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103 Geo. L.J. 665 (2014-2015)
Beyond Ownership: State Capitalism and the Chinese Firm

handle is hein.journals/glj103 and id is 682 raw text is: Beyond Ownership: State Capitalism and the Chinese Firm CURTIS J. MILHAUPT* & WENTONG ZHENG** Chinese state capitalism has been treated as essentially synonymous with state- owned enterprises (SOEs). But drawing a stark distinction between SOEs and privately owned enterprises (POEs) misperceives the reality of China s institutional environment and its impact on the formation and operation of large enterprises of all types. We challenge the ownership bias of prevailing analyses of Chinese firms by exploring the blurred boundary between SOEs and POEs in China. We argue that the Chinese state has less control over SOEs and more control over POEs than its ownership interest in the firms suggests. Our analysis indicates that Chinese state capitalism can be better explained by capture of the state than by ownership of enterprise. We explain the mechanisms of capture in China and argue that due to China's institutional environment, large, successful firms-regardless of ownership- exhibit substantial similarities in areas commonly thought to distinguish SOEs from POEs: market dominance, receipt of state subsidies, proximity to state power and execution of the state's policy objectives. We explore the significant implications of this argument for theory, policy, and law. TABLE OF CONTENTS INTRODUCTION................................. . . . . . . . ..667 1. THE OWNERSHIP BIAS. .......................... . . . . . ..670 A. BLURRED BOUNDARY BETWEEN SOES AND POES.... . . . . . . ..671 B. STATE OWNERSHIP ................................. 676 1. The State Collects Little or No Dividends from SOEs ..... 678 2. Executive Compensation Practices at SOEs Suggest Limited State Control over Managers .............. 680 3. The State Often Fails to Implement Major Operational and Policy Decisions at SOEs .................... 681 * Parker Professor of Comparative Corporate Law and Fuyo Professor of Japanese Law, Columbia Law School; Research Fellow, European Corporate Governance Institute. D 2015, Curtis J. Milhaupt. ** Associate Professor of Law, University of Florida Levin College of Law. D 2015, Wentong Zheng. The authors thank Donald Clarke, Ronald Gilson, Zohar Goshen, Li-Wen Lin, Tom Merrill, Ed Morrison, Mariana Pargendler, Mario Shapiro, Daniel Sokol, and Angela Zhang for helpful comments, and workshop participants at the Office of the United States Trade Representative, Tsinghua University School of Law, the Center for Chinese Legal Studies at Columbia Law School, FGV Law School, Sao Paulo, the Foreign and Comparative Law Committee of the New York City Bar Association, the University of Florida Competition Policy Workshop, the Columbia Law Faculty Workshop, and the Columbia Workshop on Chinese State Capitalism for stimulating discussions on prior drafts and early presentations of this paper. The authors also thank University of Florida Levin College of Law student Xin Yang for excellent research assistance. 665

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