The Rise of the Investor State: State Capital in the Chinese Economy


The nature and extent of the role of the Chinese state in the economy is fundamental to many empirical and theoretical debates about that country’s political economy. We document and explain the rise of a novel form of intervention on the part of the Chinese state: the expansion of state capital beyond ownership of state firms. We argue that state investment as a mode of state intervention in the economy is conceptually distinct from both “state capitalism” and the “developmental state” in its introduction of new agents to distribute state capital to firms and new mechanisms through which states, especially authoritarian ones, monitor and influence business actors. We document the growth of the investor state in several ways. Case studies of three high-profile shareholding firms in China demonstrate that state capital can be deployed strategically, for example, to respond to financial crisis or facilitate industrial upgrading, but also generates moral hazard, resulting in corruption and resource misallocation, and international alarm about the intentions of Chinese firms. We further compare the rise of state shareholding firms in China to similar phenomena in Brazil and Malaysia, concluding that the practice has both economic and political logics.

This is a preview of subscription content, access via your institution.

Fig. 1


  1. 1.

    Relative to the “developmental state,” which is well theorized and defined, state capitalism is a fuzzier concept in the literature. Bremmer (2009) defines it as a system in which, “the state acts as the dominant economic player and uses markets primarily for political gain” (p.5), while the most definitive volume on state capitalism in China (Naughton and Tsai 2015) defines it as “a strong and robust state sector for the long term” (p. 2). We acknowledge that state minority investment is ideologically consistent with state capitalism as defined broadly by Bremmer; the mechanism of state investment in non-state firms requires explicit empirical investigation and theoretical consideration.

  2. 2.

    China State Council, “Guideline for the Promotion of the Development of the National Integrated Circuit Industry,”, accessed December 2018; Ministry of Industry and Information Technology, “Public Announcement on Selecting Management Companies for the Private Equity for Integrated Circuit Industry Development,” (关于北京市集成电路产业发展股权投资基金遴选管理公司的公告) December 18, 2013,

  3. 3.

    Note that the fund totals are “targets” for both state-provided capital and matched private contributions, so it is quite difficult to know how much money is actually available. Gorgon Orr and Christopher Thomas, “Semiconductors in China: Brave new world or same old story?,” August 2014, McKinsey & Co,

  4. 4.

    China Electronics News, “Scoop: Ding Wenwu Interprets the Big Fund,” “独家:丁文武详解大基金” October 23, 2017.

  5. 5.

    State Council. “Decision on Major Problems of Deepening Reform.”《中共中央关于全面深化改革若干重大问题的决定》November 15, 2013.

  6. 6.

    State capital investment companies are called 国有资本投资公司 in Chinese. SASAC. “SASAC Held Press Conference on the ‘Four Reform’.” 《国务院国资委举办“四项改革”试点新闻发布会》July 15, 2014.

  7. 7.

    State Council. No. 22 Document. “Guiding Opinions on Deepening Reform of State-Owned Enterprises.”《关于深化国有企业改革的指导意见》September 13, 2015.

  8. 8.

    Interestingly, the share of market capitalization owned by the state has stayed relatively steady at both levels, around 24% for the central state and around 19% for the local state. This would mean that the firms that fall under state ownership are not of substantial value. Data collected from WIND and calculated by authors.

  9. 9.

    China Chengtong Holdings Group’s website lists these partners in the establishment of the group’s “China Structural Reform Fund Corporation Limited.”

  10. 10.

    We provide a list of these firms in Supporting Information Table 1.

  11. 11.

    State Council. Document 23. “State Council suggestions on implementing the pilot program in promoting state-owned capital investment and operating companies.” 国务院关于推进国有资本投资运营公司改革试点的实施意见. Document No. 23. July 14, 2018.

  12. 12.

    Interview with former CSRC official (August 2019)

  13. 13.

    Xiao Gang. “Manage the Pace and Intensity of Risk Management and Promote the Healthy Development of the Asset Management Industry – Report for the 2019 China Wealth Management 50 Forum.” Xinhua News, August 20, 2019. Note: Xiao Gang is the former Chairman of China’s Securities Regulatory Commission.

  14. 14.

    It is, of course, possible that the firms listed on EMIS do not constitute a “universe” of investment and asset management firms in China, but it is the largest and only list of such firms we were able to locate. We have no reason to think it is less than representative.

  15. 15.

    To collect firm-level data, we rely on WIND and EMIS databases. EMIS has data on firm assets and date of incorporation, and WIND has data derived from corporate filing records for both publicly listed and privately held firms. In particular, WIND allows us to follow a firm’s ownership structure and discover the ultimate controller.

  16. 16.

    China Securities Finance Corporation is not state owned in the same sense as Central Huijin, as its shareholders include both Shanghai and Shenzhen Stock Exchanges and other commodities and future exchanges which are legally not a part of the state but categorized as “non-profit, social entities” administrated by the China Securities Regulatory Commission. These stock exchanges are, however, de facto governed by the state. The Shanghai Stock Exchange, for example, has an Organizational Department and a Discipline Inspection Department, both of which are CCP organs. Also, as we discuss below, CSFC was a definitive part of the “national team” in the 2015 crisis. Moreover, the Chairman and management teams (such as Nie Qingping and Xue Wenshi) are all CCP cadres with extensive career histories in the party-state and SOEs, especially banks.

  17. 17.

    To determine state versus non-state ownership, we focused on the ultimate controller of each firm. If ultimate controllers were organs of the state, including various levels of government and ministries as well as universities, we coded them as state.

  18. 18.

    Interview with private institutional investor, Shanghai (May 2017)

  19. 19.

    Interview with private institutional investor, Shanghai (May 2017)

  20. 20.

    In Chinese, 中国民生投资有限公司 or 中民投.

  21. 21.

    Among CMIG’s shareholders, seven are Vice Chairman of the All-China Federation of Industry and Commerce, four are Representatives of the National People’s Congress, and seven are member of the National People’s Political Consultative Conference.

  22. 22.

    “The vision and first steps of CMIG: A conversation with Dong Wenbiao.”《中民投的愿景和第一步, 对话董文标》2015-11-12.

  23. 23.


  24. 24.


  25. 25.

    This strategy clearly replicates that of the asset managers and SASAC committees for public sector firms and resembles the “puzzling demerging and decentralization” of public firms in Hungary described by David Stark in the 1990s. Just as in the Hungarian case, restructuring of balance sheets results in the creation of networks of firms with corporate satellite structures (Stark 1996).

  26. 26.

    Corporate filings show that the asset-liability ratio for CMIG went to .67 in 2015 and then over .75 for 2017 and after. Accessed through WIND database, August 2019.

  27. 27.

    Interview with private investor (July 2019). “CMIG and Ningxia Autonomous Region sign joint strategic collaboration agreement.” CMIG press release. August 28, 2014.

  28. 28.

    “CMIG and China Great Wall begin collaboration on all fronts.” CMIG press release. March 1, 2019.《中民投与中国长城资产开展全面合作》

  29. 29.

    “Zhao Leji visits CMIG.” 《央视新闻联播:赵乐际到访中民投股东单位》CMIG Press Release. May 22, 2019.

  30. 30.

    Chen Yanrong. “A new management structure for CMIG has surfaced.”《中民投新管理架构浮出水面》, China Financial News, August 27, 2019,

  31. 31.

    As one analyst put it, “The shares of the CMIG are too scattered. No one really cares about the company’s money, nor does it care whether a project is really making money. I am afraid it is a fatal problem.” Wu Hongwei, “CMIG seeks to survive by breaking its own arm.” 《断臂求生中民投》. Caixin, February 18, 2019.

  32. 32.

    Interview, Shanghai (July 2019).

  33. 33.

    Data from Emerging Market Information Systems (EMIS) 2018 and PNB Annual Report.

  34. 34.

    This observation based on author’s interviews with Malaysian business elites, October 2018.

  35. 35.

    Beginning in 2015, the China Federation of Industry and Commerce, in cooperation with the State Council, launched a campaign that calls for private firms to participate in poverty alleviation in China. Over 30,000 private firms participated in this campaign. Some big firms such as Alibaba, Tencent, Baidu, Wanda, etc. have spent billions. By June 2018, Tencent, for example, donated RMB 1.5 billion for poverty alleviation. Jack Ma at Alibaba in December 2017 announced that Alibaba will invest RMB 10 billion in poverty alleviation. See “Private Firms Put Great Efforts in Poverty Alleviation, What have Tencent and Alibaba done?” Sina Finance. October 17, 2018.; Fan Su. “Participating in Poverty Alleviation, Effects between State-owned Firms and Private Firms.” Caixin. July 30, 2017.


  1. Albertus M, Fenner S, Slater D. Coercive distribution. Cambridge University Press: New York; 2018.

    Book  Google Scholar 

  2. Ang YY. How China Escaped the Poverty Trap. Ithaca: Cornell University Press; 2016.

    Book  Google Scholar 

  3. Atkinson Robert (2019) “Testimony of Robert Atkinson at hearing on “Made in China 2025 and the Future of American Industry”.” 2019. Senate Small Business Committee.

  4. Bell D. The China model: political meritocracy and the limits of democracy. Princeton: Princeton University Press; 2015.

    Book  Google Scholar 

  5. Boardman AE, Vining AR. Ownership and performance in competitive environments: a comparison of the performance of private, mixed, and state-owned enterprises. J Law Econ. 1989;32:1–33.

    Article  Google Scholar 

  6. Bremmer Ian. The end of the free market: who wins the war between states and corporations? New York: Portfolio; 2009.

  7. Brødsgaard K. Cadre and personnel management in the CPC. China. 2012;10:69–83.

    Google Scholar 

  8. Chen Yanqing (2018) ‘Entry of local state capital into private enterprises continues: more than 10 private a-share companies will become state-owned this year (地方国资入主民企再掀高潮:今年超10家民营A股公司将变身国企)’, Tencent News: Finance, October 9, 2018

  9. Economy E. The third revolution: Xi Jinping and the new Chinese state. New York: Oxford University Press; 2018.

    Google Scholar 

  10. Evans P. Embedded autonomy: states and industrial transformation. Princeton: Princeton University Press; 1995.

    Book  Google Scholar 

  11. Fuller Douglas B. (2019) ‘Searching for China’s technological champions: what past structural flaws and policy failures tell us about the likelihood of success for current policies’, EAI Working Paper.

  12. Gerschenkron A. Economic backwardness in historical perspective. Cambridge: Harvard University Press; 1962.

    Google Scholar 

  13. Gomez Edmund Terence (2006) ‘Malaysian business groups: the state and capital development in the post-currency crisis period.’ in Sea-Jin Chang (ed.), East Asian Business Groups: Financial Crisis, Restructuring, and New Growth (Oxford University Press).

  14. Gomez ET. The rise and fall of capital: corporate Malaysia in historical perspective. Journal of Contemporary Asia. 2009;39:345–81.

    Article  Google Scholar 

  15. Gomez ET, Jomo KS. Malaysia's political economy: politics, patronage and profits. Cambridge: Cambridge University Press; 1999.

    Google Scholar 

  16. Gourevitch P, Shinn J. Political power and corporate control: the new global politics of corporate governance. Princeton: Princeton University Press; 2005.

    Google Scholar 

  17. Gupta N. Partial privatization and firm performance. J Financ. 2005;60:987–1015.

    Article  Google Scholar 

  18. Guthrie D, Xiao Z, Wang J. Stability, asset management, and gradual change in China’s reform economy. In: Naughton B, Tsai KS, editors. State capitalism, institutional adaptation, and the Chinese miracle. New York: Cambridge University Press; 2015.

    Google Scholar 

  19. Hachem K. Shadow banking in China. Annual review of financial economics. 2018;10:287–308.

    Article  Google Scholar 

  20. Haggard S. Developmental states. Elements in the Politics of Development. New York: Cambridge University Press; 2018.

    Google Scholar 

  21. Hall P, Soskice D. Varieties of capitalism: the institutional foundations of comparative advantage. New York: Oxford University Press; 2001.

    Book  Google Scholar 

  22. Hou Yue (2019). ‘The private sector: challenges and opportunities during Xi’s second term’, China Leadership Monitor

  23. Huang Y. Central-local relations in China during the reform era: the economic and institutional dimensions. World Dev. 1996;24(4):655–72.

    Article  Google Scholar 

  24. Huang Y. Capitalism with Chinese characteristics: entrepreneurship and the state. New York: Cambridge University Press; 2008.

  25. Inoue C, Lazzarini S, Musacchio A. Leviathan as a minority shareholder: firm-level implications of state equity purchases. Acad Manag J. 2013;56:1775–801.

    Article  Google Scholar 

  26. Keister L. Capital structure in transition: the transformation of financial strategies in China’s emerging economy. Organ Sci. 2004;15:145–58.

    Article  Google Scholar 

  27. Landry PF. Decentralized authoritarianism in China. New York: Cambridge University Press; 2008.

  28. Landry P, Lü X. Show me the money: interjurisdictional political competition and fiscal extraction in China. American political science Review. 2014;108(3):706–22.

    Article  Google Scholar 

  29. Lardy NR 2019. The state strikes back: the end of economic reform in China? Washington, DC: Peterson Institute for International Economics

  30. Leutert W. The political mobility of China’s central state-owned enterprise leaders. China Q. 2018;233:1–21.

    Article  Google Scholar 

  31. Li C. China's centralized industrial order: industrial reform and the rise of centrally controlled big business. Abingdon, Oxon: Routledge; 2015.

    Google Scholar 

  32. Li C. Holding “China Inc.” together: the CCP and the rise of China’s Yangqi. China Q. 2016;228:927–49.

    Article  Google Scholar 

  33. Li Yuan (2017) ‘Beijing pushes for a direct hand in China’s big tech firms’, Wall street journal, October 11, 2017

  34. Li Yifang (2019) Increase in a share equity transfer: reason, future, and policy recommendations. ( A股股权转让大增的特征、原因及政策建议 ) Shanghai Securities Research Report (上证研报). Number 8

  35. Li C, Zheng H (2019) Boom and bust, Chinese style: hybrid financial governance and China’s stock market crisis in 2015. Paper presented at the Society for the Advancement of Socioeconomics Annual Meeting. New York City, 2019

  36. Lindblom C. Politics and markets: the world’s political economic systems. New York: Basic Books; 1977.

  37. Ling Sieh Lee Mei (1992) ‘The transformation of Malaysian buisness groups.’ in Ruth McVey (ed.), Southeast Asian Capitalists (Cornell Southeast Asia Program Ithaca, NY). 'The meaning behind the “sale” of private enterprises to state capital (民企“卖身”国资背后的信号)'. 2018., September 18, 2018

  38. Minzner C. End of an era: how China’s authoritarian revival is undermining its rise New York: Oxford University Press; 2018.

  39. Mozur Paul, and Ewing Jack (2016) ‘Rush of Chinese Investment in Europe’s high-tech firms is raising eyebrows’, New York Times

  40. Musacchio A, Farias AM, Lazzarini SG. Reinventing state capitalism. Cambridge, MA: Harvard University Press; 2014.

  41.  Mi Na, Hu Liuji (2019) 中民投生死劫:负债3000亿 已很难从金融机构借到钱. 新浪财经. April 18

  42. Nahm J. Exploiting the implementation gap: policy divergence and industrial upgrading in China’s wind and solar sectors. China Q. 2017;231:705–27.

    Article  Google Scholar 

  43. Naughton B, Tsai KS. State capitalism, institutional adaptation, and the Chinese miracle. New York: Cambridge University Press; 2015.

  44. Oi Jean C, and Zhang Xiaowen (2014) ‘Creating corporate groups to strengthen China’s state-owned enterprises.’ in Kjeld Brødsgaard (ed.), Globalization and public sector reform in China (Routledge London)

  45. Pei M. China’s trapped transition: the limits of developmental autocracy. Cambridge, MA: Harvard University Press; 2006.

  46. Przeworski A, Teune H. The logic of comparative social inquiry. New York: Wiley-Interscience; 1970.

  47. Rawski TG. Reforming China’s economy: what have we learned? China J. 1999;41:139–56.

    Article  Google Scholar 

  48. Shambaugh D. China’s communist party: atrophy & adaptation. Berkeley, CA: University of California Press; 2008.

  49. Shih V, Adolph C, Liu M. Getting ahead in the communist party: explaining the advancement of central committee members in China. American political science review. 2012;106(1):166–87.

    Article  Google Scholar 

  50. Shirk S. China: fragile superpower. Oxford: Oxford University Press; 2007.

  51. Stark D. Recombinant property in east European capitalism. Am J Sociol. 1996;101:993–1027.

    Article  Google Scholar 

  52. Steinfeld ES. Playing our game: why China’s economic rise doesn’t threaten the West. Oxford: Oxford University Press; 2010.

    Google Scholar 

  53. Wang Y. The rise of the ‘shareholding state’: financialization of economic management in China. Soc Econ Rev. 2015;13:603–25.

    Article  Google Scholar 

  54. Shambaugh D. China goes global: the partial power. New York: Oxford University Press; 2013.

  55. Waterbury J. Exposed to innumerable delusions: public enterprise and state power in Egypt, India, Mexico, and Turkey. New York: Cambridge University Press; 1993.

    Google Scholar 

  56. Winters J. Power and the control of capital. World Polit. 1994;46(3):419–52.

    Article  Google Scholar 

  57. Woo WT. The real reasons for China’s growth. China J. 1999;41:115–37.

    Article  Google Scholar 

  58. Woo-Cumings, editor. The developmental state. Ithaca: Cornell University Press; 1999.

    Google Scholar 

  59. Wu H-L. Can minority state ownership influence firm value? Universal and contingency views of its governance effects. J Bus Res. 2011;64:839–45.

    Article  Google Scholar 

  60. Zysman J. Governments, markets, and growth: financial systems and the politics of industrial change. Ithaca, NY: Cornell University Press: Cornell Studies in Political Economy; 1983.

Download references


The authors wish to thank the Department of Faculty Research and Development of Harvard Business School for research funding and support. For helpful comments and suggestions, we thank Josh Aizenman, Jude Blanchette, Gao Chen, Andy Collier, Nancy Dai, Rafael DiTella, Joseph Fewsmith, Jimmy Goodrich, Jingsheng Huang, Saori Katada, Kristen Looney, Jonas Nahm, Barry Naughton, Margaret Pearson, Tony Saich, Stacy Tan, Kellee Tsai, and participants at the 2019 Society for the Advancement of Socioeconomics meeting and the USC Marshall China Research Workshop. For research assistance, we thank Yihao Li, Jamie Chen, Andy Fan, Dave Hicks, Mike Shao, and Zhiying Xie.

Author information



Corresponding author

Correspondence to Meg Rithmire.

Ethics declarations

Conflict of Interest

The authors declare that they have no conflict of interest.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic Supplementary Material


(DOCX 25 kb)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Chen, H., Rithmire, M. The Rise of the Investor State: State Capital in the Chinese Economy. St Comp Int Dev 55, 257–277 (2020).

Download citation


  • China’s political economy
  • State shareholding
  • State-business relations
  • State capitalism
  • China’s financial system