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China State Capitalism Trap

In: Business and Management

Submitted By ninepoint5
Words 406
Pages 2
China's State Capitalism Trap The current international financial economic issue being witnessed is state capitalism. This is a situation where the government owns most of the profit generating enterprises, controlling the shares, acts as a large capitalist and principal shareholder. State capitalism is evident in China, and it is escalating as a threat to its economic growth. China’s powerful companies like, China Mobile, Sinopec, and PetroChina are largely controlled by the state. According to critics in a conference sponsored by Caixin Media, state capitalism should be discouraged because it causes inefficiency and unfairness. Privatization, free foreign trade, and investment give power to the private sector and allow economic growth. Economists view this as a social turmoil that is volatile, with reference to the financial challenges in the United States and Europe in the year 2008. State capitalism brings to light the Arbitrage Pricing Theory (Madura and Fox 250). The pricing is done basing on asserts of a company. State companies are not powerful as they seem to be because the return on invested capital is lower for than the private companies. However, such companies enjoy monopoly because of limited competition. This in turn, has resulted to overcharging in accordance to the pricing theory. This theory evaluates all aspects of pricing which include state price processes, delta hedging, arbitrage, and replication pricing. In such a situation, state-price is adopted which may serve as security. State capitalism is a challenge to private owned companies because of the absence of a level ground for competition. Private companies’ prices are regulated by the government through the annual budgets. However, state companies are can violate the indicated prices without being answerable to the consequences. Private companies have to adhere to prices, and in most…...

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