New Delhi: With the US, the European Union (EU) and Japan planning new rules on industrial subsidies and state-owned enterprises (SOEs) specifically targeting China to fix its market-distorting behaviour, India believes member countries of the Regional Comprehensive Economic Partnership (RCEP) led by Japan may formulate tighter rules on SOEs in the ongoing negotiations.

A joint statement issued last month by the three economies after a meeting of their trade ministers said new rules on SOEs will aim at creating a more level playing field for their workers and businesses.

“The ministers highlighted the importance of securing a level playing field given the challenges posed by third parties developing SOEs into national champions and setting them loose in global markets, resulting in distortions that negatively affect farmers, industrial producers, and workers in the ministers’ home countries," it said.

The regulations are expected to focus on lending by state-owned banks to a company irrespective of its creditworthiness, including due to implicit government guarantees, subsidies to an ailing enterprise without a credible restructuring plan, and subsidies leading to or maintaining overcapacity.

“The trilateral partners continue exploring how to increase the costs of transparency and notification failures and how to strengthen the ability to obtain information on subsidies. The ministers also confirmed their commitment to continue working together to maintain the effectiveness of existing WTO (World Trade Organization) disciplines," according to the joint statement.

An Indian trade ministry official said India will not oppose more stringent rules on SOEs though central public sector enterprises (CPSEs) play a significant role in the Indian economy.

“We are very transparent. All the records of our CPSEs are on the internet. Their purchase transactions are also public," the ministry official said.

India’s former commerce secretary Rajeev Kher said India should not shy away from negotiating tighter regulations for SOEs just because it also has large CPSEs. “China is not a market economy and there is a lot of opacity in the way it functions. State capitalism in China gives a lot of protection to SOEs. India should push for stringent rules on SOEs under RCEP because China’s SOEs are so expansive in magnitude that we stand nowhere close to it," he said.

In China’s economy, the private sector is dominant in industries such as clothing, food, and assembly for export, while companies are predominantly state-owned in sectors such as energy, utilities, and transport, financial, telecom, education, and healthcare services. China’s overcapacity in steel production has been of particular worry to all major economies.

State trading enterprises in China have the exclusive right to import or export products such as grain, sugar, tobacco, rice, corn, cotton, coal, crude oil, processed oil, chemical fertilizers, tungsten, tea, silk, antimony and silver.

After many years of downsizing, SOEs started growing after the global financial crisis, accounting for three-quarters, or 60 percentage points, of the rise in corporate debt/GDP since then, and now have assets of over 200% of GDP, the International Monetary Fund noted in a report in August last year.

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