Another sign the world is changing
There was a time not-so-long ago when troubled banks in emerging economies, sometimes formerly state-run banks, looked to private banks in the US and Europe for equity infusions. Now, well, troubled banks and broker-dealers in the US and Europe seem to be looking to banks — often state-owned banks and investment companies — in the emerging world for help …
I (obviously) have no idea if CITIC is going to invest in Bear. The Bear-China Construction deal never happened. But it would be consistent with recent trends.
There was a strong presumption several years ago that China's financial system would — over time — evolve so that it looked more like the US financial system and, I suspect, an presumption that private US and European financial firms would be major players in China's domestic markets. Now in a world of "reverse globalization" it is at least plausible that China's state (along with financial institutions controlled by China's state) could end up with a significant ownership stake in US banks, US broker-dealers and US private equity firms, which would, in a way, make the US financial system look a bit more like China's financial system.
Potential ironies abound. The US government has long resisted any suggestion that hedge funds be required to disclose their positions. But CITIC buys a stake in Bear, China's state — through CITIC — could conceivably end up having access to a fair amount of information about the positions of some US hedge funds. Bear is a big prime broker, and a large equity investor like CITIC would certainly have every right to know what risks Bear is taking.
It wouldn't be entirely unprecedented for a government to invest in a financial firm to get access to financial information: the Bank of Italy claimed it invested in LTCM in part to understand how hedge funds were influencing the Italian BTP market …
The intermingling of public and private money — in a world where "socialism is for capitalists" and "capitalism is for socialists" — does raise some interesting questions — questions that I am still struggling with.
I wonder what Michael Pettis — who worked for Bear at one time — thinks …
NOTE: I edited this post somewhat after initially posting it to try to make my intended meaning clearer, and also to correct a couple of egregious spelling errors.
“…If customers of Barclays or ABN Amro are worried that the Chinese government may see their financial data, they can switch to another bank…” http://www.economist.com/daily/columns/businessview/displaystory.cfm?story_id=9641906
“…Smith had a theory as to why the China he saw in his day–the late eighteenth century–had become poor. Because China would not trade with outsiders and so learn and adapt their ideas, it was bound to stagnate: “a country which neglects or despises foreign commerce… cannot transact the… business which it might do with different laws and institutions.” A stagnant economy, Smith thought, was headed for desperate poverty through a Malthusian population crisis…” http://delong.typepad.com/sdj/2007/08/slouching-towar.html
“…it is not only foreign critics of China who are testing that resolve. In a brave open letter, a group of prominent Chinese activists and intellectuals—former political prisoners among them—took their own liberties with the official slogan. Entitled “One World, One Dream, Universal Human Rights”, the letter was addressed to China’s leaders… Such a letter is cause for concern for China’s leadership, for more reasons than one. Not only does it give the lie to any argument that agitation over human rights is limited to meddling, ill-intentioned foreigners, but it also signals that the internal propaganda objectives of the Olympic endeavour may not be so easy to meet…” http://www.economist.com/world/asia/displaystory.cfm?story_id=9621556
“…the illegal bank, which is based across the border from Hong Kong in Shenzhen, is on a far grander scale. It did business in every province of the country and its clients included state-owned enterprises and foreign multinationals. It appears to have been operating unnoticed by officials for up to eight years…” http://www.economist.com/finance/displaystory.cfm?story_id=9622318
“…Asia’s wealthiest people are stronger than ever and doing more to hold back the region’s potential than many investors appreciate…” http://www.bloomberg.com/apps/news?pid=20601039&sid=aL2t80C0vAIo
“The long-threatened Yangtze River dolphin in China is probably extinct, according to an international team of researchers who said this would mark the first whale or dolphin to be wiped out due to human activity.” http://www.reuters.com/article/topNews/idUSL0739427720070808
I can’t speak for Mr. Pettis. But given the fact he had foregone the retirement on balmy Florida beach for a teaching post in smoggy Beijing, my guess is he sees something positive in China’s actions which Brad surely won’t agree with.
Financial know-how, yes; information on hedge fund positions, I doubt it.
Anyway, if hedge fund managers don’t trust the integrity of a prime brokerage dealer, they will simply switch to another broker-dealer. It’s not as if BS is the only shop in town. You really don’t think the “smartest” people on the Street are that dumb, do you?
I agree with twofish’s assessment that current regulations (and Capitalism in its current form) are sufficient to deal with SWFs, nothing to be panic about.
is there a risk that the presence of SWFs/ big state banks would end up changing the character of American capitalism, just as the large presence of quant funds in the market ended up changing the character of the markets (calling into question some of the assumptions behind certain quant strategies, per tett)?
I find it hard to be believe that CITIC would invest in bear’s prime brokerage business w/o doing due diligence on who and what bear is financing - especially now that the only source (per the FT) of “liquidity” for some private MBS held by various hedge funds are prime brokerages. After all, bear’s own asset management business had a few problems — and the last thing CITIC would want to do is buy a new set of problems. of course, most funds don’t show — supposedly — any single broker all their positions, so bear doesn’t know exactly who is doing what. but I would be surprised if it didn’t have some idea of broad market positioning.
I find it possible that CITIC might not share all the information it receives with others inside China, including other entities with the same ultimate owner …
as I mentioned, i am trying to think through the issues involved with what is sure to be a surge in state investment in the US. no doubt i have my biases — the fact that china has seemed more interested in finding ways to invest its growing surplus than in taking action to slow the growth in its surplus shapes my views. but my sense that the policy that has led to china’s large capacity to invest globally is neither in the interest of China, the US or the world shouldn’t drive my analysis of the issues associated with state investment.
so a couple of questions:
1/ Is there a meaningful difference between a CITIC investment in Bear and a CIC investment in bear. Both I think report to the state council (CIC for sure, and i think CITIC does too). But CITIC is a state firm, and the CIC is an investment agency. should that matter?
2/ Are banks and broker-dealers different from private equity firms because of their role as intermediaries? i.e. would a CIC investment Bear raise different issues than a CIC investment in Blackstone?
3/ Are there concerns associated with outright controlling positions that are not associated with a minority stake? Conversely, are there concerns — my example about access to some kinds of information for example — that arise even with minority stakes?
4/ Suppose bear gets an equity infusion from CITIC but it turns out (and this is presumably a fairly unlikely scenario) that Bear is in deep, deep trouble and is at risk of ultimately collapsing. Would a Chinese minority stake (whether CITIC or CIC or CCB) change the way US policy-makers should respond?
i learned a lot from the previous discussion of state government pension funds v. sovereign wealth funds, and would hope for similar insights here.
Bank-dealers are different from private equity firms because of their role as government security distributors as well as their unique position relative to the implementation of monetary policy (e.g. recent short term emergency repos). The Fed can implement monetary policy effectively without Blackstone, but not without the repo mechanism available to dealers. This is also a reason for being cautious on foreign ownership of same dealers. Also, money center banks with integrated dealers (e.g. Citigroup) are the most important case, because they include large deposit gathering platforms - which are even more important to broad monetary policy concerns than non-integrated dealers such as Bear.
U.S. policy makers should respond according to whether a particular problem institution poses a threat as a potential catalyst for systemic risk. Such response, which is based on system concerns more broadly, should be independent of a foreign ownership interest at the source of the problem. But this is premised on foreign ownership rules that take this aspect into account.
Minority through to control interest is a continuum in terms of all of these concerns. It’s difficult to draw a line in terms of how they should be treated.
The most important consideration in all of this is effective implementation of monetary policy - which is an authoritarian function in a largely democratic capital market. Foreign players must be subject to local rules whatever their level of ownership.
re: “presence of SWFs/ big state banks would end up changing the character of American capitalism” - one of many factors
re: “concerns - that arise even with minority stakes?” - shouldn’t that be true for any ‘investor’ which may be seen as taking a stake with the intention of using it in ways that are not in the entity’s and/or those who with a controlling stake, best interests. Look at the battles between controlling family shareholders and hedgefunds - very specific to the underlying asset - and other stakeholders who may be deemed to have an interest in the firm (which may include governments that have provided various amounts of critical funding, major customers, which may include governments, and suppliers and those whose information may be held by the entity).
The bogeyman of Chinese state-ownership of foreign assets represents nothing more than xenophobic scare tactics by China bashers in Congress. Nothing is more scary in the US news media than the “yellow-peril” China threat. The CNOOC attempted acquisition of Unocal was aborted due to intense hostility toward the Chinese with the National Security threat and environmental concerns cited by US politicians. This despite the fact that Unocal’s primary energy assets were located in Thailand and Indonesia; Unocal produced only 2% of US energy supplies from the Gulf of Mexico. And Texas-owned Devon energy corporation produces oil and natural gas offshore in China’s Pearl River Delta.
With the China CNOOC ownership stake in Australia’s massive Gorgon offshore energy field, have US National Security threat fears of rising Chinese global investment ever come to fruition? Have the Chinese massively polluted Australia’s outer banks destroying the fishing and tourism industries? Now that PetroChina has purchased a large ownership stake in Canada’s tar sands fields for energy extraction, why don’t the Canadians echo similar concerns over the Chinese National Security threat and environmental issues. The reality is that both CNOOC and PetroChina are professional organizations that enormously contribute and invest in the Australian and Canadian economies, respectively.
re: “the US financial system look a bit more like China’s financial system” - perhaps a bit, but the US financial system was designed to be global, assume there are many other influences- and as the Chinese seem to be hiring and using a great deal of Western expertise and technology in this process, whether it may be fair to say that the Chinese system is evolving as a retrofit. Whether or not Pettis is still in China, might be interesting to know a bit more about what he is doing there. It looks interesting, but not a whole lot of information about what they are doing: http://www.teccultures.org/about_us/board_of_advisors
think globalization has a lot more to do with flows of people - the capital follows. so no surprise that ‘america’, which is all about globalization, may be looking a bit more chinese, as so many more are working, starting businesses, being educated in (presumably bringing some of their own influences to the education system) and voting in it - along with lots of other powerful important ‘foreign’ interests in the US too.
I, for one, applaud Brad’s raising and grappling with a difficult and perplexing topic: What happens when a communist totalitarian government, with its own political ends, can effectively control important, previously privately-own, institutions in other countries? In the West, we often decry our own government being manipulated by powerful private corporations.
if only it was that easy to categorize ‘chinese’ investment’
“…Although some of his corporation’s business deals have been overtaken by rumor, especially those that suggest his companies are associated with the People’s Liberation Army of China (which has extensive industrial holdings), Li’s conglomerate is now one of the largest in Hong Kong. His two sons Victor Li and Richard Li are also major players in the Hong Kong business scene. Victor Li works directly with his father as managing director and deputy chairman of Cheung Kong (Holdings) Limited, while Richard Li is the head of Pacific Century Cyber Works, the largest telecom company in Hong Kong. They are both Canadian citizens…” http://en.wikipedia.org/wiki/Li_Ka_Shing
“…While there is no shortage of U.S. financiers keen to join what would be one of the largest leveraged buyouts to date in Canada, there are few sources of Canadian capital available to create a robust bidding war for BCE. That concern led a BCE board committee to block three pension funds from joining the CPP group. The 40-year-old Hong Kong-born and raised Mr. Li gets around that problem as he is not only rich, but also a Canadian citizen…” http://www.richardli.com/070601FinancialPost.html
“…[Harper] has been much more critical of the Chinese record on human rights…” http://www.theglobeandmail.com/servlet/story/LAC.20070717.HARPER17/TPStory/National
“Bear, Stearns & Co. Inc. plans to enter India by acquiring the financial arm of US-based automaker Ford Motor Co… for 900 million rupees ($22.09 million)… It plans to invest 1 billion rupees ($24.54 million) to comply with the Indian regulations and start a full-fledged financial services company… Lehman Brothers Holdings Inc. agreed to buy the institutional equities business of Indian brokerage Brics Securities for an undisclosed sum…” http://news.moneycentral.msn.com/provider/providerarticle.aspx?Feed=OBR&Date=20070815&ID=7327755
re: “xenophobic scare tactics” - like China doesn’t employ them as well when it suits them.
“The Chinese government rarely approves public demonstrations but appeared to make an exception for the throng of mostly college-age protesters who converged in the city’s high-tech district and for smaller groups that marched from there to the embassy. The protest occurred as relations between China and Japan have grown increasingly strained by a series of disputes over history and territory…” http://www.washingtonpost.com/wp-dyn/articles/A40503-2005Apr9.html
This is all hypothetical… but
1) My view is that a CITIC investment should be treated much more skeptically than a CIC one. The hypothetical CITIC investment would potentially involve operational/managerial changes in Bear-Stearns that would not be involved in a CIC one. Also, I think the fear of the Chinese government taking over the American economy is not the big risk. The big risk is that the owner will cause Bear-Stearns in ways that will be unintentionally be destabilizing. The fact that CIC has much more oversight and control by the Chinese government than CITIC is a good thing, since it means that CIC is less likely to do something financially stupid. The ITIC’s have been notorious in China for undertaking financially unsound policies without government oversight, and a lot of them are textbook examples of why financial instititutions need regulation.
2) Someone else pointed to the importance of IB’s role as brokers. What also needs to be pointed out is that IB’s are just much, much bigger. No one cares if a private equity firm dies or in most cases if a hedge fund dies because they are small. If the CIC destroys Blackstone, the totally economic impact is minimal. If a major investment bank is near collapse, we are talking about a major impact on the economy. A badly handled collapse of a major bank could trigger a depression.
3) Information is compartmentalized in investment banks anyhow. It’s not as if a major stockholder can call up a department of the bank and either get information or give orders.
4) I don’t think that a Chinese minority stake will affect how regulators *should* respond. However, it certainly will affect how regulators *can* respond. Any help that the US government gives a company that is Chinese government minority owned will have “Regulators Sell Out Country to Evil Red Chinese” on the next Fox News and episode of Lou Dobbs.
Guest: Smith was wrong because as of 1750, China’s economy was not stagnant. There are some comments on Brad Delong’s blog that address this.
Brad: is there a risk that the presence of SWFs/ big state banks would end up changing the character of American capitalism
I’d argue that SWF’s and big state banks *will* change the character of American capitalism, but American capitalism has changed dramatically over time. The financial industry in 2007 would be almost unrecognizable to someone in 1967. Most everything that people think of as “American capitalism” today was invented rather recently (i.e. there are plenty of old men on Wall Street that will talk about how things were different when they were young, and assuming their memories are accurate, things were very different.)
The surprising thing is that people find all of this surprising. A few years back (circa 2003) Thomas Barnett mentioned that people thought of globalization as Americanization or Westernization, but predicted that in ten years, no one would make that mistake. It’s silly to think that with the vast majority of people in the world living in the third world, that there wouldn’t be some influence coming to the US rather than from it.
I’m not sure why Chinese ownership of US banks should be any more controversial than Saudi ownership of US banks. Saudi Prince Alwaleed bin Talal owns 4.3 percent of Citigroup, worth about $10 billion, and has done for the past 20 years since buying in at knock down prices when Citibank was badly hit during the Third World debt crisis in the 1980s.
Would it have been better to let Citibank go bust in the mid-80s - a more serious concern than many appreciated at the time? Surely it was better to have Citibank bailed out by a long term shareholder who has insisted on rigorous management.
As the nephew of King Abdullah, it is impossible to separate Prince Alwaleed from Saudi politics. These have not always been coincident with American interests, and are more likely to diverge in future as Saudi realigns with Europe and Asia while distancing itself from the US and the dollar. If that happens, should we force the Prince to divest?
I’m also reminded of the “yellow peril” scare when Japan was buying up huge tracts of Manhattan in the late 1980s - before selling it all following its early 1990s crash. Even my rural redneck uncle was worried about the Japanses owning America.
The issues around Chinese investment aren’t new. They’ve been there for a while in other guises. Either we believe in markets or we don’t. Too much American policy is already crony capitalism that only recognises market forces when convenient and profitable. Leaving foreign investment unconstrained is good because it will remind Americans that to be masters of their own destiny requires savings and productive investment - rather than debt and speculation.
Warren Buffett warned a few years ago of the “sharecropper economy” if Americans didn’t start spending less than they earn to save and invest. Maybe that is the real issue you are dancing around in raising the spectre of Chinese investment in US banks.
In Dusty Archives, a Theory of Affluence
Generation after generation, the rich had more surviving children than the poor, his research showed. That meant there must have been constant downward social mobility as the poor failed to reproduce themselves and the progeny of the rich took over their occupations. “The modern population of the English is largely descended from the economic upper classes of the Middle Ages,” he concluded.
As the progeny of the rich pervaded all levels of society, Dr. Clark considered, the behaviors that made for wealth could have spread with them. He has documented that several aspects of what might now be called middle-class values changed significantly from the days of hunter gatherer societies to 1800. Work hours increased, literacy and numeracy rose, and the level of interpersonal violence dropped.
Another significant change in behavior, Dr. Clark argues, was an increase in people’s preference for saving over instant consumption, which he sees reflected in the steady decline in interest rates from 1200 to 1800.
[...]
It is puzzling that the Industrial Revolution did not occur first in the much larger populations of China or Japan. Dr. Clark has found data showing that their richer classes, the Samurai in Japan and the Qing dynasty in China, were surprisingly unfertile and so would have failed to generate the downward social mobility that spread production-oriented values in England.
[...]
If the Industrial Revolution was caused by changes in people’s behavior, then populations that have not had time to adapt to the Malthusian constraints of agrarian economies will not be able to achieve the same production efficiencies, his thesis implies.
[...]
Historians used to accept changes in people’s behavior as an explanation for economic events, like Max Weber’s thesis linking the rise of capitalism with Protestantism. But most have now swung to the economists’ view that all people are alike and will respond in the same way to the same incentives. Hence they seek to explain events like the Industrial Revolution in terms of changes in institutions, not people.
Dr. Clark’s view is that institutions and incentives have been much the same all along and explain very little, which is why there is so little agreement on the causes of the Industrial Revolution. In saying the answer lies in people’s behavior, he is asking his fellow economic historians to revert to a type of explanation they had mostly abandoned and in addition is evoking an idea that historians seldom consider as an explanatory variable, that of evolution.
Most historians have assumed that evolutionary change is too gradual to have affected human populations in the historical period. But geneticists, with information from the human genome now at their disposal, have begun to detect ever more recent instances of human evolutionary change…
re: Clark: “…The implicit proposition of A Farewell to Alms is that we should stop giving money to the poor… From a scholar to come blinking out of the library where he has been studying English wills in the age of Shakespeare, this is simply offensive…” http://www.economicprincipals.com/issues/07.08.12.html
think the ‘industrial revolution’ has much more to do with the invention of the printing press, communications technology and ongoing rapid advances in the capacities to generate and use information as an economic asset (rather than a means for supression), allowing the utilization of populations as mass consumers by providing them with the motives (advertising) and means to purchase all the stuff.
2fish and london banker — thanks for your thoughtful comments. both raise interesting points.
banker — yes, i did dance around the sharecropper economy point. that is the root source of my concern. as I noted in an earlier comment, my sense is that china has been more interested in changing the composition of its growing portfolio than taking policy steps to slow the growth of its portfolio, and that does clearly shape my views.
The Prince Alwaleed v CITIC analogy is a good one as well. both are not quite the government — the prince isn’t SAMA, CITIC isn’t CIC. but both clearly are closely tied to the government, in a host of ways.
2fish — your argument that CITIC might be less responsible than CIC is also interesting.
An ADIA v CIC analogy is useful as well. ADIA tries to avoid goign above 5% - it doesn’t want to be noticed. it participates in private equity funds though that do assume control — and it is a large enough participant that it effectively owns a majority share in some firms albeit indirectly.
I am not sure I agree with the “either you believe in markets or you don’t argument” — it kind of depends on your conception of the markets. if market means the outcome of atomistic private uncoordinated decisions, then the presence of large and clearly not private players results in something short of perfect markets (and i take the point that this is true in other parts of the us economy as well). large scale state owned equity investment in the US raises two sets of issues — one linked to scale (China has $400b to invest in the us even if it doesn’t use leverage — and you can make an argument that it shouldn’t use leverage since its $ holdings are financed by lots of RMB liabilities) and one linked to state ownership (i.e. a relaxation of the profit-maximizing assumptions). The overlap of the two — which is intrinsically linked to the US dependence on official flows) does worry me.
but worry isn’t quite the same as arguing for restrictions.
banker — how do you feel about attempts to insist that state investors meet higher transparency standards.
re: “attempts to insist that state investors meet higher transparency standards” whether or not they may have some influence on the reduction of transparency standards.
“…Competition in the area was heightened further on Tuesday when Bear Stearns unveiled its own platform for private placements, known as Best Markets…” http://www.ft.com/cms/s/27f14598-4abd-11dc-95b5-0000779fd2ac.html
I’d go for a simpler explanation for the industrial revolution. 1800 was around the time people started using new energy sources (like coal and oil) for the first time. Once you have new sources of energy, things are very different.
bsetser: one linked to state ownership (i.e. a relaxation of the profit-maximizing assumptions).
I don’t think that the behavior of Chinese SOE’s are less profit-maximizing than American or European corporations. In fact, I don’t think that profit-maximizing is as good an explanation for how the market behaves than “bankruptcy avoidance.” You can make a lot of profit. You can make a little profit, and market mechanism won’t limit your choices. If you are the management of a major corporation and you either by choice or accident decide to make a small profit rather than a large one, there is very little that the shareholders can do to stop you.
However, if you keep losing money, you will run out, and you will have to just stop doing what you were doing, assuming no capital infusions, and the Chinese state has been very reluctant to infuse capital into SOE’s.
As far as transparency, I think that Chinese state entities should have a higher standard of transparency than Arab sheiks, because the money that the Chinese government is managing really isn’t the government’s money. It’s the people’s money, and Chinese citizens have a right to know how their money is being used and invested.
A lot of my views on how “profit maximization” is *not* a major factor in corporations has to do with my working in one and seeing what goes on.
2fish — we agree then on the need for more transparency by china’s investment agency, and i think we actually agree on the most fundamental reason for such a quantum increase in transparency: china’s people should know how their (borrowed) money is being invested, and what risks are being taken with their equity capital (CIC and SAFE/ PBoC equity capital = their call on tax resources)
“new sources of energy” - mass utilization still driven by capacities to develop the knowledge and technology that enabled rapid implementation on a global scale
It’s pretty hard to argue that an agency that hasn’t been set up yet should be more transparent.
:-)
In any case, I’ve been pretty satisfied with the level of transparency shown thus far by the CIC. There has been a lot of discussion about the strategic aims of CIC, and those are pretty much known to anyone that cares about it. We know about the one equity purchase that they have made so far. We don’t know thus far about the process for making stock decisions or who is going to be on the committees, but I think the main reason we don’t know is that they don’t know.
The State Council also has an interest in transparency, since having transparency in the CIC, means that *they* can keep control over it.
I should point out to complaints about transparency often seem to boil down to “we *know* that you are planning something awful but since we can’t prove it, you must be hiding something.” A lot of the Department of Defense’s complaints about the Chinese military seem to boil down to that.
Twofish,
Don’t you think that shareholders can drive managers to increase profits, especially in this day of activist hedge funds and private equity buy-outs?
might it not also matter whether or not the goal is for (short term) profits, a relatively large portion of which may go to luxury home and yacht buying ‘activist’ shareholders and insiders - or prudent reinvestment in the underlying entity enabling it to, let’s say, build more and better bridges, or fuel efficient cars, or deliver better healthcare that might improve worker (and consumer) productivity…
as for the value of ‘transparency’, doesn’t much depend on how selective or heavily spun, the relative complexity of the holdings (how many really understand the ‘investments’), the capacity of the ’stakeholders’ to do anything about that which they might not like - or even ask for comprehensible clarification. If the real value of ‘transparency’ provides a means to offload responsiblity - ‘well we showed you and you didn’t complain’ - to populations who are not empowered or equipped to interpret or act on the information.
“…many investors in both funds were nervous about the losses and asked to redeem their investments. The funds said No… Then came the whopper… it could not figure out how much money it had lost… The funds refused to answer investors’ questions… In 2001, the chief executive of American Express shocked investors when he admitted the company “did not comprehend the risk” when it lost $826m on CDOs. Freddie Mac and Fannie Mae have taken years to value derivatives losses, as did Enron… Subprime exposure can remain buried and unexplained for months…” http://www.ft.com/cms/s/c951046c-468c-11dc-a3be-0000779fd2ac.html
Rebel: Don’t you think that shareholders can drive managers to increase profits, especially in this day of activist hedge funds and private equity buy-outs?
No.
In a large profitable company, it is practically impossible for shareholders to force the management to do anything that they don’t want. Delaware corporate law places a lot of power in the board of directors and gives practically no power to shareholders.
You can try to acquire a controlling stake in a company, but the board of directors has a veto power over that. And the amount of money to take over a large Fortune 500 company is astronomical.
Now the catch in the statement is that the company be profitable. If you are losing money, then you have to do something. Also, every board has its price and if you wave a large enough amount of money in a small company, they will usually give you seats on the board.
A lot of my views on Chinese corporate restructuring are based on observations on how US corporations actually run as opposed to idealized models of how they should run. One observation is that as long as the shareholders don’t have seats on the board or controlling interest, what the shareholders think is irrelevant. The key fact about a corporation is that if a corporation runs out of money it dies.
This means that the fact that Chinese SOE’s are owned by the Chinese government is largely irrelevant. What is key is that the Chinese government limit the cash infusions that it gives a corporation.