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6 White Paper on the Business Environment in China
gen, who has recently been appointed to the Central Commit- tory transparency.”25
tee of China’s Communist Party.”28 The U.S. Chamber of Commerce further notes that “Chi-
Around the same date, Chinese authorities were shocked, just na and other countries lavish regulatory favors and generous
shocked when the “U.S. House of Representatives’ Intelligence subsidies on their state-owned firms, making it very difficult
Committee warned […] that Beijing could use equipment made to compete,” and that “No adequate and effective international
by Huawei, the world’s second-largest maker of routers and disciplines now exist to deal with this problem.”31
other telecom gear, as well as rival Chinese manufacturer ZTE,
the fifth largest, for spying”29. In December 2012, Canadian authorities “approved China’s
biggest ever foreign takeover [a $15.1 billion bid by state-
Although “neither Huawei nor ZTE is state-owned,” the controlled CNOOC Ltd for energy company Nexen Inc.]
report cited, the presence of a Communist Party cell in the but drew a line in the sand against future buys by state-owned
companies’ management structure as part of the reason for enterprises”32.
concern” while “suspicions of Huawei are partly tied to its
founder, Ren Zhengfei, a former People’s Liberation Army Prime Minister Steven Harper said: “To be blunt, Canadi-
officer.”29 ans have not spent years reducing the ownership of sectors of
the economy by our own governments, only to see them bought
Reuters recalls that: and controlled by foreign governments instead.”32
China suffered the biggest knock to its deal-making Reuters notes that “The international community has de-
confidence in 2005, when state-controlled oil firm manded greater transparency from China on a number of fronts
CNOOC Ltd withdrew an $18.5 billion bid for U.S. for years, wary of its intentions as the country grew to become
oil firm Unocal after the Senate moved to block it on the second-biggest economy in the world and symbolic of a
national interest grounds. shift in global power to emerging nations.”33
[…] Moreover, “China’s state-secrets laws, massive bureaucracy
and cronyism [which] make it difficult to get key, verifiable
In 2009, the state-owned China Non-Ferrous Metal information from Chinese companies”. even in cases where the
Mining (Group) Co dropped a $400 million bid for largest security concern is financial.33
50.6 percent of Lynas Corp , owner of the world’s rich-
est deposit of rare earth minerals, saying the conditions More pragmatically, Mr. McGregor argues that fast-moving
set by [Australia’s Foreign Investment Review Board] and adaptable entrepreneurs, not SOEs, present the best hope for
were too stiff. China’s future overseas investments:—“[The ‘going out’ policy]
can’t be led by SOEs: They’re not China’s best and brightest.”27
[…]
What next
[Also in 2009,] Treasurer Wayne Swan forced Chinese
metals group Minmetals to withdraw a $1.7 billion bid At this point it appears that the continuing relevance of
for OZ Minerals until it revised the deal to exclude a SOEs in China owes more to political influence and vested in-
mine situated in a restricted weapons testing area.30 terest than in their ability to successfully compete domestically
or even internationally; while the Communist Party’s de-facto
More generally, the U.S. report found that for the most control over the enterprises themselves may insulate them from
part “[overseas] investment [is] spearheaded by Chinese state- significant failures in their domestic market, that same control
owned enterprises that enjoyed government subsidies and other will likely lead to increasing backlash against China’s over-
market-distorting policies that support industrial policy and all mandate to ‘go out’ and invest abroad. In other words, the
non-market goals of the Chinese government”26. continuing prosperity of SOEs at home due to practices that,
once again, “ [are] increasingly incompatible with global trade
As Mr. Lubman observes, “China’s ‘state capitalism’ will regimes and threatening to multinationals.”27
continue to number among those issues on which leaders in
Washington are likely be ‘hard-edged,’ and rightly so. If an SOE This is just one facet of the overall paradox of reform in con-
appears as a possible investor, [the Committee on Foreign In- temporary China: despite a wide-ranging consensus within and
vestment in the United States] will most likely have difficulty without China that substantive political reform is necessary for
probing its relations to Chinese government agencies of con- the long-term relevance of the Communist Party, the short-
cern. And the Chinese side will most likely not display satisfac- term consequences of that reform—both real and imagined—
remain too unpalatable for much progress to be made.
36
In light of the overall situation, it would appear that nobody
in a position of authority has yet been willing to risk halting
the flow of lucre that many vested interests in Beijing no doubt
enjoy as a result of SOEs’ success-by-fiat, even if it would mean
gen, who has recently been appointed to the Central Commit- tory transparency.”25
tee of China’s Communist Party.”28 The U.S. Chamber of Commerce further notes that “Chi-
Around the same date, Chinese authorities were shocked, just na and other countries lavish regulatory favors and generous
shocked when the “U.S. House of Representatives’ Intelligence subsidies on their state-owned firms, making it very difficult
Committee warned […] that Beijing could use equipment made to compete,” and that “No adequate and effective international
by Huawei, the world’s second-largest maker of routers and disciplines now exist to deal with this problem.”31
other telecom gear, as well as rival Chinese manufacturer ZTE,
the fifth largest, for spying”29. In December 2012, Canadian authorities “approved China’s
biggest ever foreign takeover [a $15.1 billion bid by state-
Although “neither Huawei nor ZTE is state-owned,” the controlled CNOOC Ltd for energy company Nexen Inc.]
report cited, the presence of a Communist Party cell in the but drew a line in the sand against future buys by state-owned
companies’ management structure as part of the reason for enterprises”32.
concern” while “suspicions of Huawei are partly tied to its
founder, Ren Zhengfei, a former People’s Liberation Army Prime Minister Steven Harper said: “To be blunt, Canadi-
officer.”29 ans have not spent years reducing the ownership of sectors of
the economy by our own governments, only to see them bought
Reuters recalls that: and controlled by foreign governments instead.”32
China suffered the biggest knock to its deal-making Reuters notes that “The international community has de-
confidence in 2005, when state-controlled oil firm manded greater transparency from China on a number of fronts
CNOOC Ltd withdrew an $18.5 billion bid for U.S. for years, wary of its intentions as the country grew to become
oil firm Unocal after the Senate moved to block it on the second-biggest economy in the world and symbolic of a
national interest grounds. shift in global power to emerging nations.”33
[…] Moreover, “China’s state-secrets laws, massive bureaucracy
and cronyism [which] make it difficult to get key, verifiable
In 2009, the state-owned China Non-Ferrous Metal information from Chinese companies”. even in cases where the
Mining (Group) Co dropped a $400 million bid for largest security concern is financial.33
50.6 percent of Lynas Corp , owner of the world’s rich-
est deposit of rare earth minerals, saying the conditions More pragmatically, Mr. McGregor argues that fast-moving
set by [Australia’s Foreign Investment Review Board] and adaptable entrepreneurs, not SOEs, present the best hope for
were too stiff. China’s future overseas investments:—“[The ‘going out’ policy]
can’t be led by SOEs: They’re not China’s best and brightest.”27
[…]
What next
[Also in 2009,] Treasurer Wayne Swan forced Chinese
metals group Minmetals to withdraw a $1.7 billion bid At this point it appears that the continuing relevance of
for OZ Minerals until it revised the deal to exclude a SOEs in China owes more to political influence and vested in-
mine situated in a restricted weapons testing area.30 terest than in their ability to successfully compete domestically
or even internationally; while the Communist Party’s de-facto
More generally, the U.S. report found that for the most control over the enterprises themselves may insulate them from
part “[overseas] investment [is] spearheaded by Chinese state- significant failures in their domestic market, that same control
owned enterprises that enjoyed government subsidies and other will likely lead to increasing backlash against China’s over-
market-distorting policies that support industrial policy and all mandate to ‘go out’ and invest abroad. In other words, the
non-market goals of the Chinese government”26. continuing prosperity of SOEs at home due to practices that,
once again, “ [are] increasingly incompatible with global trade
As Mr. Lubman observes, “China’s ‘state capitalism’ will regimes and threatening to multinationals.”27
continue to number among those issues on which leaders in
Washington are likely be ‘hard-edged,’ and rightly so. If an SOE This is just one facet of the overall paradox of reform in con-
appears as a possible investor, [the Committee on Foreign In- temporary China: despite a wide-ranging consensus within and
vestment in the United States] will most likely have difficulty without China that substantive political reform is necessary for
probing its relations to Chinese government agencies of con- the long-term relevance of the Communist Party, the short-
cern. And the Chinese side will most likely not display satisfac- term consequences of that reform—both real and imagined—
remain too unpalatable for much progress to be made.
36
In light of the overall situation, it would appear that nobody
in a position of authority has yet been willing to risk halting
the flow of lucre that many vested interests in Beijing no doubt
enjoy as a result of SOEs’ success-by-fiat, even if it would mean
