the damage caused by

monopoly against the stability that SOEs have provided China in

recent decades. There is less reason for China to tolerate private

monopolies, but most of them have arisen in conjunction with digital

technology because of its distinctive cost structure (high entry costs,

low marginal costs). China has made some use of antitrust law, but

most economic regulation in China is administrative. Thus the anti-

monopoly activities that are used to restrain monopoly power in

China are different from Western practices.

Introduction

After 40 years of economic reforms, which included policies to open

markets to the forces of private competition, China’s market econ-

omy has achieved great success. One byproduct of a market-oriented

economy in both China and the West is the formation of monopolies,

by which we mean a high level of market concentration that gives

one company a significant ongoing advantage over rivals. There are

American Journal of Economics and Sociology, Vol. 78, No. 5 (November, 2019).

DOI: 10.1111/ajes.12298

© 2019 American Journal of Economics and Sociology, Inc

*Lecturer, Economics School of Anhui University, China. Email: yihuang718@sina.com

1102 The American Journal of Economics and Sociology

similarities in monopolies found in China and the West. However, due

to China’s distinctive political system, cultural thought, and methods

of integration in the world market, the critique of monopoly has taken

a different direction.

In this article, we will first examine the two major types of monop-

olies that operate in China today. Next we will review the cause of

the two types of monopolies or the source of their ability to dominate

specific markets. The following section will investigate the effects of

monopolies on Chinese economy and society. Finally, we will discuss

the ways in which the Chinese government has tried to deal with the

problems posed by monopolies.

Types of Monopolies in China Today

During the era in which China operated a planned economy, state-

owned monopolies held a position of absolute dominance in China’s

economy. After 1978, China embarked on a process called “socialist

marketization” that allowed a vast expansion of private enterprise.

Under the new system, monopoly took two forms. In the first cate-

gory were monopolies held by state-owned enterprises (SOEs). They

continued in some sectors of the economy, particularly in energy,

mining, transportation, communications, and other areas that are char-

acterized by a natural monopoly or a public necessity. In the second

category were private monopolies. These monopolies have developed

as a result of various conditions: state favoritism, patents, and the new

economics of the Internet (social media and online marketing).

State-Owned Enterprises

After the People’s Republic of China was founded in 1949, the nation

operated as a centrally planned economy for 30 years, with all of

the industrial workforce employed by state-owned enterprises and

farmers employed in collective agriculture. During that period, private

initiative was generally not tolerated. The aim was to concentrate on

rapid industrial growth, starting from almost nothing, since China’s

war with Japan’s occupying army had destroyed most economic

assets. Thus, China devoted most of its investment to the development

1103Monopoly and Anti-Monopoly in China Today

of heavy industry. Very few resources were devoted to the production

of consumer goods. During this period, the Chinese workforce was

fully employed, but the efficiency of labor was low in many sectors.

In 1979, Deng Xiaoping initiated a transformation from a planned

economy to a market economy. The ownership structure of China’s

economy changed correspondingly. This took place under a policy

that was called “state-owned enterprises retreat as the private ones

advance.” The share of the public economy (including state-owned

enterprises and collective enterprises) in the economy dropped from

100 percent in 1979 to 28 percent in 2009 (Rong 2013: 136). The state-

owned monopolies of the centralized economy declined sharply in

relative importance because of the rapid growth of the private sector.

Even as state-owned enterprises (SOEs) were slipping from overall

dominance in the economy, they were becoming more profitable.

During the 11 years from 2000 to 2010, the profits of just seven SOEs

accounted for 78 percent of the total profits of all industrial SOEs. The

seven industrial SOEs with such disproportionate profit levels were

oil and gas exploration, transportation equipment, electricity and heat

production/distribution, ferrous metal smelting, tobacco products,

coal mining, and chemical products (Rong 2013: 184).

The reasons for the improved financial performance of SOEs are

not clear. Some Chinese scholars believe that the performance growth

of SOEs is attributable to improvements in operations and manage-

ment, but they also recognize that the profitability of SOEs relies on

their special relationship to the state, which gives them a range of

advantages (Rong 2013: 182). They can borrow from state banks at

low rates, regardless of their credit rating. Many SOEs have also ben-

efited from other direct and indirect financial subsidies from the state.

Finally, by holding a monopoly in the industries that are pillars of

the national economy—petrochemicals, telecommunications, electric

power, civil aviation, and finance—they have secure demand for their

products, and they firmly control the upper value chain of monopo-

lized industries (Wang and Liu 2016).

As an example of the tight and complex connection between SOEs

and the state, we might consider the two giants of China’s oil indus-

try: the China National Petroleum Corporation (hereinafter referred