During the US-China trade war, China’s state companies started buying up dying private firms just to keep people employed, not for profit.
This reveals that state-owned enterprises (SOEs) function as a hidden social safety net, absorbing the shocks of international trade disputes. While these acquisitions helped local governments meet employment targets, they significantly increased the long-term financial risk and operating fragility of the acquiring state companies.
The Trade War Shocks and SOE's M&A as Local Bailouts: Evidence from China
SSRN · 6487389
The trade war between U.S. and China is a vital and unexpected shock for Chinese firms, especially for private firms. This study examines the association between Chinese SOEs’ M&A decisions targeting private firms and trade-war shocks, offering a novel perspective on the Chinese government’s responses to trade-war shocks. Utilizing a comprehensive dataset of Chinese firms spanning from 2015 to 2021, we find that the trade war shocks dispute significantly increased the frequency of local acquisit