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China economy

US trade war spreading to China’s state-owned enterprises, warns senior government official

  • Deputy head of the State-owned Assets Supervision and Administration Commission, Meng Jianmin, makes comments in private speech at closed-door meeting
  • Electricity consumption shrinking in the city of Suzhou and Zhejiang province, an indication of a downturn in economic activity
PUBLISHED : Thursday, 13 December, 2018, 7:02pm
UPDATED : Thursday, 13 December, 2018, 7:02pm

The trade war with the United States is dealing a heavy blow to China’s private-sector businesses and that impact has started to spread to state-sector firms, a senior Chinese government official has warned in a private speech.

Meng Jianmin, the deputy head of the State-owned Assets Supervision and Administration Commission (SASAC), which supervises China’s state-sector assets, made the comments last week at an internal meeting urging state enterprises to quickly pay invoices for goods and services from private-sector firms to help shore up their finances.

State-owned enterprises owed private companies about 2 trillion yuan (US$290 billion) at the end of September, Meng said in the closed-door meeting, according to a summary of the speech obtained by the South China Morning Post, the contents of which were later confirmed by several people who attended the meeting.

He did stress that only “a small part” of the invoices had become overdue.

Meng also told delegates from state-owned enterprises that they must pay close attention to the problems that private businesses are facing due to China’s trade war with the US and the possible ripple effect those problems could have on their own businesses.

“State-owned enterprises and private businesses are competitors but also partners and comrades-in-arms in the Sino-US trade dispute battle and in developing new overseas markets,” said Meng.

“Take the power industry for example. Southern China and eastern China, with strong private sector economies, have always been major markets for electricity.

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“But the local private economy is suffering due to the US-China trade row. The electricity consumption in Suzhou has fallen on a year-on-year basis in October for the first time in a decade, and electricity consumption in Zhejiang has started to fall in the fourth quarter, as well.”

Suzhou, a city in the eastern province of Jiangsu, is a key export base for China, while the province of Zhejiang is the one the core areas for China’s private economy.

Meng said the weak demand for electricity in these provinces has started to “create a certain impact” on China’s electricity generation and grid operators, which are both monopolised by state-owned firms.

Meng’s comments indicate deepening worries among Beijing policymakers about China’s economic deceleration resulting from the trade war, although the Chinese government has put on a brave face in public concerning the economic impact.

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The government is expected to roll out more pro-growth measures, including tax cuts and an increase in fiscal spending, when officials set overall economic policies for 2019 at their Central Economic Work Conference next week.

Electricity consumption is regarded as a relatively reliable indicator of economic activity, especially for the manufacturing sector.

The Suzhou Bureau of Statistics released the city’s total electricity consumption for the first 10 months of the year after Meng’s speech.

While they did not provide specific data for October, according to the Post’s calculations, the city’s total electricity consumption was 12 billion kilowatt-hour, a slight fall of 0.6 per cent from a year earlier.

Total electricity consumption in Zhejiang province grew 4.5 per cent in October from a year earlier, a sharp slowdown from the 11.1 per cent gain in September, according to the data from the provincial bureau of statistics.

The electricity consumption by the industrial sector in Hangzhou, the capital of Zhejiang province, plunged by 10.4 per cent from a year earlier in October, the official data showed.

SASAC did not respond to a Post fax requesting comment.