By Stephen Gordon - Friday, December 14, 2012 - 0 Comments
Jack Mintz provides the best-reasoned defense I’ve seen for the Conservative government’s new rules about how takeover bids by foreign state-owned enterprises (SOEs) should be an “exception,” but I’m still not convinced.
Here is the key paragraph:
The economic role of takeover markets is to enable those with better management skills, technologies or other economic strengths to buy up companies operated less efficiently. In a world absent of taxes and government interventions, the best managers will be able to wrestle control of a firm by outbidding others with a higher premium on share offerings. This is what makes a business sector truly dynamic. For this reason, Canadians should not want to block foreign direct investment that will lead companies to be better managed. But SOEs come to the table with government support, either tax-exempt status or explicit or implicit financial subsidies. They might bring new capital, but they may not provide superior management. One no longer gets the best management operating companies through the takeover process, since SOEs are in position to outbid private competitors who pay taxes (now or in the future) and receive no public support. With the SOE takeover, inferior performance means a loss in profits and potentially job layoffs.
The problem I have with this argument is that even if SOE-managed firms did bring in high-quality management and better business practices, we’d still see similar effects: the new entrants would also be in a position to outbid existing competitors, driving up the costs of labour and other inputs, and making life more difficult for existing firms.
By Jason Kirby - Thursday, April 8, 2010 at 11:30 AM - 5 Comments
Beijing has halted land sales in a bid to cool the housing market
In the incestuous world of Chinese state-owned enterprises, there’s clearly not much stock put in clever brand marketing. Hence names like China Aerospace Industry Corp. and China Ocean Shipping—monikers that dryly convey what they do. Or used to do. Those government-owned companies and others have plunged into the red hot Chinese real estate development market. Now a bubble of epic proportions seems to be forming, and Beijing is desperately trying to rein it in.
Earlier this month ofﬁcials ordered 78 state-owned enterprises to get out of the real estate game by April. Beijing has also put new rules in place requiring hefty down payments of 50 per cent for land developers. Last week the central government went so far as to temporarily halt all sales of residential land. The moves come as speculators continue to drive property values up at double digit rates in many big cities, even as tens of thousands of homes and whole apartment buildings sit empty. Houses in Shanghai now cost 90 times more than average incomes.
The $586 billion in stimulus spending Beijing injected into the domestic economy is one reason for the bubble. But the situation has been made worse since local governments, and by extension many state-run companies, now rely heavily on property sales for revenues. In fact, many local politicians are desperate to keep the boom going.
“[Beijing] has tried using standard policies like increasing taxes on land transfers to cool down the real estate markets and it didn’t work,” says Terry Sicular, an economist at the University of Western Ontario who studies China. “Now they’re trying to restrict the amount of development. It may be effective for a short time, but it doesn’t fix the underlying problems.” And that could make an already dangerous bubble even worse. M