Barriers to Entry in Monopolistic Industries: NGEs’ Difficulties and Solutions

Abstract

The monopolistic industries hold the dominant position in China’s national economy. Sustained high relative prices directly lead to high profits for China’s monopolized industries, such as telecommunications, petroleum, tobacco, finance, electricity, water, and gas. On August 20, 2010, SASAC (the State-Owned Assets Supervision and Administration Commission) released the Table of Central Enterprises’ Respective Operations of State-Owned Assets 2009, which includes 108 of the 129 central enterprises. According to the table printed here, the total net profit attributable to the parent companies of these 108 central enterprises came out to RMB 398.96 billion, and China Mobile, CNPC (China National Petroleum Corporation), and Sinopec Group ranked as the top three companies, with net profits of RMB 79.63 billion, 70.17 billion, and 39.32 billion, respectively. As reported by The Beijing News on August 30, 2010, the four major state-owned banks were far ahead of the industry in terms of net profit; their net profits added up to RMB 255.9 billion, 74.5% of the total net profit of the 16 listed banks; with its net profit of RMB 84.603 billion, ICBC (Industrial & Commercial Bank of China) was the most profitable of all. Many studies show that the fat profits of monopolized industries come from their privileges, rather than any kind of improvement of economic efficiency in the technological sense (Bai Ming and Lei Jingqing 2006; Yu Chunliang and Zhang Wei 2010). According to data put forward in the Report on the Development of China’s Information Society 2010, the average broadband expenditure was 7.4% of China’s per capita GDP in 2008, ranking 71st of all 99 countries compared in the study. The figure was 1.15% in South Korea, which ranked 9th, but the per capita national income of South Korea was 6.9 times that of China, which means the broadband expense of a Chinese individual was 124 times that of a South Korean. The high profit of these monopolized industries ensures much higher incomes for their employees than for those employed in other industries. Through a comparison of the employee wages between the post and communications industry and other industries, Xie Di (2007) discovered that, each year, the average wages of the post and communications industry are 70% higher than those of other industries, and over 160% higher than that of agriculture, forestry, animal husbandry, and fishery, and that the gap is widening yearly (Table 4.1). Wang Junhao et al. (2010) also pointed out that the average employee income within the monopolistic industries is much higher than the national average, and the income gap is growing. In 2005, the average wage in telecommunications and other information transmissions was RMB 36,941, 101% higher than the national average. In 2003, the average income in the production and distribution of electricity, gas, and water was 34% higher than the national average, while in 2005 the gap had widened to 37%. Similarly, the income gap between the transportation, storage, and postal services industries and other industries had grown from 14% to 16%. Now that monopolies are not conducive to efficiency but, rather, cause huge losses of efficiency (Yu Chunliang and Zhang Wei 2010), it is of great significance to a country’s Pareto Optimality in terms of the economy and social welfare to break existing monopolies.