Chinese Economy Strengths and Weaknesses Term Paper

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These semi-private companies are co-owned by the local government and workers. They are not officially in the private category, but they are essentially operated like private companies.

The differences among these four types of companies in China put them into two groups: WFOEs and JVs positioned to the front line of globalizing China, while SOEs and private companies try to stand firm to protect their territory, with some aggressively extending their operations overseas.

According to industry sources there is a total of 196,222 manufacturers in China, which includes all SOEs and non-SOEs with revenue more than 5M RMB, with 1 USD = 8.1 RMB as of October 14, 2005. (Note: All quantitative data in this report is from the National Bureau of Statistics of China (National Bureau of Statistics China, Manufacturing Statistics). The increasing number of multinationals and private companies already surpasses the total number of SOEs in the Chinese manufacturing community. However, because most private companies are still relatively small, SOEs still command the majority of the manufacturing industry in China when measured by revenue. By the end of 2003, only 1,984 of companies had more than 300M RMB in revenue and more than 2,000 employees. This helps explain why so many industries in China are fragmented.

Clearly, most companies are still in labor-intensive, low-value-adding industries like Textile and Apparel and Discrete Manufacturing (National Bureau of Statistics China). WFOEs and JVs are more or less structured in a western style, while most Chinese companies prefer to walk their own way. However, the effects of globalization have led inevitably to a mix of old and new, modern and traditional, east and west.

356 of the top 500 companies in China (by revenue) are SOEs, indicating the weight of SOEs in the overall Chinese economy.

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A good starting point for understanding SOEs in China is the company structure. Most large SOEs have been listed in the Chinese stock market since the early 1990s. However, the main share of these companies is still in the hands of central or local governments, which means the shareholders meeting and supervisory committee are more or less influenced by them. But times have changed: Presidents of these organizations have more power than those who held the same position 15 years ago. They have direct control of the business strategies; this means they are more liable for the successes or failures of their companies than ever before.

Unlike western firms, which usually organize the business division by division, most large Chinese companies are still using a traditional, function-by-function management methodology. Normally, several vice presidents are responsible for key functions, such as sales, manufacturing, and logistics (supply chain).

The typical large Chinese manufacturer often has a mega-sized base for manufacturing, with a number of factories producing different products. Factories are located as closely as possible with many located in the same city, relying on sales branches all over the country to sell their products.

Chinese companies tend to run everything by themselves. Numerous companies have their own fleet for transportation, at an average of 2.7 trucks per trucking company, with some managing the fleet as a subsidiary. They also run internal services, such as catering, hotels, schools, and hospitals. Company headquarters, which often functions like a self-sufficient city, also manages all functions of the company. These functions have direct control of most factories' activities. Chinese companies also have a few departments that don't exist in a western company. For example, the general.....

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