China’s Economic Empire
Europeans and Americans tend to fret over Begging’s assertiveness in the South China Sea, its territorial disputes with Japan, and cybernetics’s on Western firms, but all of this is much less important than a phenomenon that is less visible but more disturbing: the aggressive worldwide push of Chinese state capitalism. By buying companies, exploiting natural resources, building infrastructure and giving loans all over the world, China is pursuing a soft but unstoppable form of economic domination.
Beijing essentially unlimited financial resources allow the country to be a game-changing force in both the developed and developing world, one that heartens to obliterate the competitive edge of Western firms, kill Jobs in Europe and America and blunt criticism of human rights abuses in China. Ultimately, thanks to the deposits of over a billion Chinese savers, China Inc. Has been able to acquire strategic assets worldwide.
This is possible because those deposits are financially repressed ? savers receive negative returns because of interest rates below the inflation rate and strict capital controls that prevent savers from investing their money in more profitable investments abroad. Consequently, the Chinese overspent now controls oilman gas pipelines from Terminating to China and from South Sudan to the Red Sea.
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China has also invested heavily in building infrastructure, undertaking huge hydroelectric projects like the Empower Dam on the Nile in Sudan ? the biggest Chinese engineering project in Africa ? and Ecuador $2. 3 billion Coca Cod Sinclair Dam. And China is currently involved in the building of more than 200 other dams across the planet, according to International Rivers, a nonprofit environmental organization. China has become the world’s leading exporter; it also surpassed the United States as the world’s biggest trading nation in 2012.
In the span of Just a few years, China has become the leading trading partner of countries like Australia, Brazil and Chile as it seeks resources like iron ore, soybeans and copper. Lower tariffs and China’s booming economy explain this exponential growth. By buying mainly natural resources and food, China is insuring that two of the country’s economic engines ? arbitration and the export sector ? are securely supplied with the needed resources.
In Europe and North America, China’s arrival on the scene has been more recent but the figures clearly show a growing trend: annual investment from China to the European Union grew trot less than $1 billion annually bettor 2 to more than $10 billion in the past two years. And in the United States, investment surged from less than $1 billion in 2008 too record high of $6. 7 billion in 2012, according to the Rhodium Group, an economic research firm. Last year, Europe was the destination for 33 percent of
China’s foreign direct investment. The New York Times I-June-2013 Government support, through hidden subsidies and cheap financing, gives Chinese state-owned firms a major advantage over competitors. Since 2008, the West’s economic downturn has allowed them to gain broad access to Western markets to hunt for technology, know-how and deals that weren’t previously available to them. Western assets that weren’t on sale in the past now are, and Chinese investments have provided desperately needed liquidity.
This trend will only increase in the future, as China’s foreign direct investment skyrockets n the coming years. It is projected to reach as much as $1 trillion to $2 trillion by 2020, according to the Rhodium Group. This means that Chinese state-owned companies that enjoy a monopolistic position at home can now pursue ambitious international expansions and compete with global corporate giants. The unfairness of this situation is clearest in the steel and solar- panel industries, where China has gone from a net importer to the world’s largest producer and exporter in only a few years.
It has been able to flood the market with products well below market price ? ND consequently destroy industries and employment in the West and elsewhere. THIS is the real threat to the United States and other countries. However, most Western governments don’t seem to be addressing China’s state-driven expansionism as an immediate priority. On the contrary, European governments dealing with their own economic crises see China as a country that can help, either by buying sovereign debt or going ahead with investments in their countries that will create Jobs.
The Chinese state-owned company Cisco currently manages the main cargo terminal in the biggest Greek port, Piraeus, near Athens ? a 35-year concession deal. And Concessionaire’s wealth fund, C. I. C. , took a 10 percent stake in Loon’s Heathers Airport in 2012, as well as a nearly 9 percent stake in the British utility company Thames Water. The state-owned firms Three Gorges Corporation and State Grid are the main foreign investors in Portugal power-generation sector, and C.
I. C. Also bought a 7 percent stake in France’s Tells Communications. In the Greek port the Chinese have been able to triple capacity, amid local unions’ criticism of worsening labor conditions. It’s too early to measure China’s impact in the other investments, UT the fact that Chinese companies are able to invest in sectors that are closed or restricted for European firms in China says a lot about how minimal Rupee’s leverage with China is.
Take Germany, which accounts for nearly half of the European Union’s exports to China. It’s highly unlikely that Berlin would make unfair competition the cornerstone of its China policy. Moreover, the lack of leverage and leadership in Brussels means that the union is unable to take firm action to force China into adopting measures that would level the playing field or guarantee reciprocity in its domestic market.
The only exception is the United States, which seems to be addressing the issue by pushing forward the Trans-Pacific Partnership, a regional trade association that is seen by critics in Beijing and elsewhere as an American-led policy to contain China The club is thought to be restricted to countries that meet high American standards on issues like free competition, labor and environmental standards and intellectual property rights.
As China doesn’t meet those standards, it will have to reform or risk regional isolation. Moreover, the United States has made life difficult for the Chinese telecoms giant Hawaii by refusing to rant it contracts from leading American telecoms companies. This is not Just about national security concerns but also about sending Beijing a clear message that the United States government is willing to block one of China’s most visible and successful companies.
The New York Times I-June-2013 While Western companies complain about barriers to public procurement and bidding and struggles to compete in restricted sectors in China, Chinese companies enjoy red carpet treatment in Europe, buying up strategic assets and major companies like Volvo and the German equipment manufacturer Putrefies. The perception is that China is now unavoidable and, consequently, the only option is to be accommodating ? offering everything from a generous investment environment to essentially dropping human rights from the agenda. We don’t have any stick. We can Just offer carrots and hope for the best,” a senior European official told us. Greenland, a massive resource-rich territory largely controlled by Denmark, is a case in point. Last year, it passed legislation to allow foreign workers into the country who earned salaries below the local legal minimum wage (the minimum wage there is one of the highest in the world).
Chinese representatives had made it clear that Chinese state-owned banks and companies would invest in the high-risk, costly exploitation of Grassland’s vast mining resources only if the modification of local regulations would allow the arrival of thousands of low-wage Chinese workers. The Arctic territory didn’t have too many alternatives. No other country is in a position to become Grassland’s strategic partner for its future development, given the business risks involved in the Arctic region and the scale of the investment needed in a territory bigger than Mexico but without a single Agway.
An American oil company couldn’t have handled the task alone. The Chinese state capitalist system, by contrast, allows multiple state-owned companies to work together, making it possible for the China National Petroleum Corporation, for instance, to extract oil while China Railway builds basic infrastructure. Grassland’s leaders accepted China’s terms because they likely believed these costly projects might never go ahead if the Chinese didn’t get involved; only China has the money, the demand, the experience and the political will to proceed.
Moreover, there are not enough skilled workers in Greenland for such projects, so the Greenland government made an exception to the law, allowing Chinese laborers to earn less than minimum wage figuring that local residents would benefit from new infrastructure and royalties. China’s deep pockets, as well as its extensive labor force and unlimited demand for natural resources, made all the difference, and accordingly Greenland was prepared to pass tailor-made legislation to meet Chinese needs.
Even Denmark, which holds authority in Greenland in areas like migration and foreign policy, decided not to interfere. IT is even happening in progressive bastions like Canada. President Beam’s refusal thus far to approve the Keystone pipeline project NAS made Prime Minister Stephen Harpers conservative government turn to China to secure an export market for Canadian crude oil reserves. The Clearheaded oil industry has lobbied Mr..
Harper to adopt a new diversification strategy that includes the construction of a controversial pipeline to western British Columbia, despite strong opposition from environmental groups, the First Nations aboriginal communities and the public. In the meantime, Canada also signed a Foreign Investment Promotion and Protection Agreement with China, which gives remarkably generous investment protection to the Chinese. With China in the center of debates over PAPA and the west coast pipeline, Canada’s government then approved the takeover of the Canadian energy giant Next by the Chinese state-owned oil firm Cocoon.
The $15. 1 billion transaction was China’s largest foreign takeover. The New York Times I-June-2013 Closer economic ties have had political side effects; the Harper administration now seems much more cautious in criticizing China’s human rights record. Given that Canada was until very recently one of the fiercest voices on China’s handling of dissidents, this is not only a remarkable 180-degree turn, but also a clear indication of how China’s economic influence can push the political agenda to the sidelines, even in the West.
In Australia, Chinese accumulated investment inflows at the end of 2012 surpassed $50 billion. The trend is striking: Chinese direct investment in Australia in 2012 increased 21 percent from 2011 levels to reach $1 1. 4 billion, making it an important player in Australia’s mining industry. Australia’s trade portfolio remains highly diversified, but the Chinese share is growing rapidly. China has also become the biggest investor in Germany (in terms of the number of deals), surpassing the United States.
Chinese companies are looking for companies that, like Putrefies, have a technological edge and have become world leaders in niche markets. Those takeovers also allow them to absorb Western know-how on branding, marketing, distribution and customer relations. Others are more opportunistic. Faced with recession, struggling European firms like Volvo quickly elected Chinese partners who were ready to inject capital and take full control. The loans that Beijing is giving worldwide are even more significant, in dollar terms, than direct foreign investment.
These loans include $40 billion to Venezuela and more than $8 billion to Terminating in recent years. China’s policy banks (China Development Bank and Export-Import Bank of China) are the key institutions supporting China’s “Go global” strategy, as they provide billions of dollars in loans to foreign countries to acquire Chinese goods; finance Chinese-built infrastructure; and start projects in the extractive and other industries. This is clearest in countries where the West claims to link its aid to human rights and good business practices.
Chinese loans have been crucial in countries like Angola that have faced threats of a cutoff in financing from Western creditors, the World Bank and the International Monetary Fund. Ecuador, Venezuela, Terminating, Sudan and Iran have all faced such difficulties, and China has stepped in without political or ethical strings attached. Chinese statistics reveal little about these loans, but a study by The Financial Times showed that, between 2009 and 2010, China was the world’s largest ender, doling out $110 billion, more than the World Bank.
It is important to remember what is really behind China’s global economic expansion: the state. China may be moving in the right direction on a number to issues, but when Chinese state- owned companies go abroad and seek to play by rules that emanate from an authoritarian regime, there is grave danger that Western countries will, out of economic need, end up playing by Beijing rules. As China becomes a global player and a fierce competitor in American and European markets, its political system and state capitalist ideology pose a threat.
It is therefore essential that Western governments stick to what has been the core of Western prosperity: the rule of law, political freedom and fair competition. They must not think shortsightedly. Giving up on our commitment to human rights, or being compliant in the face of rapacious state capitalism, will hurt Western countries in the long term. It is China that needs to adapt to the world, not the other way around. Heritor EraјJoy and Juan Pablo Cardinal are the authors of “China’s Silent Army: The Pioneers, Traders, Fixers and Workers Who Are Remaking The World in Beijing Image. ”