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5 White Paper on the Business Environment in China
and threatening to multinationals.”4 invest abroad have been SOEs or otherwise related to the gov-
e move is even more curious because, in the words of ernment. But the government’s intimacy with companies—
and not only SOEs—which are looking to invest in abroad
Mr. McGregor, “SOEs add zero growth—zero job growth, has been a source of considerable suspicion among foreign
zero innovation. e private sector is what Deng [Xiaoping] regulators in recent years. Several high-pro le acquisitions of
used to pull this country out of a hole and they’re going to foreign companies by Chinese rms have been halted, blocked
have to use the private sector to move it to the next step.” or aborted in recent years.
Moreover, while it is unlikely that these SOEs will become
“the new General Electrics in 10 or 20 years […] they can de- In September 2012, President Obama issued “an executive
stroy a lot of companies and distort global markets and busi- order prohibiting a Chinese company from owning and oper-
ness practices along the way.”4 ating a wind farm near the Naval Weapons Systems Training
Facility in Boardman, Ore [which] is said to be home to a
According to Reuters, “Chinese reformers and Western
governments say [SOEs’] sheer size and market dominance eet of unmanned drones and planes specializing in electronic
creates a drag on the economy through vast opportunity for warfare.” is was the rst time in 22 years that a president
corruption and waste, leading to higher costs for consum- had prevented a foreign acquisition of a US business.5
ers,” and that critics of current SOE-related policy claim that
“without further reform of the state sector, China’s growth e Chinese company in question—machinery giant
will stagnate. ey call for equal opportunity for private rms, Sany—“is controlled by China’s second-richest man, Liang
which provide most of the new jobs in China.”3 Wengen, who has recently been appointed to the Central
Committee of China’s Communist Party.”5
e Chinese government’s oft-repeated call for indigenous
innovation and the development of key high-tech industries is Around the same date, Chinese authorities were shocked,
exceedingly unlikely to be answered successfully by complacent just shocked when the “U.S. House of Representatives’ Intel-
SOEs and those entrepreneurs who are the nation’s best hope ligence Committee warned […] that Beijing could use equip-
in achieving a substantive economy based on innovation “are ment made by Huawei, the world’s second-largest maker of
unable to get nancing so they often live o loan sharks.”4 routers and other telecom gear, as well as rival Chinese manu-
Banks in China o er SOEs preferential treatment, often at the facturer ZTE, the fth largest, for spying.”6
expense of private enterprises.
Although “neither Huawei nor ZTE is state-owned,” the
Overseas Expansion No Easy Task report “cited the presence of a Communist Party cell in the
companies’ management structure as part of the reason for
In more global terms, Wall Street Journal commentator concern” while “suspicions of Huawei are partly tied to its
Stanley Lubman argues that, “ e need to better understand founder, Ren Zhengfei, a former People’s Liberation Army
China’s system goes beyond abstract arguments about the fu- o cer.”6
ture of the global economy. e continuing expansion of the
state sector of China’s economy limits the private sector and Reuters recalls that:
favors state-owned enterprises (SOEs) over foreign companies
in some domestic markets. As SOEs extend their investments China su ered the biggest knock to its deal-making
abroad, nations in which China seeks to invest need to be- con dence in 2005, when state-controlled oil rm
come more aware of frequent links between state ownership CNOOC Ltd withdrew an $18.5 billion bid for U.S.
and state control.”2 oil rm Unocal after the Senate moved to block it on
national interest grounds.
China’s increasing support for SOEs at the expense of
market-based competition in a variety of industries—“China […]
going in a direction that the West didn’t think China was go-
ing in”4 after joining the WTO in 2001—is likely to be a In 2009, the state-owned China Non-Ferrous Metal
source of increasing friction between the P.R.C. and the rest Mining (Group) Co dropped a $400 million bid for
of the world. 50.6 percent of Lynas Corp , owner of the world’s
richest deposit of rare earth minerals, saying the con-
At the above-mentioned 18th Communist Party Congress, ditions set by [Australia’s Foreign Investment Review
“[SASAC leader Wang] and other state- rm bosses empha- Board] were too sti .
sized their importance to what they called ‘national economic
security’ in their gathering, laying out plans for further invest- […]
ment and overseas expansion.”3
[Also in 2009,] Treasurer Wayne Swan forced Chinese
Historically, Chinese companies that are given licenses to metals group Minmetals to withdraw a $1.7 billion bid
26
and threatening to multinationals.”4 invest abroad have been SOEs or otherwise related to the gov-
e move is even more curious because, in the words of ernment. But the government’s intimacy with companies—
and not only SOEs—which are looking to invest in abroad
Mr. McGregor, “SOEs add zero growth—zero job growth, has been a source of considerable suspicion among foreign
zero innovation. e private sector is what Deng [Xiaoping] regulators in recent years. Several high-pro le acquisitions of
used to pull this country out of a hole and they’re going to foreign companies by Chinese rms have been halted, blocked
have to use the private sector to move it to the next step.” or aborted in recent years.
Moreover, while it is unlikely that these SOEs will become
“the new General Electrics in 10 or 20 years […] they can de- In September 2012, President Obama issued “an executive
stroy a lot of companies and distort global markets and busi- order prohibiting a Chinese company from owning and oper-
ness practices along the way.”4 ating a wind farm near the Naval Weapons Systems Training
Facility in Boardman, Ore [which] is said to be home to a
According to Reuters, “Chinese reformers and Western
governments say [SOEs’] sheer size and market dominance eet of unmanned drones and planes specializing in electronic
creates a drag on the economy through vast opportunity for warfare.” is was the rst time in 22 years that a president
corruption and waste, leading to higher costs for consum- had prevented a foreign acquisition of a US business.5
ers,” and that critics of current SOE-related policy claim that
“without further reform of the state sector, China’s growth e Chinese company in question—machinery giant
will stagnate. ey call for equal opportunity for private rms, Sany—“is controlled by China’s second-richest man, Liang
which provide most of the new jobs in China.”3 Wengen, who has recently been appointed to the Central
Committee of China’s Communist Party.”5
e Chinese government’s oft-repeated call for indigenous
innovation and the development of key high-tech industries is Around the same date, Chinese authorities were shocked,
exceedingly unlikely to be answered successfully by complacent just shocked when the “U.S. House of Representatives’ Intel-
SOEs and those entrepreneurs who are the nation’s best hope ligence Committee warned […] that Beijing could use equip-
in achieving a substantive economy based on innovation “are ment made by Huawei, the world’s second-largest maker of
unable to get nancing so they often live o loan sharks.”4 routers and other telecom gear, as well as rival Chinese manu-
Banks in China o er SOEs preferential treatment, often at the facturer ZTE, the fth largest, for spying.”6
expense of private enterprises.
Although “neither Huawei nor ZTE is state-owned,” the
Overseas Expansion No Easy Task report “cited the presence of a Communist Party cell in the
companies’ management structure as part of the reason for
In more global terms, Wall Street Journal commentator concern” while “suspicions of Huawei are partly tied to its
Stanley Lubman argues that, “ e need to better understand founder, Ren Zhengfei, a former People’s Liberation Army
China’s system goes beyond abstract arguments about the fu- o cer.”6
ture of the global economy. e continuing expansion of the
state sector of China’s economy limits the private sector and Reuters recalls that:
favors state-owned enterprises (SOEs) over foreign companies
in some domestic markets. As SOEs extend their investments China su ered the biggest knock to its deal-making
abroad, nations in which China seeks to invest need to be- con dence in 2005, when state-controlled oil rm
come more aware of frequent links between state ownership CNOOC Ltd withdrew an $18.5 billion bid for U.S.
and state control.”2 oil rm Unocal after the Senate moved to block it on
national interest grounds.
China’s increasing support for SOEs at the expense of
market-based competition in a variety of industries—“China […]
going in a direction that the West didn’t think China was go-
ing in”4 after joining the WTO in 2001—is likely to be a In 2009, the state-owned China Non-Ferrous Metal
source of increasing friction between the P.R.C. and the rest Mining (Group) Co dropped a $400 million bid for
of the world. 50.6 percent of Lynas Corp , owner of the world’s
richest deposit of rare earth minerals, saying the con-
At the above-mentioned 18th Communist Party Congress, ditions set by [Australia’s Foreign Investment Review
“[SASAC leader Wang] and other state- rm bosses empha- Board] were too sti .
sized their importance to what they called ‘national economic
security’ in their gathering, laying out plans for further invest- […]
ment and overseas expansion.”3
[Also in 2009,] Treasurer Wayne Swan forced Chinese
Historically, Chinese companies that are given licenses to metals group Minmetals to withdraw a $1.7 billion bid
26
