China’s GDP is the second largest in the world and, under the leadership of Xi Jinping, its government has taken on a significant role within the nation’s business life. Of the global economy’s 500 largest companies by revenue, for instance, 82 are state-owned enterprises from mainland China. One Chinese state-owned enterprise alone, the energy giant Sinopec Group, had $415 billion in revenue last year—the second-most revenue of any company behind Wal-Mart.
Unlike private companies, state-owned enterprises are under direct control of the government and are tasked not just with making profit but with advancing state goals, both within China and abroad. Wendy Leutert, GLP-Ming Z. Mei Chair of Chinese Economics and Trade in the Hamilton Lugar School’s Department of East Asian Languages and Cultures, has made it her task to understand how these state-owned enterprises have developed and how they operate.
The general evolution of the Chinese economy since the late 1970s has been one of liberalization and reform, but state-owned enterprises are still responsible for about one quarter of the country’s GDP. Some of these companies grew out of government ministries that existed during the planned economy of Mao’s reign. Others are more recent.
The speed at which state-owned enterprises can be developed is sometimes hard to fathom. Before the Beijing Olympics in 2008, there was almost no dedicated high-speed rail in China. There are now over 15,500 miles of high-speed rail in the country. And in 2016, China’s high-speed rail served nearly three billion passenger rides. Altogether, two-thirds of the world’s high-speed rail networks are located in China. High-speed rail, Leutert says, has been a priority industry for the government.
How the state influences these companies is not always straightforward. The government body in Beijing tasked with managing state-owned enterprises is the State-owned Assets Supervision and Administration Commission, but on a day-to-day basis the enterprises are steered and controlled by individual company leaders. Leutert got a first-hand look at how individual leaders influence company policy and culture during a fifteen-month period inside a Chinese state-owned enterprise while doing corporate ethnographic research. During that time, the company’s leadership changed, a shift that gave Leutert a first-hand look at “how much things change within the company in terms of the structure of the company [and] the strategy of the company for global expansion.”
Leutert adds, “If we think about an American company [and] want to understand where it’s been and where it’s going, one of the first things we would do is to look at the CEO of the company. And so why is that not our instinct when we think about Chinese state-owned enterprises? I think it should be.”
In addition to doing ethnography, Leutert has used interviews and collected original data to gain insight into Chinese companies. One data set she is participating in developing examines how Chinese firms are involved with the world’s largest ports. A recent NPR headline proclaims, “Chinese Firms Now Hold Stakes in Over a Dozen European Ports,” but Leutert wants to go deeper. She says she wants to look at how exactly Chinese companies are involved in the world’s top 100 or 150 ports. This will enable, she says, “a more systematic and therefore more accurate picture of the activity of Chinese firms.”
Another data set she has been building follows the movement and appointment of the leadership of state-owned enterprises. This data comes not just from the administration of Xi Jinping but also the previous leader, Hu Jintao. The breadth of this data has allowed Leutert to infer how the two governments have differed in their administration of state-owned enterprises. The first change she noticed is that under Xi Jinping there have been more transfers of leaders between companies. The second change is that, in recent years, Leutert says, “There’s more joint appointments of a single individual to both party and company leadership roles.” In effect, there has been “a concentration and a combination of party and company authority in the hands of a single individual.”
The benefit, in the government’s eyes, of having business leaders with two explicit loyalties—the company and the Chinese Communist Party—is the reduction of corruption through party disciplining, one of Jinping’s goals since becoming president. But there are costs. The first is the risk of backlash from foreign investors who may now think that the company is essentially an agent of the state. The second risk is that the collapsing of party and business leadership into the hands of a single person will scare off investment from private Chinese firms, increasing their fears that profit maximization is not always the goal. When the state’s political interests are at stake, as Leutert says, “Their interests as minority investors might not be protected.”
Leutert is also interested in pushing beyond her current research to try to understand how state-business ties operate for private businesses. One such tie is personnel: company leaders might have a background in the military or the government. Another link is financial: the state might channel capital to a company if it is working in an industry or technology that the state has deemed strategically important. Yet another state-firm connection is through data-sharing. Either the state has collected data that it wants a firm to analyze, or a firm has collected data that the state wants in order to inform their decisions.
The sharing of data between private businesses and the Chinese government has raised some alarms. Leutert points out that this sort of sharing “might get down to the level of individual control and serious concerns about privacy.”
There is still much to learn, though, about state-owned enterprises. Leutert’s interests include these companies’ historical evolution, global expansion, company leadership, and corporate governance. She is also looking at how Chinese state-owned enterprises working outside the country are expanding from being contractors to being operators, investors, and owners. So while in the past a state-owned enterprise may have been in charge of building a dam, now it may also be in charge of owning and operating the dam. This provides more opportunity for profit but also requires much more expertise and assumption of risk. Labor practices and environmental effects for massive infrastructure construction and operation are also concerns.
It was during a college internship at the Hong Kong Legislative Council that Leutert first became interested in Chinese politics and economy. Enabled by a program financed by the philanthropist and fellow Wellesley College graduate Elisabeth Luce Moore, Leutert worked on the re-election campaign of a female legislator in Hong Kong. Her tasks included meeting with staff, planning rallies, and figuring out how to communicate key messages to potential voters. “It was really the first time I had seen politics up close,” Leutert says. Outside the classroom, she was able to see first-hand “the human dimension of politics.”
The time and place were propitious. It was 2004, and Hong Kong had returned to Chinese sovereignty only in 1997. Yet it was nonetheless an autonomously governing region. Hong Kong’s complex identity and power structure intrigued Leutert, so much so that she interviewed ten legislators there as part of a senior’s honors thesis about constitutional development in Hong Kong. As Leutert says, she was interested in “Hong Kong’s political development” and how its complex power structure was operating.
After college Leutert completed two years of full-time Chinese language study, and then a master’s program in international relations in Beijing at Tsinghua University, one of China’s most prestigious universities. She was the first American to graduate with a master’s degree in international relations, and the opportunity doubled as a chance to solidify her Chinese language skills.
She worked at an NGO called the International Crisis Group after her master’s program but realized she wanted to dedicate herself to studying political economy, which attracted her because it is such a “diverse and dynamic field,” she says. State-owned enterprises drew her attention in particular. She says, “If you think of political economy as the intersection of politics and the economy, there’s nothing that embodies that more than companies that are owned by the state.”
After three post-doc positions at the University of Pennsylvania, Columbia University, and Harvard University, Leutert is excited to be teaching three courses at HLS. This fall she is teaching a course on China and the world economy. In the spring she will teach China Inc.: From Communism to Capitalism and Chinese Political Economy. Taken together, these courses cover how the state’s role in the economy has developed and how China is involved in overseas aid, trade, and investment.
Leutert says she hopes her students “develop the ability to analyze the Chinese economy from both domestic and international perspectives.” She also hopes they “pay particular attention to questions of distribution and fairness and equity.”
She also wants her students to consider how choices on an individual level have impacted the Chinese economy and even world history. She points to decisions made before the Opium Wars of the 19th century as examples when different actions could have led to radically different outcomes.
In 1793, George Macartney, on behalf of King George III, led a diplomatic mission to China to advocate for British trading interests there. The Qianlong Emperor made no concessions or accommodations to the British, and Leutert believes this breakdown of communication was a key point in the development of tensions between the two world powers. Leutert summarizes, “If there had been some type of a negotiation or accommodation, perhaps we wouldn’t have had the Opium Wars and wouldn’t have had everything that followed.” This historical context, Leutert says, can put the current US-China trade war into perspective, since once again we are seeing two powers disagreeing over the terms of trade.
China’s international footprint is growing. Its Belt and Road Initiative, which Leutert describes as a “global campaign to advance infrastructure, connectivity, as well as trade and investment between China and the rest of the world,” now involves over 150 countries and international organizations. And Leutert is well-positioned to study and analyze how Chinese aid, trade, and investment is changing. All told, Leutert has spent seven years in China studying, working, and conducting research.
And now Leutert, who grew up in Florida and Pennsylvania, has brought her expertise to the Hamilton Lugar School. Her students have much to learn from her, as does anyone who is interested in how the country with the world’s second largest economy is operating within and outside its borders.