From ‘Made in China’ to ‘Owned by China’

Between 2007 and 2008, Chinese overseas investment almost doubled to $52.2bn. In May 2009 the Chinese government announced that Chinese companies would soon find it easier to invest overseas. Just as scary is the fact is that, at the start of May 2009, the IMF reported that China held $1.8 trillion in foreign reserves - which is to say, in convertible foreign currencies, with perhaps 70% of that in US dollars.[1]

This is more than the GDP of Russia – the world’s 8th largest economy - or the total GDPs of all the 140 smallest countries put together. It is also enough to buy the 11 largest non-Chinese corporations outright, including the four largest oil companies, Wal-Mart, GE, Proctor and Gamble, Johnson and Johnson, IBM, and Microsoft. Given that the other four out of the world’s fifteen largest corporations are already Chinese, this suggests that a great deal of attention needs to be paid by anyone expecting a future capitalist global economy to respond to democratically expressed environmental concerns. It is exceedingly unlikely that either China’s own corporations or the non-Chinese companies with whom they compete will be either inclined or in a position to address popular environmental concerns – or needs - in the coming decades.

How many of the world’s hundred to so dominant corporations and conglomerates will end up in with owners from non-democratic countries in the future is difficult to gauge. Probably all of them will have major shareholders from such dubious polities. For governments, resistance to foreign ownership seems to be largely cosmetic, while companies are likely to be equivocal at best. Indeed, at least one of the major banks – Barclays – preferred to raise capital from such sources (in their case a Gulf sovereign wealth fund) rather than accept support from the British government. As a Financial Times commentator put it, ‘As a bank with an increasingly global business, freedom from government meddling was essential’.[2]

One is inclined to ask, how long will such businesses be able to resist meddling from their new friends – and towards what goals will that meddling be directed? In 2009 Chinalco (a Chinese aluminium company) initiated a move to buy a sizeable stake in Rio Tinto (the world’s third-largest mining company, with largely Anglo-Australian ownership), which the Chinese government repeatedly asserted was purely a commercial investment. Yet shortly after the (ultimately unsuccessful) deal was announced, Chinalco’s president was appointed to the State Council - China’s counterpart of the Cabinet. Nor was even the commercial element of this enormous deal at all apolitical. On the contrary:

Four of the biggest state-owned Chinese banks lined up to lend the company
more than it required for its planned second investment. They charged interest
close to zero and did not set a time for Chinalco to pay its debts. Such lending
activity is possible only in China, where state-owned banks and businesses are
treated as the left and right arms of the state, working together to achieve
national long-term development objectives.[3]

Based on this highly politicised strategy, China’s total direct foreign investment has gone from almost nothing at the turn of the millennium to topping $52 billion in 2008. With only a little more expansion, over a ten year period that would equate to buying a half-share in all of the world’s ten largest companies China does not already own.

More generally, the present economic downturn has seen huge acquisitions by funds based in non-democratic countries in companies that Japan, the West and their immediate allies have previously regarded as ‘theirs’. Of course, any notion of national control over transnational corporations has increasingly strained credulity, but I suspect that ceding so much economic power to non-democratic countries will introduce huge new obstacle to those who seek to save the environment for human beings rather than for governments or business.

Of course, the conventions of capitalist economics would regard this is as quite normal. If China has the money to buy then China should be welcomed as the new owner. But capitalism is also only acceptable to most of those who live under it in the west because its enthusiasts claim that it has at least a nominal commitment to a certain style of non-political governance (and conversely a commitment to corporate non-interference in politics), and plainly this would be violated by allowing such politically committed buyers to take such a strong position.

This may seem to contradict one of the general thrusts of this blog: that what is wrong with capitalism, from an environmental perspective, is precisely its lack of political direction. But not all political directions are equal, and China’s track record hardly suggests a wholesome commitment to the interests even of its own people, let alone a sustainable global environment.

[1] http://www.imf.org/external/np/sta/ir/hkg/eng/curhkg.htm#I.
[2] Financial Times, May 7 2009.
[3] Yao (2009).