The topics of ‘state capitalism’ and ‘state owned enterprises’ (SOEs) have occasionally been brought up in lecture, but in those few incidences they were dismissed shortly after only a brief mention. This seems to be partially because SOEs haven’t entirely fit our definitional criteria for what is considered a ‘multinational corporation;’ and second to that, they provide unique and complicated cases which could easily be the focus of an entire week’s worth of lectures and material—so it’s likely time is also a factor. That is to say, I haven’t found that SOEs are being dismissed as unimportant, rather they have been nudged to the sidelines for the sake of convenience and haven’t been given the attention they deserve. In giving SOEs further consideration, it’s apparent that unique challenges emerge from their presence and I believe they should be discussed more frequently in relation to the impacts they have on states and security, as well as the issues they create in relation to MNCs and the global markets through which they operate.
Countries that use state capitalism (e.g. China, India and Russia) and operate SOEs have very real implications for MNCs who are based in home countries that rely on free markets to determine their outcomes. When placed in a global playing field together, these differing economic ideologies begin to develop many tensions in relation to the state, security and what has primarily been considered a liberalized global economy in which MNCs operate. For example, SOEs coming from China are heavily subsidized by the government which grants them flexibility and perks that privately owned MNCs don’t experience. Due to these large subsidies, SOEs are able to outbid privately owned MNCs by paying above market prices for contracts in the global marketplace, which can result in an artificial increase in the global price of commodities (Bremmer, Pg. 136). State subsidization also allows SOEs to do business in countries that have precarious political climates and other concerning factors that make it too risky for privately owned MNCs to invest. Chinese SOEs in particular will engage in FDI in countries that are being sanctioned by the West, which means that Western MNCs aren’t able to access these markets yet some SOEs are (Bremmer, Pg. 136). This example may also have implications for global security because Western efforts to curb malicious behaviour by states in the international community are then disrupted by FDI from SOEs, which, in some cases, clearly follows a different set of rules and is able to bypass sanctions.
What does it then look like for MNCs who rely on market forces to determine their outcomes when they engage in FDI in a country that operates under a state capitalist model? MNCs attempting to take advantage of the growing Chinese market have faced many unique challenges when operating in a host country that uses state capitalism. Within China, MNCs have experienced a more stringent use of anti-trust and anti-corruption laws by the Chinese government (Tse & Pan, 2014) who unfairly targets foreign MNCs in order to give a competitive advantage to its own SOEs (Tabeta, 2018). So, SOEs not only expand into the global market and disrupt forces which determine the outcomes of most MNCs, but when MNCs attempt to operate within countries that use state capitalism they— quite obviously—face even tougher challenges in their operations.
Security concerns for states also arise over the geopolitical nature of SOEs which comes from the close ties they have to their home countries. China’s BRI (Belt and Road Initiative) and the 16+1 initiative provide wonderful examples of projects involving billions in FDI by Chinese SOEs (Xinyu, 2018) that has grabbed the attention of many Western countries, some of which stand directly in the path of the project. Through government funding and state-owned banks, SOEs are able to take on risky infrastructure projects and investment in struggling European countries (primarily in Eastern Europe) that may not seem economically viable in the eyes of Western institutions such as the World Bank; In addition to this, the 16+1 initiative is then developing cultural and political ties with Eastern European states while also leveraging BRI infrastructure projects into some Eastern European countries. Many analysts have seen this as a divide and conquer strategy by China that seeks to fracture the EU (Godement, 2018). So, in this case, through SOEs and state-owned banks we see politically motivated FDI leading to genuine concerns for the stability and security of the EU. Another recent example has been the case of Huawei. Huawei is not necessarily an SOE, but due to the fact that China has a history of state capitalism, in which corporations are closely tied to the state, security concerns have arisen for countries now considering whether or not to allow Huawei to have access to their telecommunications networks. This is due to concerns of spying and information gathering that could potentially be carried out by the Chinese government through Huawei.
Unique challenges come from these entities that can move like MNCs yet sometimes carry politically motivated objectives that pose real threats and uncertainty to states. The tensions and challenges created by SOEs and state capitalism continue to be quite relevant when considering the operation of MNCs and states in the contemporary political and economic climate. Although SOEs and other aspects of state capitalism have flown under the radar over the duration of the course, I find that the challenges provided by SOEs and state capitalism are quite intriguing and may be deserving of slightly more attention and discussion.
Bremmer, Ian. 2010. The end of the free market: Who wins the war between states and corporations?. New York: Portfolio.
Godement, F. “Tump cannot bring Europe and China together.” July 6, 2019 European Council on foreign relations. Available: https://www.ecfr.eu/article/commentary_trump_cannot_bring_europe_and_china_together
Tabeta, S. China’s decade-old antitrust law still vexes foreign companies. August 2, 2018. Nikkei Asian Review. Available at: https://asia.nikkei.com/Economy/China-s-decade-old-antitrust-law-still-vexes-foreign-companies
Tse, E and Pan, P. Is the golden age for multinationals in China over? August 28, 2014. The South China Morning Post. Available at: https://www.scmp.com/comment/article/1581467/golden-age-over-multinationals-china
Xinyu, T. Centeral SOEs managing over 3,000 projects under BRI. November 12, 2018 China Daily. Available at: http://www.chinadaily.com.cn/a/201811/12/WS5be9103ea310eff30328812f.html