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Policy Contribution

China’s state-owned enterprises and competitive neutrality

The concept of competitive neutrality can be used to assess how far a market is from being a competitive environment. In China, competitive neutrality is lacking, with state-owned firms favoured in most sectors, even over Chinese private firms.

By: and Date: February 23, 2021 Topic: Global Economics & Governance

As China’s economic weight continues to grow, so does the global impact of its companies. Chinese state-owned enterprises (SOEs) produce a large share of Chinese goods and services. Given their importance both in China and increasingly globally, it should be measured whether SOEs introduce distortions into markets and how significant those distortions are. Foreign governments negotiating trade or investment deals with China need this information so they can better measure how far China is from offering a level playing field to foreign companies on its domestic market. In this context, competitive neutrality is an important working concept that can be used to asses how far a market is from being a competitive environment.

The Organisation for Economic Co-operation and Development defines a framework of competitive neutrality as one in which public and private companies face the same set of rules, and no contact with the state gives competitive advantage to any market participant. Quantifying the concept is difficult, but we provide a preliminary measure of the lack of competitive neutrality in relation to Chinese SOEs. In particular, we focus on debt and tax neutrality and compare the situation for Chinese state-owned and private firms on aggregate and sectoral levels. Our results support the view that China’s competitive environment is generally poor. The advantageous position of SOEs in China is true for most economic sectors, though to a variable extent, with the automotive sector one of the furthest away from competitive neutrality.

A working measure of competitive neutrality applied in China could help improve the level playing field for foreign companies in China. It could also be applied globally given the very large size and global footprint of Chinese SOEs. The concept could even be introduced in a potential reform of the World Trade Organisation.

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Opinion

Why China should fear the EU's carbon border tax

Expect Beijing to soon start lobbying against the proposal.

By: Alicia García-Herrero Topic: Energy & Climate, Global Economics & Governance Date: July 26, 2021
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Opinion

Could the RMB dislodge the dollar as a reserve currency?

The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2021
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Podcast

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CCP's 100th Anniversary: Reflecting and looking forward

As the Chinese Communist Party celebrates its 100th anniversary, we looked into the past, future and present of the country's economic development.

By: The Sound of Economics Topic: Global Economics & Governance Date: July 7, 2021
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Podcast

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Challenges and growth of China's private sector

Is the dynamic role of the private sector in China under threat by its economic model and the United States?

By: The Sound of Economics Topic: Global Economics & Governance Date: June 9, 2021
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Blog Post

For the climate, Asia-Pacific must phase out fossil-fuel subsidies

An exit from coal in the Asia-Pacific region is a global decarbonisation priority.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: May 31, 2021
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Parliamentary Testimony

House of Lords

The UK’s security and trade relationship with China

Testimony before the International Relations and Defence Committee at the House of Lords, British Parliament on the UK’s security and trade relationship with China.

By: Alicia García-Herrero Topic: Global Economics & Governance, House of Lords, Testimonies Date: May 27, 2021
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Policy Contribution

How difficult is China's business environment for European and American companies?

Contrary to some narratives, China's business practices have improved, with a business environment that is generally more favourable than that in other large countries at similar levels of development.

By: Uri Dadush and Pauline Weil Topic: Global Economics & Governance Date: May 26, 2021
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Podcast

Podcast

New kid in the playground: China's antitrust push

How is China’s antitrust push being weaponised to counter western sanctions?

By: The Sound of Economics Topic: Global Economics & Governance Date: May 12, 2021
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Past Event

Past Event

Global value chain reshuffling: From tight coupling to loose coupling?

As the focus shifts from efficiency to resilience in global supply chains, what does this mean for China?

Speakers: Erik Berglöf, Alicia García-Herrero, Niclas Poitiers and Kristy Tsun-Tzu Hsu Topic: Global Economics & Governance Date: May 11, 2021
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Opinion

Europe's crusade to fend off Chinese interference falls short

It is in everybody's interest for China to level the playing field among state-owned, private, and foreign companies so that no new distortionary measures need to be taken elsewhere.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 10, 2021
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Blog Post

China’s M&A activity rebounds with a clear focus on Europe

Despite the pandemic, China’s interest in overseas M&A started to rebound in late 2020, with European industrial companies still of particular interest.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: May 4, 2021
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Past Event

Past Event

Form a climate club: United States, European Union and China

Can the three biggest economies agree a carbon tax on imports to catalyse climate action globally?

Speakers: Simone Tagliapietra, Sheldon Whitehouse and Guntram B. Wolff Topic: Global Economics & Governance Date: May 3, 2021
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