When foreign investors invest in or work with Chinese state-owned enterprises (SOEs) and state holding companies, they usually assume that assets owned by the central government have a good reputation and are sufficiently solvent. If there are problems, investors expect the government to intervene to help.
However, in the complex market for capital transactions, it is often not obvious whether state holding companies and companies with state participation can really be considered state enterprises. There is a large grey area. This lack of transparency leads to criminals trying to take over the forgotten central government companies lying in the opaque grey area, invest in them and set up many subsidiaries. They then use these subsidiaries to raise new financial resources.
Because information about the true situation of these forgotten companies is difficult for foreign investors to obtain, logos and certificates are becoming increasingly important. They are intended to give investors the illusion of security and quality. We believe that the importance of the labels as a state-owned company will decrease more and more and that the problem has not yet been recognized by the supervisory authorities in its scope.
Market distortion due to misleading logos and certificates is widespread in China. Take bio products, for example: because consumer demand for food safety and quality has increased massively in recent years, many products are sold with the bio label. Some bio vegetables can be sold in China for more than ten times the usual price. But a producer only needs a few thousand euros to obtain green certification.
Picture: Unsplash / James Coleman
China Intellectual Property Blog 