Navigating The Global Economy

Western Anxieties and Proper Responses

Commercially, the rise of China continues to incite anxiousness among governments of Western democracies. Exhibited most vehemently by the United States, the business threat posed by China is seen as substantial by many in the West (due heavily to the proximity between Chinese business interests and those of the centralized government in Beijing).

For Western democracies, the creation of the international conglomerate regime has been a capitalist success story. But now that same model is under pressure from Chinese 'State Owned Enterprises' (SOEs), many of which can operate on economies of scale dwarfing those of even the largest Western conglomerate players in various industries. SOEs have established presences in foreign markets and are experiencing considerable expansion, granting Beijing access to soft power capabilities only previously available to the United States.

How to respond to this reality is a challenging problem for the West. When CRRC (China National Railway Locomotive & Rolling Stock Industry Corporation) was created from the merger of the two leading train manufacturers in China – China South Locomotive & Rolling Stock Corp (CSR) and China CNR Corporation Limited (CNR) – the new company became the largest train company in the world. Soon it began competing for, and winning, contracts outside of China.

No European train manufacturer can realistically expect to compete directly in cutting-edge technology and sheer size. While numerous Western governments developed high-speed rail networks, the CRRC in 2018 delivered its first “Maglev” train. Not only is the company enjoying a technological advantage, but the business fundamentals should force the West to act. This is just one example among many.

To compete against SOEs Europe must merge its leading players to create a European company able to match CRRC for resources and technological knowhow. But the attempt at doing so in train making – the proposed merger between Alstom and Siemens – failed when the European Commission blocked the deal. The inability to create a European power of the scale needed to go up against CRRC should make Western governments very concerned. Beijing can act in ways that grant Chinese firms gigantic competitive advantages over their Western rivals.

When the likes of Siemens and Alstom compete for international contracts (helping to secure revenues, jobs, and investment at home), many governments around the world will have few issues with awarding major infrastructure contracts to a company under the control of Beijing (because of the competitive advantages the giant firm possesses).

Currently, European competition laws are predicated on the protection of smaller economic players within individual countries. This must change if big Western companies are to avoid becoming minor actors in the very industries they created and once dominated. Reforming competition laws to allow for the realities of international commerce is essential if the rise of China (as an economic force) is to be successfully countered. That Siemens and Alstom were prevented from merging, even amid the broadening global interests of CRRC, suggests governments in the European Union have so far failed to entertain the extent and necessity of the policy change required.

Both North America and Europe should look the model adopted by South Korea. Chaebols – large conglomerates that beginning in the 1960s were awarded preferential status by the government in the form of cheap energy, relaxed labour laws and a plethora of other business advantages – transformed the economic fortunes of South Korea, enabling companies such as Samsung to become enormous global brands. Western democracies should agree on a set of policies that would enable similar progress to be made. Doing so, however, would require major changes to how the European Union functions. Difficult though it would be to complete, governments must respond to the commercial reality of Beijing extending its tentacles around the world via SOEs.

The West Needs Chinese Money, They Should be Cautious but Welcoming

Many Western democracies, especially in Europe, need more foreign direct investment (FDI). And China is keen to buy assets throughout the world, including those in Western democracies. Perturbed by the idea of Chinese money though Washington currently is, the same attitudes are not felt in most other Western democracies. Such is the need for FDI in Western democracies, especially those in southern Europe, that some countries have exuberantly welcomed the influx of Chinese money. But the rise of China, and the desire of Beijing to spread its interests via the Belt and Road Initiative (BRI), means the West must be simultaneously welcoming but circumspect.

Chinese investment should not be viewed as intrinsically bad – the opposite of what is approximately the policy currently utilised by the United States – but the West should be careful about becoming overexposed to the desires of Chinese policy interests.

According to The Economist, in 2016 Chinese investment in Europe rose to nearly $40bn, up from $20bn in 2016, before reducing to $30bn Euros in 2017. Such hefty investments have changed the nature of relations between European Western democracies and the world’s second-largest economy – now the desires of the central government in China matter to Europe in a way they have before.

Such is the flow of money from China, the political and business consequences should engender close examination of existing relations regarding the long-term future. Portugal is in danger of becoming excessively exposed to the politics of Beijing. Asset sales have resulted in critical pieces of economic infrastructure that are now owned by, or heavily controlled by, companies under the control of the CCP. Here, Western democracies should keep a careful watch on wider implications of asset purchases.

The still uncompleted effort from China Three Gorges (CTG) to buy a Portuguese energy giant (and the nation’s largest company EDP) serves as an example of why the West should be concerned about the rise of China. Not only would Chinese SOEs control an unnervingly high number of critical assets in Portugal, leaving a democratically elected government vulnerable to the whims of Beijing, but the takeover would serve as a means of inserting Chinese interests into power generation markets in 14 different countries. Beneficial as FDI has been, such deals should make Western democracies nervous about the growth of Chinese international asset purchasing.

Evidenced by the reaction to US pressure on democratic governments to rebuff Huawei, China is very willing to exert their soft power gained from its economic importance as a key investor and trading partner. The West, therefore, must balance the economic gains from willing investors against granting a foreign government influence over critical economic affairs. For the time being at least, the growth of China as a globally important economic power should be regarded cautiously as an opportunity instead of a major threat. But for that scenario to be sustainable, the West must adapt to the threats and opportunities as they inevitably present themselves.'

Paul Bennett (Socialism) vs. "Navigating the Global Economy"

This article presents an interesting viewpoint on the global reach of the Chinese state and its companies. If massive Chinese companies are able to out-compete smaller Western-based ones, then they will inevitably have an advantage in winning contracts and so on. The idea of adopting South Korea-style conglomerates (along the lines of Samsung) is put forward as a way for European and North American interests to fight back.

Look at the choice being offered: one group of very large companies versus another, China vs the West. The question of who – if anyone – wins this contest relates to which set of rulers has the greater share of global hegemony. What does it matter to the vast majority of the world's people who holds power in this way? Profit-making capitalism will continue to have a deleterious effect on the environment, will launch wars, will waste resources on the military and the whole of the money and price system, and will result in untold misery for billions of people.

Competition over energy systems and railway rolling stock is a diversion from the real problems with the world's capitalist economic system.

© 2018 by Zink Publishing Inc.

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