The New York Times has an interesting article today on thriving state-owned companies in China-“China’s Policies Ensure State Enterprises Grow“.
The article makes no mention of China’s Internet industry, which will generate 6-7+ billion dollars in revenue this year from gaming, advertising and other sources, is growing 20% or more per year, and which has publicly listed companies with a combined market capitalization approaching 100 billion dollars (partial list here), and much more if you include the value of private firms like Alibaba Group and its Taobao subsidiary. A few billion dollars in annual revenue and 100 billion dollars or so in market capitalization still pales compared to China’s overall economy and to some of these state-owned behemoths. But as the Internet increasingly becomes embedded into hundreds of millions of people’s daily lives, its influence on Chinese society and China’s economy will be much greater than its current revenue would suggest.
In addition, foreign investors have large stakes in several of the large Chinese Internet firms, including Alibaba Group (Yahoo and Softbank together own a majority) and Tencent (South African media firm Naspers owns 35%). I think the government did not understand the potential or the importance of these small startups when the investments were made several years ago; it is highly unlikely foreigners could take such large stakes now.
State-owned firms are trying to gain share online, with ventures by CCTV, public listing of the new media arms of state media firms etc., but absent regulatory intervention or M&A it is going to be very hard for the state-owned firms to catch up to the private Internet sector.