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5 White Paper on the Business Environment in China
for OZ Minerals until it revised the deal to exclude a from signi cant failures in their domestic market, that same
control will likely lead to increasing backlash against China’s
mine situated in a restricted weapons testing area.7 overall mandate to ‘go out’ and invest abroad. In other words,
More generally, the U.S. report found that for the most the continuing prosperity of SOEs at home due to practices
part “[overseas] investment [is] spearheaded by Chinese state- that, once again, “ [are] increasingly incompatible with global
owned enterprises that enjoyed government subsidies and trade regimes and threatening to multinationals.”4
other market-distorting policies that support industrial policy
and non-market goals of the Chinese government.”3 is is just one facet of the overall paradox of reform in
As Mr. Lubman observes, “China’s ‘state capitalism’ will contemporary China: despite a wide-ranging consensus within
continue to number among those issues on which leaders in and without China that substantive political reform is necessary
Washington are likely be ‘hard-edged,’ and rightly so. If an for the long-term relevance of the Communist Party, the short-
SOE appears as a possible investor, [the Committee on For- term consequences of that reform—both real and imagined—
eign Investment in the United States] will most likely have remain too unpalatable for much progress to be made.
di culty probing its relations to Chinese government agen-
cies of concern. And the Chinese side will most likely not In light of the overall situation, it would appear that no-
display satisfactory transparency.”2 body in a position of authority has yet been willing to risk
halting the ow of lucre that many vested interests in Beijing
e U.S. Chamber of Commerce further notes that “Chi- no doubt enjoy as a result of SOEs’ success-by- at, even if it
na and other countries lavish regulatory favors and generous would mean an overall healthier national economy and even
subsidies on their state-owned rms, making it very di cult as an increasing number of economic measures indicate that
to compete,” and that “No adequate and e ective internation- China may be on the cusp of signi cant economic hardship.
al disciplines now exist to deal with this problem.”8
Strictly pragmatically, the most likely candidates for suc-
In December 2012, Canadian authorities “approved Chi- cessful investment overseas are not the SOEs that authorities
na’s biggest ever foreign takeover [a $15.1 billion bid by state- seem to want to prop up as industry champions, but rather
controlled CNOOC Ltd for energy company Nexen Inc.] but smaller—and more independent—enterprises which are more
drew a line in the sand against future buys by state-owned likely to evade signi cant concerns about propriety and trans-
enterprises.”9 parency. In our opinion, these rms are also most likely to
make signi cant positive contributions to overseas economies
Prime Minister Steven Harper said: “To be blunt, Cana- and China’s own.
dians have not spent years reducing the ownership of sectors
of the economy by our own governments, only to see them
bought and controlled by foreign governments instead.”9
Reuters notes that “ e international community has de-
manded greater transparency from China on a number of
fronts for years, wary of its intentions as the country grew to
become the second-biggest economy in the world and sym-
bolic of a shift in global power to emerging nations.”10
Moreover, “China’s state-secrets laws, massive bureaucracy
and cronyism [which] make it di cult to get key, veri able
information from Chinese companies.” even in cases where
the largest security concern is nancial.10
More pragmatically, Mr. McGregor argues that fast-mov-
ing and adaptable entrepreneurs, not SOEs, present the best
hope for China’s future overseas investments: “[ e ‘going
out’ policy] can’t be led by SOEs: ey’re not China’s best
and brightest.”4
What Next
At this point it appears that the continuing relevance of
SOEs in China owes more to political in uence and vested in-
terest than in their ability to successfully compete domestically
or even internationally; while the Communist Party’s de-facto
control over the enterprises themselves may insulate them
28
for OZ Minerals until it revised the deal to exclude a from signi cant failures in their domestic market, that same
control will likely lead to increasing backlash against China’s
mine situated in a restricted weapons testing area.7 overall mandate to ‘go out’ and invest abroad. In other words,
More generally, the U.S. report found that for the most the continuing prosperity of SOEs at home due to practices
part “[overseas] investment [is] spearheaded by Chinese state- that, once again, “ [are] increasingly incompatible with global
owned enterprises that enjoyed government subsidies and trade regimes and threatening to multinationals.”4
other market-distorting policies that support industrial policy
and non-market goals of the Chinese government.”3 is is just one facet of the overall paradox of reform in
As Mr. Lubman observes, “China’s ‘state capitalism’ will contemporary China: despite a wide-ranging consensus within
continue to number among those issues on which leaders in and without China that substantive political reform is necessary
Washington are likely be ‘hard-edged,’ and rightly so. If an for the long-term relevance of the Communist Party, the short-
SOE appears as a possible investor, [the Committee on For- term consequences of that reform—both real and imagined—
eign Investment in the United States] will most likely have remain too unpalatable for much progress to be made.
di culty probing its relations to Chinese government agen-
cies of concern. And the Chinese side will most likely not In light of the overall situation, it would appear that no-
display satisfactory transparency.”2 body in a position of authority has yet been willing to risk
halting the ow of lucre that many vested interests in Beijing
e U.S. Chamber of Commerce further notes that “Chi- no doubt enjoy as a result of SOEs’ success-by- at, even if it
na and other countries lavish regulatory favors and generous would mean an overall healthier national economy and even
subsidies on their state-owned rms, making it very di cult as an increasing number of economic measures indicate that
to compete,” and that “No adequate and e ective internation- China may be on the cusp of signi cant economic hardship.
al disciplines now exist to deal with this problem.”8
Strictly pragmatically, the most likely candidates for suc-
In December 2012, Canadian authorities “approved Chi- cessful investment overseas are not the SOEs that authorities
na’s biggest ever foreign takeover [a $15.1 billion bid by state- seem to want to prop up as industry champions, but rather
controlled CNOOC Ltd for energy company Nexen Inc.] but smaller—and more independent—enterprises which are more
drew a line in the sand against future buys by state-owned likely to evade signi cant concerns about propriety and trans-
enterprises.”9 parency. In our opinion, these rms are also most likely to
make signi cant positive contributions to overseas economies
Prime Minister Steven Harper said: “To be blunt, Cana- and China’s own.
dians have not spent years reducing the ownership of sectors
of the economy by our own governments, only to see them
bought and controlled by foreign governments instead.”9
Reuters notes that “ e international community has de-
manded greater transparency from China on a number of
fronts for years, wary of its intentions as the country grew to
become the second-biggest economy in the world and sym-
bolic of a shift in global power to emerging nations.”10
Moreover, “China’s state-secrets laws, massive bureaucracy
and cronyism [which] make it di cult to get key, veri able
information from Chinese companies.” even in cases where
the largest security concern is nancial.10
More pragmatically, Mr. McGregor argues that fast-mov-
ing and adaptable entrepreneurs, not SOEs, present the best
hope for China’s future overseas investments: “[ e ‘going
out’ policy] can’t be led by SOEs: ey’re not China’s best
and brightest.”4
What Next
At this point it appears that the continuing relevance of
SOEs in China owes more to political in uence and vested in-
terest than in their ability to successfully compete domestically
or even internationally; while the Communist Party’s de-facto
control over the enterprises themselves may insulate them
28
