What McDonald’s can teach Donald Trump about the value of China’s state-owned enterprises

Zhigang Tao and Mary Hui say just as McDonald’s retains some company-owned stores for brand-building, the Chinese government maintains state-owned enterprises to ensure social stability

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A McDonald’s sign is displayed outside an outlet in Shenzhen in March 2013. The store, which opened its doors in 1990, was the first McDonald’s restaurant in China. Photo: Reuters

Published: 11:30am, 20 Sep 2018Updated: 7:22pm, 20 Sep 2018

At the heart of the trade war between the United States and China is Washington’s vehement objection to the prominence of state-owned enterprises in the Chinese economy. To the US, SOEs smack of unfair competition and represent a blatant violation of the rules of free and global trade.

China, unsurprisingly, begs to differ. Beijing is so adamant about SOEs that it is doubling down, intensifying the role of the state-owned sector in open defiance of the US.

And in an ironic twist of economic logic, McDonald’s – the quintessential symbol of American capitalism – helps to explain why SOEs play a crucial role in China’s economy.

First, consider the problems of unmotivated managers, mediocre profits and low efficiency in state-owned enterprises, especially in comparison to other businesses, including foreign multinationals and private indigenous Chinese firms.

Indeed, these are the same challenges faced by McDonald’s – specifically, the inefficiency of its company-owned units in comparison to its franchised units.