Nicolas Véron

Financial Statements: The Party vs. shareholders: What drives corporate governance in China?

In today's session, Stanford Law School's Curtis Milhaupt and my PIIE colleague and coauthor Tianlei Huang debated the unique role of the Chinese Communist Party in corporate governance, and how to think about it in comparative terms vis-à-vis neighboring East Asian and other major economies. 

Financial Statements: Lessons for systemic liquidity risk from recent crises

Belatedly - in the session two weeks ago, I hosted Raghuram Rajan and Megan Greene to revisit the recent liquidity episodes and what may have been driving them.  

China’s state vs. private company tracker: now on a half-yearly pace

Following the in-depth analysis which Tianlei Huang and I published nearly a year ago on the respective shares of the private sector and state sector among China's largest companies, and the first update we published in October, the Peterson Institute has decided to publish our findings on market capitalization data as a regular tracker. The blog post below, published yesterday by PIIE, is the first such iteration.  

The private sector’s share of China’s largest listed companies continued to decline to 43 percent in the second half of 2022

The market assessment of economic and political developments in the second half of 2022 does not signal a decisive return to private-sector-led growth in China, even though that period includes the month of December, when China’s party-state unexpectedly ended its prior zero-COVID policy and signaled a more positive stance towards private sector development.

Latest data from PIIE’s semiannual tracker, “China’s state vs. private company tracker: Which sector dominates?”—which tracks market value of China’s top 100 listed companies (ranked by market value)—show a continued decline of the share of the private sector, from 44.5 percent at mid-2022 to 42.8 percent at year-end, continuing the downward trend of the previous two half-year periods from the 55.4 percent peak observed in mid-2021. Still, the private sector share remains higher than it was throughout the 2010s, when it rose dramatically from 8 percent at end-2010 to 36 percent at end-2019 (see figure).

It remains to be seen, then, whether China’s trajectory will be a pivot back to a Maoist-style economy that represses the private sector, or merely a new phase of market-driven development under changed political conditions. Building on our PIIE Working Paper published in 2022, the data presented here inform on the trend in the dynamism of China’s private sector beyond the rhetoric in China and the United States. The tracker focuses on the respective shares of state-sector and private-sector companies among China’s largest companies and thus provides a half-yearly market-based indicator of the private-state balance among Chinese companies. As in a previous update, the data at end-2022 suggest that President Xi Jinping’s “corporate rectification campaign” started in the summer of 2021 has dealt a heavy but far from lethal blow to China’s hitherto fast-rising private sector.

Recent discussions have focused on hybrid firms or ambiguous boundaries between private and state control. But the divide between the state sector and the private sector remains highly meaningful in analyzing contemporary China. As PIIE’s Nicholas Lardy and others have documented, the performance patterns and economic contributions of private-sector companies have differed from those of state firms since the early emergence of the former and restructuring of the latter during the bumpy era of the 1980s and 1990s. Large listed companies provide a decent proxy for the broader category of China’s largest companies, as more than half of the latter’s total revenue is made in listed entities. Stock prices are intrinsically forward-looking, subject to the whims of the market and occasional state intervention but not to political censorship or accounting manipulation.

The measures in PIIE’s semiannual tracker are not linked to general market price movements or index levels: If stock prices of state-sector listed firms rise or fall as much as those of private-sector listed firms, the relative shares that we track remain flat. As such, the respective shares of the private and state sectors can be viewed as decorrelated from cyclical growth and stock market dynamics, albeit somewhat related to structural growth trends if, as Lardy and others have argued, China’s growth is driven by private-sector expansion.

The measures in the tracker are based on the same methodology as in our 2022 PIIE Working Paper. All listed mainland Chinese companies are considered, including those that use mystifying variable-interest-entity arrangements, and are grouped into three categories: “state-owned enterprises” (SOEs) in which the state owns more than half of equity; “mixed-ownership enterprises” (MOEs) in which the state owns between 10 and 50 percent; and “nonpublic enterprises” in which the state owns less than a tenth of total equity, a conservative definition of China’s “true” private sector. In the definition used here, the state sector includes both MOEs and SOEs. Still, MOEs and SOEs are worth tracking separately, because state and party control is generally less direct and complete in the former than in the latter.

Even though market capitalizations can be observed in real time, these observations are intended to inform on structural trends rather than high-frequency fluctuations. To that effect, the data has been compiled yearly from 2010 to 2020 and half-yearly since 2021, as shown in the figure.

In 2022, additional quarterly monitoring indicated a pattern of small fluctuations rather than a monotonous soft decline: The share of the private sector fell to 42.1 percent at the end of the first quarter, then rose to 44.5 percent at mid-year, then fell back to 40.8 percent at the end of September (the lowest observation since end-2019), then rose back to its latest observed level of 42.8 percent at end-December. These additional quarterly data are not shown in the figure because that higher-frequency observation is not planned in future.

To sum up, the tug of war between the state and private sectors, as observed through the prism of market data presented here, remained largely static during a year that was otherwise rich in dramatic developments. Future updates will shed light on how the recent apparent signals of greater party-state friendliness towards the private sector are altering market participants’ assessment of its prospects relative to the state sector. 

Financial Statements: The City of London after Brexit: An update

In today's session of the Financial Statements series, William Wright and Caroline Atkinson debated the still unfolding structural consequences of the UK exit from the European Union, exactly two years about a previous session that was held only a few weeks after the British departure from the EU Internal Market. 

Financial Statements: Preparing the economy and financial system for hybrid war: Finland's experience

Today's session featured Olli Rehn, governor of the Bank of Finland, and Julia Friedlander, chief executive of Atlantik-Brücke, for a discussion of threats from Russia to the European financial system and Finland's unique experience in such matters. 

Financial Statements: Can regulation save crypto?

Belatedly - the session on December 13 featured Matthew Elderfield, who has experience as both a former supervisor and a former senior bank executive in Europe, and Karen Petrou, founder and managing partner of Federal Financial Analytics in the U.S. 

Financial Statements: Why did China build its Cross-Border Interbank Payment System and what does it mean for the dollar?

In today's session we discussed the nature and role of China's Cross-Border Interbank Payment System (CIPS), with Felix Chang and Emily Jin. 

Op-ed in ThinkChina: China's private sector has continued its rise against all odds

This op-ed co-authored with Tianlei Huang was published today by ThinkChina, the English-language operation of leading Singaporean daily Lianhe Zaobao. 

Op-ed in SCMP: What's next for China's private sector

This op-ed co-authored with Tianlei Huang was published today by the South China Morning Post. 

Financial Statements: Financial stability and policy risks in the euro area

In today's session, I hosted Peter Praet, former ECB Executive Board member and now at Solvay Business School, and Guntram Wolff, former Director of Bruegel and now head of DGAP. It was a wide-ranging conversation on risks to financial stability in the euro area, with emphasis on the consequences of monetary policy decisions. 

Collective paper on completing the banking union

I co-authored a collective paper on the incompleteness of Europe's banking union and how to address it in future reform, which was published earlier this week by the Centre for Economic Policy Research (CEPR) and is forthcoming at Bruegel. This is joint work with Thorsten Beck, Jan Pieter Krahnen, Philippe Martin, Franz Mayer, Jean Pisani-Ferry, Tobias Tröger, Beatrice Weder di Mauro, and Jeromin Zettelmeyer, following a workshop held at the European University Institute in September 2021. Click here to download the paper in case the above link is broken. 

Update (November 22): the Bruegel version was just published. Click here to download it if the previous link is broken. 

Interview on current EU financial services issues in European Commission Finance Newsletter

I gave an interview on the consequences of Brexit for the EU financial system, for the European Commission's Finance Newsletter (edited by DG FISMA). The full text is reproduced below with gracious authorization from the European Commission. 

Six years on from the Brexit referendum, the EU is still not fulfilling its full potential as an attractive place for market financing. Is the EU missing the opportunity of Brexit when it comes to financial integration?

The EU had a pretty integrated wholesale financial system before Brexit, with a clearly identified hub in London. London was acting as the central venue, with centralised supervision by the UK authorities under UK law. Now London is off-shore, it is clearly not sustainable for the EU to have the same critical reliance on London as it had when London was on-shore. What that means in practice is that we lose in market integration because the activity we have on-shore is scattered in various financial centres. This is not a problem in itself, but these financial centres are under different legal and policy regimes and that’s where the problem is. There are two possible solutions to this. One is that one of the EU on-shore financial centres would replace London. The other is that we have policy integration, so that activities can remain scattered geographically but are integrated in terms of the policy regime and oversight framework. Clearly the latter solution is better. But it would mean new impetus for policies that frankly have stalled – such as Banking Union and Capital Markets Union. And at this point, it is clear that Brexit has not triggered an acceleration of those policies.

You mention the Capital Markets Union – the Commission has already put forward a raft of measures under its Capital Markets Union agenda to support market integration. What is still missing to allow us to achieve deep and fully integrated capital markets in the EU?  

This debate is not new. I believe it goes back to 1965, with the first Commission report on financial markets integration. And frankly, many of the questions that were raised in that report are still open. So in a way it’s not surprising that the Capital Markets Union agenda is not moving quickly because it’s a long-term structural agenda. With that in mind, I would have two observations. First, one may question the wisdom of calling it a Capital Markets Union, as if it were a clearly defined project with a clearly defined start and end. I would argue that this is the case for Banking Union – it had a start and it hopefully will have a date of completion. I’m not sure that this is the same for Capital Markets Union to the same extent, so I would question the label. The good old days when we called it the ‘single market policy for financial services’ had some charm for me – but that makes me a nostalgic! The second, more substantial, observation is that the package of measures proposed by the Commission, going all the way back to 2014 when Jean-Claude Juncker first proposed Capital Markets Union as a label, have been useful but not transformational. I think – especially when you compare it with Banking Union, which is still very much unfinished, but where there has been a structural transformation – everything so far in ‘Capital Markets Union land’ looks a little bit incremental.

Have the recent crises – specifically the Covid-19 pandemic and Russia’s aggression against Ukraine – undermined our efforts to develop a genuine single market for capital in the EU? Or have they actually reinforced the need for one?

The pandemic has stopped a number of workflows and has delayed others, such as the one on anti-money laundering. But it has also resulted in one big transformation, not in the area of DG FISMA but something that has huge importance for what we are talking about and that is NextGenerationEU, which has demonstrated that large-scale issuance of EU bonds is possible. The consequences of that transformation will take time to unfold, but I expect them to be very constructive and a positive move in the direction of building a more integrated and better-developed European capital market. So that’s a plus. As for the Ukraine crisis I think it’s frankly too early to say, because we are still at an early stage, sadly. I am inclined to believe, but with no certainty, that the Banking Union agenda could have made more progress, and there could have been a better compromise in June, if Russia hadn’t invaded Ukraine. But of course we can never know. One of the big questions about the Ukraine war is whether it will create the need for more EU bond issuance, along the lines we’ve seen with NextGenerationEU. And again, I don’t think anybody has an answer at this point.

Looking at financial stability risks, the EU is still very reliant on some UK-based clearing infrastructure. Some believe that Europe should just legislate and move all the clearing business to the EU. What are your thoughts on this?

I applaud the Commission for its restrained and measured approach so far. Because the clearing infrastructure is very ‘sticky’, and the London-based clearing infrastructure is a global infrastructure, it’s not just a European infrastructure. I am thinking in particular of the reliance on London Stock Exchange clearing house LCH for derivatives clearing, which is at the core of this debate. So it’s important not to frame this issue in narrowly EU terms because that’s not what it is, particularly when it comes to market liquidity. I haven’t been convinced yet that relocation is necessary, even in the long term. Because the long-term vision for the EU market is that it is globally connected. So I’m not sure what the right answer is long term, but I think the Commission has been right to be cautious. Speaking of clearing and financial infrastructure, I want to highlight what I think is an obvious paradox and that is that the EU now has an EU-level supervisory capacity for LCH.Clearnet through the Central Counterparties (CCP) outfit that has been created within the European Securities and Markets Authority (ESMA). But it doesn’t have it for its own domestic critical infrastructure, which remains under national supervision with relatively loose supervisory coordination at ESMA. I think I’m stating the obvious if I say this doesn’t make any sense.

How close do you think we are to a truly integrated and independent EU-level supervision of capital markets?

I think the story of Banking Union and of anti-money laundering supervision has demonstrated the centrality of the question of supervision. Obviously I believe supervisory integration is needed for Capital Markets Union. But here I would make two additional points. Firstly, one thing we’ve learned primarily through the ‘Eurozone crisis’ is that it’s not really plausible that we would achieve a Capital Markets Union without completing the Banking Union. We can debate how far we are from completing Banking Union, but I think everyone agrees that we are not there yet. Even with the strong Single Supervisory Mechanism (SSM) at the European Central Bank, which is a pretty impressive achievement. Secondly, I would say that it is a bit simplistic to say ‘let’s just give more powers to ESMA over more market segments’. The reason for that is that ESMA was not designed initially as the EU market supervisor, just like the other European supervisory authorities (ESAs). It was designed for the more modest purpose of coordination of supervision and arguably doesn’t have the governance and funding framework to be an effective, independent supervisor itself. This is not a comment on individuals, but rather on the architecture and legislation that establishes that architecture. And the only way to fix that is through change to the ESMA regulation. In a way, the SSM, and soon the Anti-Money Laundering Authority, show the way. And you could say the same to a certain extent of the Single Resolution Board. You need a more compact board, you need financing by levies on industry, those elements that establish an architecture that makes ESMA’s supervisory decisions de-politicized, independent and based on the supervisory mandate, which I’m not sure is the case with the current architecture. So this would be an important caveat: let’s not think of policy integration as just accruing more mandates on ESMA, at some point there has to be a reform of ESMA that makes it fit for purpose as an effective, independent supervisor. Finally, at a more general level, I would say I have perhaps a kind of old-fashioned view of the role of the Commission – I think it’s there to keep the discussion honest among Member States. So although I’d like to see faster progress, ultimately I think that these things take time.

Nicolas Véron speaks here in his capacity as a policy observer at Bruegel and the Peterson Institute. He is also an independent non-executive board member of DTCC Data Repository (Ireland) Plc, which is supervised by ESMA.

© European Union, 2022

Financial Statements: Are Germany’s institutional protection schemes an obstacle to EU banking reform?

In yesterday's session at PIIE, I hosted Tobias Tröger of Goethe University Frankfurt and Michael Wolgast of Berlin Global Advisors to discuss Germany's two idiosyncratic institutional protection schemes around savings banks (Sparkassen) and cooperative banks (Volksbanken and Raiffeisenbanken), and their impact on EU banking reform options. 

China’s private sector advance pauses, but the trend is unclear

This blog post, coauthored with Tianlei Huang, was published today by the Peterson Institute. 

Update: the same text was published by Bruegel on October 19. 

After rising at an almost continuous pace for at least a decade, the share of private sector ownership among China’s largest companies has dropped since 2021. It is tempting to infer that President Xi Jinping’s statist policies have brought an end to the age of private-sector expansion in China. But such a conclusion would be simplistic and premature. Several factors beyond China’s turn toward state dirigisme are driving the recent pause in the rise of the private sector, including global commodity price increases and China’s property crisis.

To be sure, China’s policy has in recent years promoted the power of the state and of the state sector within the economy. Among its initiatives was the regulatory crackdown in the summer of 2021, which wiped out hundreds of billions of dollars from the market capitalization of some of China’s most prominent private companies. Such arbitrary state interventions in private business over the last decade have led many to conclude that the days of expanded influence by private companies in China are gone.

A recent drop in the advance of the private sector is illustrated by figures 1 and 2, which provide an update to what was documented in a PIIE Working Paper published in March 2022. The latest data builds on research showing a near-continuous increase of the share of private-sector companies among Chinese companies listed in the Fortune Global 500 rankings by revenue since 2005, and in the market value of those that were listed and among the 100 most valuable since 2010.[1] In the revenue data until 2020, there had only been a temporary dip in 2017; the market value series until end-2021 reflected a slight drop from the peak in end-2020.

Figures 1 and 2 use more recent data, and for market value, a higher frequency of observation, both indicating the recent decline. Among all the Chinese companies on the Fortune Global 500 rankings, the private sector’s share of their aggregate revenue decreased slightly in 2021 from the level in 2020 (figure 1). As for market value, the private sector’s share among the 100 largest publicly traded Chinese companies declined from a peak at 55.4 percent of the total as of mid-2021 to 42.1 percent by the end of March 2022, followed by a slight rebound to 44.5 percent as of mid-2022 (figure 2).[2] The private sector’s share also dropped in most other metrics in 2021 (figure 3).

 

A closer look at sector-specific dynamics shows the drop is caused by several parallel events

As in the working paper, each company was assigned to one of 14 sectors for a more granular understanding of the dynamics. The shares of the private-sector and state-sector contributions in each sector were calculated relative to the aggregate total, indicating variations over the past year.[3] The three largest (positive or negative) variations are shown in tables 1 and 2. The tables also distinguish how much of each variation is a result of changes in the revenue or market value of the same companies that feature in both the mid-2021 and mid-2022 rankings (“same-scope” variation). These variances are indicated as opposed to those companies that entered or exited the sample during the period because their gain or loss of revenue or market value made them cross the size threshold for inclusion (“entry/exit”). In the rankings by revenue (table 1), there were also four companies that did not report their 2021 financial data (“no-shows”) and thus not included in the latest Fortune ranking, as detailed below.

Tables 1 and 2 tell different stories. This difference is not surprising, since market value is a forward-looking indicator (the sum of discounted expected future free cash flows, minus net debt), while revenue reflects activity during a given year. Market values are also inherently more volatile than revenue numbers, as illustrated by the significantly larger variations in table 2 than in table 1.

The revenue story (table 1) has two main drivers, neither of which appears to represent a long-term trend. First, surges in global commodity prices translated into higher revenue of companies in two of the 14 sectors (oil, gas, and chemicals; steel, metals, and minerals), most of which are state-owned. This phenomenon shows up in same-scope variation (e.g., Sinopec’s revenue grew more than 40 percent in 2021) and in entry/exit variation (with four oil, gas and chemical state-owned enterprises and three others in the steel, metals and materials sector just entering the Fortune ranking this year). This driver is dominant, representing more than twice the variation in the aggregate share of the private sector (3.96 percent for the two sectors combined, versus 1.64 percent for all sectors).

In addition, four private-sector companies were “no shows” in the latest ranking, namely real estate developers Evergrande and Sunac and conglomerates Yango Longkin and Cedar Holdings. That driver also has significant impact: three-quarters of the aggregate net decrease of the share of the private sector for the two real estate developers alone (1.22 percent out of 1.64 percent). “No-shows” were similarly prominent drivers of the previous private-sector drop in 2017 and included the highly leveraged conglomerates Anbang, CEFC Energy, Dalian Wanda, and HNA, all of which stopped being listed by Fortune from that year. Neither of these two main revenue drivers looks permanent. Commodity prices go up and down; and only two private-sector developers (and one private-sector conglomerate) in the latest list that could become “no-shows” in the future.

The market value story is different (table 2). The largest driver by far is that the market value of platform companies went sharply down, their future profitability cast in doubt by the regulatory crackdown by the Chinese government. Their revenue kept rising in 2021, though less than in most other sectors. The relative decline of platforms’ market value explains most of the change in the respective shares of public and state sectors in total market value (8.29 percent out of 10.85 percent).

In sum, the drop’s drivers are diverse, and different for figures 1 and 2. They tell a more nuanced story about factors at work beyond the role of statist policies suppressing private-sector dynamism. The rise in commodities prices is exogenous. The property crisis is directly triggered by the “three red lines” policy of forced deleveraging in that sector introduced by the government in August 2020. But the property downturn also reflects a deep-rooted systemic problem driven by the financing needs of local governments dependent on property related revenues. Even Beijing’s regulatory crackdown on private-sector platforms appears to have been motivated by more than just a retaliation against the power of large private businesses. Altogether, the drop in the previous private-sector advance should not be viewed as the start of a new trend of continuous decline, at least not yet. Further updates will be published periodically in the future.

The authors are grateful to Abigail Dahlman for excellent research assistance.

Notes

1. We adopt a restrictive definition of the private sector as those companies in which the state owns less than 10 percent of equity capital. Our definition of the state sector includes all other companies, with a distinction between majority-owned state firms, and those in which the state owns between 10 and 50 percent of capital which we label “mixed-ownership enterprises.” Our taxonomy is thus entirely based on ownership, irrespective of various forms of political influence, which are harder to quantify. In terms of date cutoff, our series in the working paper covered the period until the (calendar) year 2020 for revenue, and until end-2021 for market value. The two datasets we analyzed are not exactly synchronous, since market value can be observed in real time, whereas revenue numbers and the Fortune rankings are published with a lag. Details of our methodological choices and definitions are to be found in the working paper.

2. We checked changes in ownership categories over the last year for all the companies featured in the latest rankings by revenue and market value and we found none, or in other words, neither “nationalization” nor “privatization.” This is in line with previously observed stability of these categories for China’s largest companies, as documented in more detail in the working paper.

3. More precisely, we observe the variation between calendar years 2020 and 2021 for revenue, and between mid-2021 and mid-2022 for market value.

Financial Statements: Tokyo and the contest for prominence among Asian financial centers

I today's episode, I hosted Nakagawa Saiko of Japan's Financial Services Agency and Sumit Agarwal of the National University of Singapore, to discuss the prospects for Asian financial centers in the wake of China's crackdown on Hong Kong, Brexit, and other regional and global developments. 

Financial Statements: Ukraine's economy and finances, seven months into the war

In today's session I hosted Oleg Churiy and Olena Bilan to discuss the state of Ukraine's wartime economy, fiscal position, financial conditions including in occupied territories, and options for public financing. 

Financial Statements: Will the new China-US audit deal resolve a decade-long dispute?

Today's session of Financial Statements at PIIE was about the longstanding China-US dispute on audit oversight, and whether the recently announced agreement between the US Public Company Accounting Oversight Board (PCAOB) and its Chinese counterparts will finally resolve it. I hosted Liza McAndrew Moberg, until recently the PCAOB's head of international affairs, and Eric Forni, attorney at DLA Piper. 

Financial Statements: How more global coordination can make cross-border payments faster, cheaper, and safer

I forgot to post this two weeks ago. The PIIE Financial Statements session on August 31 featured Tara Rice, head of the CPMI (Committee on Payments and Market Infrastructures) Secretariat at the Bank for International Settlements in Basel, and Joseph Sommer, formerly at the Federal Reserve Bank of New York, to discuss the CPMI's ongoing cross-border payments programme. 

Financial Statements: What is behind China's lending abroad?

In today's session, I hosted Brad Parks, Executive Director of the AidData lab at Williams and Mary, and PIIE's Mary Lovely for a very rich discussion of China's lending abroad. 

China's top ranked corporations are not as opaque as they may seem

This blog post, coauthored with Tianlei Huang, was published last week by the Peterson Institute. It is based on our March 2022 working paper on China's largest companies. 

Update (September 28, 2022): the same post was also published yesterday by Bruegel. 

Since 2020, more companies from China have made the annual Fortune Global 500 ranking than any other country, including the United States. Over two-thirds of these companies are not publicly traded, i.e., their shares are not listed on a stock exchange, and most of them are state-owned enterprises (SOEs). In contrast, most large companies in the rest of the world are listed.[1]

This contrast leaves the impression that most large Chinese firms, especially the SOEs, are not as interested in raising capital from public investors as their international counterparts. It also implies lesser transparency, since listed companies are subject to rigorous and mandatory disclosure and auditing requirements that do not apply to unlisted ones.

But this picture does not tell the full story. In fact, more than half of the combined revenue of the 130 Chinese companies on the 2021 Fortune Global 500 is created in listed entities that are majority-owned subsidiaries of the unlisted parent groups and are in general more transparent and subject to greater market discipline. Private and foreign shareholders have a nontrivial interest in many of these listed entities under state-owned parent groups. The upper rank of China's corporate world, therefore, is not as opaque as it may seem.

Unlisted Chinese SOEs in Fortune Global 500 make nearly 60 percent of their revenue in majority-owned listed subsidiaries

In our March 2022 PIIE Working Paper we show that the distinction between listed and unlisted large SOEs in China is less a dichotomy than a continuum. Most of the unlisted Chinese SOEs in the Fortune rankings are organized in a multilayered group structure, with the unlisted parent group at the top, typically owned by the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council or Central SASAC, National Social Security Fund (NSSF), and/or other government agencies. In many cases, the next layer comprises one or several subsidiaries listed on Chinese, Hong Kong or/and US stock exchange(s) and majority owned by the parent group, often along with other noncontrolled subsidiaries and affiliates. We identified at least one significant majority-owned listed subsidiary in 45 out of 75 unlisted SOEs among Chinese companies in the 2021 Fortune Global 500 ranking.[2]

Among these unlisted SOEs with significant listed subsidiaries, a whole range of situations can be observed. Take the two largest groups in the Fortune ranking, namely China National Petroleum Corporation (CNPC) and State Grid, both of which are wholly owned by Central SASAC. For 2020, PetroChina, CNPC's main listed subsidiary, disclosed revenue amounting to 99 percent of the CNPC group revenue reported by Fortune, while State Grid's largest majority-owned listed subsidiary, NARI Technology, represented only 1.5 percent of State Grid's group revenue. While these two cases are close to the extreme opposites in the range, the median case was China Post Group, an unlisted group company 90 percent owned by the Ministry of Finance and 10 percent by NSSF, whose listed subsidiary China Postal Savings Bank accounted for 70 percent of the group revenue in 2020. In aggregate, 57 percent of the revenue of all unlisted Chinese SOEs in the Fortune Global 500 ranking in 2021 comes from significant majority-owned listed subsidiaries.

Creating a taxonomy to better understand the activities unlisted companies conduct in listed entities

In our Working Paper, we divided all 130 Chinese companies in the 2021 Fortune Global 500 ranking into four categories:

• A "listed group" is a company whose parent entity (as appears in Fortune Global 500) is listed (e.g., People's Insurance Company of China).
• A "quasi-listed group" is a company whose parent entity is unlisted but one or several significant majority-owned listed subsidiaries represent more than 80 percent of the group's revenue (e.g., CNPC).
• A "partially listed group" is a company whose parent entity is unlisted but one or several significant majority-owned listed subsidiaries represent between 20 and 80 percent of the group's revenue (e.g., China Post Group).
• A "nonlisted group" is a company in which the share of group revenue made in significant majority-owned listed subsidiaries (as far as we could identify these) is less than 20 percent (e.g., State Grid).

Since the listed subsidiaries' shares of group revenue naturally fluctuate over the years, we base the categorization on their average across all years in which the group has been included in Fortune Global 500. 

Figure 1 shows the revenue composition of all Chinese SOEs and mixed-ownership enterprises (MOEs)[3] included in Fortune Global 500 over time. The latest 2021 ranking (based on 2020 revenue) has 98 SOEs and MOEs, and 75 of them, considered at the parent-company level, are unlisted SOEs (all MOEs are listed at the parent-company level). Applying the typologies above yields only 42 nonlisted, implying that nearly half of the companies that are unlisted at the parent-company level have a significant portion of their revenue created through majority-owned listed subsidiaries. The respective shares of different listing status have been strikingly stable even as the corresponding set has considerably expanded over time, from 15 SOE and MOE group companies in 2004 to 98 in 2020.

The lower line in figure 2 shows the share of the total revenue of all Chinese Fortune Global 500 companies made in group companies that are listed at the parent level. The upper line includes majority-owned listed subsidiaries of unlisted groups whose revenue accounts for 5 percent or more of the group revenue. The upper line has been consistently higher than 50 percent since 2007.[4]

Why are there so many unlisted SOEs with significant listed subsidiaries?

The reason for the high number of unlisted SOEs with large listed subsidiaries may be found in the circumstances of the corresponding stock exchange listings, most of which happened in the late 1990s and 2000s. Landmark initial public offerings (IPOs) of that era included the ones of China Mobile (October 1997) in Hong Kong, PetroChina (April 2000) in the US, China Unicom (June 2000) in Hong Kong and the US, Sinopec (October 2000) in Hong Kong, and China Telecom (November 2002) in the US. In his book Dealing with China, former US Treasury Secretary Henry Paulson described how he once led the Goldman Sachs advisory team that prepared the IPO of China Mobile, which, he noted, then-Premier Zhu Rongji "meant to become the template for revamping other SOEs." As Paulson described it, "in conventional terms, there was as yet no actual company to underwrite." A "listable" company had to be built by assembling various assets that previously resided directly within the Ministry of Posts and Telecommunications. Similarly in other cases, the listed subsidiary included the most commercially marketable activities of a broader group under an unlisted entity.

Though a simplification of a complex history of the separation of these companies from their government superstructures, this captures the gist of why so many SOEs are only partially listed: It is not that the authorities did not want to list the entire group, but rather they could not—or at least not as quickly as the partial-listing option would allow for.

By contrast, most centrally administered state-owned or mixed-ownership financial institutions, whose IPOs took place in a later wave, were restructured first so that the entire groups got to list at the parent-entity level. These include, for example, Bank of Communications (June 2005), China Construction Bank (October 2005), Bank of China (June 2006), ICBC (October 2006), Agricultural Bank of China (July 2010), and People's Insurance Company of China (December 2012). Most SOEs and MOEs that are directly listed at the group parent level in Fortune's Global 500 rankings (14 out of 23 in 2021) are financial services companies.

To conclude, even though most large Chinese SOEs, and most of the largest Chinese companies more broadly, are not listed at the parent-company level, they generate most of their revenue from their listed subsidiaries. This is good news for researchers who seek to better understand the Chinese corporate landscape, since much more information is publicly available about listed companies than unlisted ones.

Notes

[1] Of the 130 Chinese entities in the 2021 Fortune Global 500 ranking, 93 (71.5 percent) are unlisted, of which 75 are state-owned. By contrast, among the 130 largest non-Chinese companies in the same Fortune ranking, only 5 are unlisted (of which only one, the US Postal Service, is an SOE).

[2] Our threshold of significance is that the revenue of the subsidiary is at least 5 percent of the total group revenue.

[3] We use "mixed ownership" as shorthand for companies in which the Chinese state is a significant minority shareholder, with an equity stake between 10 and 50 percent, and reserve the term SOE for majority-owned state enterprises. See section 1.1 in our PIIE Working Paper 22-3.

[4] The upper line underestimates the share of revenue coming from listed subsidiaries, since revenue from minority-owned listed subsidiaries and small majority-owned listed subsidiaries is not included in our calculation. In other words, the actual listed share of revenue should be somewhat higher than what is plotted in figure 2.

Xavier Corberó's Impossible Palace

News media yesterday reported that the town of Esplugues near Barcelona was purchasing the sprawling complex built there by Catalan sculptor Xavier Corberó from the late 1960s to his passing away five years ago. Pablo Bofill and I wrote about it for the inception issue (No. Zero) of the recreated art magazine FMR, which was published in December 2021. As the property's purchase opens a new era for this extraordinary place, the text of our article is reproduced here with gracious permission from Laura Casalis at FMR. 

Xavier Corberó was the ultimate escape artist. He averted categorization so intensely that his life’s masterpiece, the palatial house/landscape/retreat/workshop/shrine he built both for himself and for posterity near Barcelona, never received a proper name. Nor would he explain it, what it was or what it meant. Instead, he had stories: many stories, phenomenal ones, that changed a bit every time he retold them. Ever the illusionist, Corberó saw reality as something to mold like clay—another medium he could sculpt or carve into whatever shape he fancied. He could reconcile contradictions since he was also the most elegant of men, a dandy from a bygone era. And the most ruthless. What we will call here Corberó’s palace, for lack of a better word, is as elusive and paradoxical as he was: harmonious and raw, solid and crumbling, vast and claustrophobic, timeless and tacky, an empty space that is full of life. Although he died in 2017, he will live on as long as the palace remains.

Corberó did accept one definition of himself. He was a sculptor. “It’s a birth defect,” he quipped. His grandfather and father had been metal artists, originally in the inland town of Lleida and then in Barcelona where the family workshop cast bronze for the great Catalan sculptors of the early twentieth century, such as Pablo Gargallo and Frederic Marès. He started with bronze too, and had his first works in this medium exhibited at the 1955 Hispano-American Biennial in Barcelona, when he was barely twenty years old. One of his favourite stories was that, unbeknownst to him, Salvador Dalí had found the sculptures so good that he bought them all. He would later work with other materials that were equally dense, hard and durable – onyx from Iran, marble from Almeria, or rugged basalt from the village of Castellfollit de la Roca in northern Catalonia. When one of his monoliths was installed in a corporate office lobby in Chicago, it turned out to be so heavy that the lower level had to be restructured to reinforce the floor. When much of downtown Beirut was ravaged by the tragic port explosion of August 2020, a group of Corberó sculptures was among the few things that remained entirely unscathed.

The palace in Esplugues de Llobregat, on the outskirts of Barcelona, is where we may discover Corberó. Over the course of nearly five decades, he constructed a labyrinth of chambers, hidden courtyards, and hanging gardens, as if one ant could build an entire anthill. “Everything that I have ever done can be found here,” he said of the complex of multiple interconnected buildings on both sides of the narrow and winding Carrer Montserrat (Montserrat Street).

From outside, the vast edifice could not be more inconspicuous. Most exterior walls are covered in ivy. The entrance doors are small and discreet. Corberó made sure that the scale and complexity of the place could not be perceived unless one was allowed inside. But beyond the threshold, it quickly becomes humbling and disorienting to wander through the grand spaces, many of them magnified by mirrors and distorted perspectives that blur the visitor’s usual points of reference. The unfamiliar experience leads to a feeling of loss of control, exactly as Corberó intended. In his palace, he was the only one in control.

Just as almost none of it can be seen from the street, there is no attempt inside at a visual relationship with the surroundings. It is a self-contained world, like the patio-centered houses of Roman and Arabic Spain that were among its inspirations. The only exception is an opening towards the garden of a nearby Dominican monastery with its tall, beautiful cedars. Climbing to the upper floors, one gets expansive views of the mountains and the sea, but Corberó rarely venture to visit either, preferring instead to enjoy the domain he had himself created.

Corberó’s architectural practice was that of medieval cathedral-builders, who did not distinguish between design and actual construction. He would wake up in the morning and figure out a new arch, a new space, something else. He lived in a minuscule part of the complex. The rest he might occasionally call a museum, a hotel, a bunch of apartments, a spa for the mind, or a poem, depending on which day you asked. His favorite ways of occupying it were to give a tour to a dazzled passer-by or chat with the workers who were busy trying to complete the incompletable. His fantasies are beneath every architectural layer, in every corner of the endless maze of arches and staircases to nowhere. Optical illusions, Escher-like false repetitions, mischievous twists in the geometry are everywhere. He had an exquisite sense of scale, arguably the key to all he did. “Scale is everything,” he loved to say. Or in a rare expressive moment: “if you get the scale right, space stops being space to become mind. And this happens in a sculpture just as it happens in architecture.”

Corberó’s dream of Esplugues began to materialise in the late Sixties. Until then, he had lived a high-Bohemian lifestyle, winning more and more awards for his sculptures, befriending the likes of Dalí, Miró or Matta, spending time in New York, building relationships with wealthy clients in Mallorca, on Wall Street and in Hollywood. But he never became one of them, an art star who embraced the high life of the super-rich. To be sure, he had seen the world, and he kept his prodigious powers of charm to the end. But he would increasingly dedicate himself to his house and its hidden, fantastical universe. He would spend money whenever he got it and never save. In any case, it was his sculptures that anchored him: they were his monetary reserves, his means of exchange, and quite conceivably his unit of accounting. If money got tight he could just sell one, and create another, as needed. Corberó produced his wealth from metal and stone in his studio, which was quite literally an alchemist’s laboratory. He was also wise enough not to devalue his currency.

By the time he settled there, Esplugues was an industrial suburb with a characteristically Catalan mix of small-scale agriculture and light manufacturing, in the Southern foothills of Collserola Mountain that dominates Barcelona. Corberó started to acquire (he would later say that he “occupied”) a potato farm and other plots and houses on the slopes bordering Montserrat Street, some of them connected since ancient times by underground tunnels; the name Esplugues means caves. That soil was rich with history and memory: two of the houses he bought on Montserrat Street, Can Cargol and Can Bialet, are now protected as local cultural heritage. (Can is “house” in Catalan.) The Dominican monastery next door keeps trophies from the sixteenth-century battle of Lepanto. The way he used to tell it, he had simply showed up, moved in, and started building. He unsentimentally tore down some of the existing houses to free space; he didn’t bother with permits.

His expanding compound soon attracted a steady stream of creative visitors, many of them for extended stays. As a New York Times article described it in 1973, artists would “pop in from all over the world, phoning from the airport to see if there [was] a free bed.” Whenever he ran out of beds, guests bunked on an enormous, carved billiard table (“it sleeps six,” he told the Times) or down in the dirt-floored potato cellars that snaked beneath the studios. Joan Miró’s etchings were produced there, as was the silver and ivory jewelry of Elsa Peretti, who joined Corberó’s commune as an Italian socialite and emerged as a recognized designer.

Corberó was born in Barcelona in June 1935, in a bourgeois environment of comfort, culture and optimism. His father had been involved in the development of the Barcelona Futbol Club, the local community’s pride that is now a global icon, and co-founded the Massana arts school, which Corberó would later attend as a teenager. But the Spanish Civil War erupted when he was barely more than a year old, and his family’s world suddenly disappeared. Corberó used to tell the tale that the first word he uttered was “bomb.” His early childhood was grim. His mother (named Montserrat, like the Esplugues street) died giving birth to a younger brother, who succumbed to smallpox shortly afterwards. His father was absent, on the front fighting for the increasingly desperate Republican regime and later imprisoned by the Francoist victors.

As he grew up, art became his ticket out of the oppression and tedium of Franco’s Spain, which he summarized as “no food, no books, no films, no nothing.” Barcelona’s established arts community, both stuffy and suffocated by the regime, was not for him. He would hang out with drug addicts and drifters, or spend time with outcasts from Barcelona’s Roma community. He liked to pretend to be a gitano himself, and people would believe him because he really knew how to dance, from flamenco to everything else. Our connection to him also dates to this period. Among Corberó’s anti-Francoist friends was the slightly younger Ricardo Bofill, who was father to one of us and mentor to the other. Ricardo’s father Emilio, himself a respected architect and builder with a rebellious streak, had worked with Corberó in the early stages of his Esplugues construction odyssey. Corberó’s only daughter Ana, an accomplished visual artist on her own, married Nabil Gholam, a rising star on Bofill’s team who went on to found one of the Middle East’s most creative architecture firms.

During Corberó’s lifetime, his palace was less architecture than theatrical performance. Much of the place was nominally organized into apartments, with prominent attention devoted to the impeccable marble-lined bathing pools. But these were not seriously meant to be lived in and rarely were. (The real apartments for artists-in-residence were on the other side of Montserrat Street, in Can Cargol and Can Bialet and the outbuildings that Corberó had added.) No outsider would enter the place without Corberó or wander in it at their own pace. The master would guide his starry-eyed visitors through a well-practiced choreography of sequential episodes, with witty asides, impromptu pranks and the occasional cliff-hanger. In the excruciatingly slow-moving lift, he would suddenly unleash chaos by triggering the alarm. Bawdy allusions often followed. In an exterior courtyard, where immobile basalt figures surrounded a square pond, he would flick a hidden switch causing a powerful waterfall to start rumbling above their heads, that landed with a boisterous splash in the previously quiet basin. (The mechanism was so fine-tuned that they wouldn’t be touched by a single drop of water.) He carried his cumbersome chain of keys like a medieval lord in his dungeon.

Most spaces are populated with objects that Corberó had either collected or created, and each object had its own story that only he could tell – sometimes it was an anecdote involving a real person (whether the anecdote itself was true or not remained open-ended), at other times it was the invented life story of the object itself. He gave most of his sculptures nicknames and attributed powerful emotions to them. (Names he gave to a set of basalt giants loosely inspired by chess pieces include: Mr. Skullrich, Nessie, Rocinante, Monsignor Triangle, Her Majesty the Queen, Mr. Cochise, Mr. Empty Head, Miss Capicua.) Some of the works are explicitly figurative (though never naturalistic), others are entirely abstract, and many are somewhere in between. After being given the tour, it was impossible to think of any of them as not having complex inner lives of their own. At one end of the Esplugues compound, in an open-air courtyard, the larger-than-life semi-figurative basalt shapes look like they’re quietly conversing, exchanging the latest gossip and old memories under the trees. He joked, “A sculpture is like an unwelcome brother-in-law, if he stays in your house he can bother you all your life.” In his own house, his intimidating totems, gigantic abstract balls and silky smooth perforated marble panels were the real inhabitants.

He had a way all of his own of flaunting his proximity with many of the century’s greatest artists without sounding like a braggart. At the top of his personal firmament was Dalí. “[Dalí ] would ask, ‘What are you up to?’ and I would answer, ‘I’m learning to lay eggs’,” Corberó told Alberto Moya in 2015. “I thought that was the best business of all—laying eggs. And also because I consider making artworks to be a bit like laying eggs. It’s something that comes out naturally and you just keep on going, you keep on laying.” He claimed credit for the monumental egg sculptures that memorably adorn Dalí’s personal museum in Figueres and his home near Cadaqués, on the Costa Brava northeast of Barcelona. Another mentor whose memory he particularly cherished was gardener and landscape architect Russell Page. He was also fond of Robert Hughes, the art critic, who had the supreme honor of having his own bedroom in the main complex.

Rooms were filled with Persian carpets, precious wood furniture, Louis Vuitton trunks, improbable industrial objects and ubiquitous, amazing art he had made or bought or that had been given to him. A (working) Rolls-Royce greeted guests in the middle of a living room. Other areas were strewn with old boilers and appliances bearing the Corberó brand, manufactured by a commercially successful branch of the family. “They are my uncle’s,” he would say. “He tried to draw an Immaculate Conception and what came out was a washing machine.”

If he wasn’t giving a tour, the master could usually be found in one of three small rooms. In the living room, a television would blast campy telenovelas. In the kitchen, Matías, Corberó’s adopted parrot, would periodically scream “Xavier! Maricón!!!” The fridge was usually empty except for a bottle of excellent champagne or extravagant tins of foie gras or caviar, as well as Corberó’s favorite cigarettes. The bedroom faced a serene sunken garden. His bed was piled high with newspapers and gossip magazines, and in winter, wood would burn quietly in the sleek cubist fireplace.

He maintained pockets of mock-Trumpesque vulgarity that he claimed were his favorite parts of the place. When visitors arrived, the first thing he rushed to show them was a gleaming lift (the one with the surprise alarm) lined with faux gold and faux briarwood, which he claimed to be most proud of. He called it the Benidorm or Marbella lift, and pretended it was “the most fantastic space” in his home. “To attain supreme good taste, you need a touch of bad taste in the mix,” he would explain half-jokingly. He played other mischievous pranks with ingenious lighting and half-mirrors.

Gadgets were everywhere and he always play with them. Pressing a button would open a wall to reveal a secret staircase. Visitors would stumble upon a huge collection of erotic magazines, then some pictures of him with Marcel Duchamp. Inside a plain-looking armoire you’d find a precious Biedermeier chest instead of shelves. Every corner held small sculptures with which he always chatted, while the larger ones, his best friends, kept watch.

Once he completed a room, he never changed it. It was not a place that was constantly being renovated. Rather, it is an accumulation of chambers from discrete period. He would select some carpets, some striking shirts and hats (he collected hats the way that Imelda Marcos collected shoes), some beautiful furniture, then it remained exactly like as is for the next 20, 30, even 40 years. As a result, an increasingly large expance became frozen in time, but the perimeter also kept expanding. As soon as he was done working on one space, he needed another one to arrange and style. “For me, a house is like a diary,” he said. Lluís Lleó, a Catalan artist who knew Corberó well, has rightly described the Esplugues complex as a self-portrait.

His artistic integrity was as absolute and undiluted as his personality was convoluted and, occasionally, manipulative. Any theory or systematic discourse about art, to him, was an object of ridicule. Works of art spoke for themselves, otherwise they were not art. Of people who developed interpretations of his work, he would say “this is exactly the opposite of what you have to do if you become an artist. You never talk about your art. You just do it and never give an explanation. The people who need an explanation are the people who cannot contemplate it; who cannot enjoy it; who cannot see it.” He also said: “I hate artists talking to artists. You have nothing to explain to each other.”

Corberó cared for the public good, albeit very much in his own way. In the 1980s, he was instrumental in a program of monumental sculpture that transformed the face of Barcelona. Together with his associate, New York art dealer Joe Helman, and in liaison with urban planner Josep Acebillo, he persuaded the era’s most acclaimed international art stars to donate their work out of consideration for the return of Spanish democracy and Catalan pride and as a personal favour to him; the city only paid for materials. Roy Liechtenstein’s colossal head in the Old Port, Richard Serra’s curved wall on the Plaça de la Palmera, Brian Hunt’s Rites of Spring installation in the Parc del Clot, and Beverly Pepper’s frozen wave in the Parc de l’Estació del Nord all came about in this way. The government of Catalonia later awarded Corberó one of its highest honours in gratitude for his role in making this all happen. He was also commissioned to design the medals for the Barcelona Olympic Games in 1992. He insisted they be made of solid gold, something that had never been done before.

Whereas most of Corberó’s sculpted works are weighty examples of physical fullness, the Esplugues palace is made of spaces built on and around voids. One of its focal points is a six-story-high octagonal shaft that brings light to a cavernous, quarry-like basement. Some of Corberó’s most haunting statues, of pinkish marble and pitch-black basalt, find their natural habitat there. This element, to use Corberó’s own metaphor, is the axis of the kaleidoscope: much of the Esplugues complex seems to rotate and shape-shift around this empty column of light. But that would be too simple, so other voids define different expanses around it. There is a cathedral-sized underground hall, completed in his later years, accessible by tunnels that he carved into the bedrock like Egyptian hypogeous tombs. Above it stands the most recently built and also perhaps the most iconic (and Instagrammed) piece of the puzzle, an empty plaza “à la De Chirico” bordered by irregular arcades with no apparent function, some of them suspended as if rested on invisible pillars. If Jorge Luis Borges did not provide a precise picture of the nonsensically rebuilt city described in El Immortal, Corberó has done it for him here. There is no obvious reason for the endless arches. Corberó just liked them and wanted to make more. The result is a magical accumulation of unique elements, amplified by the inevitable use of mirrors. The arches create repetitive movement, although every arch is different. While the vocabulary is superficially classical, the structure does not conform to any strict norms of proportion or geometry. The geometry of Corberó’s project is more subtle. It does not follow explicit rules and he plays tricks with it, alluding to a vernacular architecture that is not associated with formal knowledge or references. It is also very beautiful.

“When people look at a piece of art they become artists,” Corberó once told an interviewer, “they see what they see, not what there is. What there is helps them to see something else and they feel happy because they see something they were not seeing before seeing that.” He added: “That’s the result I like to achieve.” As with Corberó himself, the palace’s ability to defy simple description accounts for much of its fascination. Despite his insistence that each piece of it would be the ideal home to aspirational artists-in-residence (thus all the bathing pools), it is essentially uninhabitable. One part of it served as Corberó’s industrial-grade sculpture workshop, but it is unthinkable that anyone other than him would ever use it for that purpose. The Esplugues compound most closely resembles a museum, but it is not that either. The proximity with the objects is too great to imagine any visits other than guided tours in tiny groups. Indeed, at the time of writing, its future is uncertain.

Meanwhile, it is entirely implausible that Corberó would have thought of his palace as an ephemeral installation that would disappear with him. He was lucky, as it were, to die when he did, when the work was almost complete but not quite finished. It was an evolution, not a conclusion. He had created a world of his own, a world with its own protagonists, and the palace has continued to evolve as more characters were added, in dialogue with shapes and spaces. All the same, everything here speaks of permanence, even immortality: the hard, durable materials, the hieratic poles, the stark light, the colossal scale. Corberó managed to be simultaneously self-effacing and all-consuming. His palace, built as it is on voids – the octagonal shaft, the underground cathedral, the empty plaza, the still pond – is also a massive monument such as no self-respecting Ozymandias would have disdained. It is a temple to art for art’s sake, a temple to himself, and a temple to absence – the kind of absence that makes you suffer or wonder in silence.

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