As argued in the first part of this chapter, different Chinese actors play different roles in China’s foreign policy. However, this notion of heightened importance of economic actors and institutions in international relations does not coincide with some scholars (Nölke, 2014 a, b, c; McNally, 2014), who state that China’s unprecedented economic growth has succeeded through state capitalism i.e. the state has the main and final authority over both political and economic affairs, and development is state driven. Adherents of that view believe that China largely avoided
113 “reliance on market forces in favour of retaining direct ownership of the commanding heights of the economy. Despite China’s undeniably growing private sector, it was assumed the government exercised substantial indirect control of the rest of the economy by allocating credit via the state-owned banking system” (Posen in Lardy, 2014: ix).
In addition to credit incentives, the increasing internationalisation of Chinese MNCs in the 1990s was supported by numerous other incentives (special funds) provided by the state; that some scholars would ascribe to the essence of state-capitalism. However, this is no different from what the US is doing in terms of tax incentives for businesses; thus, signalling the adaptation of state to market principles in various ways. Although the “Go Out Strategy” was first mentioned in 1999 in the State Council’s ‘Opinion on encouraging companies to carry out overseas material processing and assembly’ document, it was not before 2000 and the 15th
Congress of the CCP when the “Go Out Strategy” was finally decided on. The “Go Out Strategy” was accompanied by the establishment of several funds that supported Chinese companies’ overseas investment, including but not limited to: resource investment funds, outward economy and technology cooperation funds, favourable taxation policies, and credit provision (Huang and Wilkes, 2011).
Credit provision is done through EXIM Bank, China Development Bank (CDB), and in relation to Africa, through the China-Africa Development Fund (CADFund). In 2003, EXIM Bank published the ‘Circular on prior support to significant102 overseas investments’ document, which stipulated that EXIM Bank would every year take a certain amount of money from the export crediting plan in support of these investments. CDB works in a similar way, as it provides a credit quota from its stock to support significant overseas investment projects (Huang and Wilkes, 2011).
The Africa specific CADFund was established in 2007 after the proclamations of President Hu at the 2006 FOCAC Summit that China would further support its strategic partnership with
102 These investments can include: “overseas exploration projects for resources that are in domestic shortage; overseas manufacture and infrastructure projects that can stimulate exports of domestic technology, product, equipment and labour services; overseas research and development centre projects that can make use of international advanced technologies, management experience and intellectual property resources; and overseas merger and acquisition project that can enhance international competitiveness and expand international markets for Chinese companies” (Huang and Wilkes, 2011:13).
114 Africa through specific measures. The “aims of the CADFund are to promote economic cooperation between China and Africa and to advance Africa’s economic development” (Huang and Wilkes, 2011:13). CADFund invests directly in Chinese MNCs that have or will set up operations103 in Africa, and by doing so; it seeks to support Chinese MNCs in achieving their cooperation targets as well as enhance social and economic development of African countries. Since CADFund invests directly in projects by Chinese MNCs, it requires returns on those investments. The difference between CADFund and credit provision via EXIM Bank or CDB, is that it invests together with MNCs, taking on part of the risk, thereby lowering MNCs risk, without increasing African countries debt. CADFund is based on market principles and is independently operated, and thus assumes sole responsibility for its profit or loss (Huang and Wilkes, 2011).
In addition to the provision of credit through the three platforms mentioned above, shortly after the “Go Out Strategy” was implemented, the State Administration of Taxation improved the taxation management system by defining tax exemptions and reduction methods for Chinese MNCs investing abroad. Additionally, since 1983 China signed taxation agreements with more than 100 countries in order to avoid dual levying agreements (Huang and Wilkes, 2011).
Due to the provision of these incentives, Chinese SOEs are often regarded as a threat to Western interests (Breslin, 2012). In addition, the provision of these incentives has contributed to the blanket hypothesis that the home state has influence over every aspect of MNCs decision making and operational procedures and can tell them where to invest, based on its own needs (Goldstein, 2013). However, according to Breslin (2012:38) neither for state owned nor state- controlled companies (such as Huawei) does the state really matter much. Also, due to the significant move towards open market principles, these principles need to be respected (Elite Interview F, March 2016); thus, the state’s role is limited. If the government would tell the companies where to invest, that would not be very entrepreneurial behaviour; it would be politically driven but would bring limited economic benefits (Key Informant J, March 2016), upon which the state itself is dependent.
In addition, contrary to mainstream (Western) views of China’s relations to its companies, Key Informant K (March 2016) argues: “China also does not know everything that goes on!”. One
103 The target sectors for investment are: agriculture, manufacturing, infrastructure, natural resources (oil and gas, minerals), and industrial parks.
115 should not assume that central Beijing will be aware of all operational procedures executed by all Chinese related companies. Key Informant R (August 2016) concurs:
“The Chinese state has progressively more so moved out of the market, and put open-market/self-regulating market principles in place. China has no capacity to deal with issues of economic nature on ground in a host country due to several reasons: lack of knowledge of company activities, lack of personnel, lack of communication between Beijing, the embassies and the companies”.
While the connection between the Chinese state and SOEs is according to Nölke (2014c) one- directional, much less well known are the numerous ways in which the Chinese state allies itself with private Chinese MNCs.
For private MNCs the local or provincial government is more important than the national one, as they are in direct control over means of production, land and taxes; however, this again applies only in the domestic realm. Also, the ownership structure is difficult to assess, as many private MNCs are still controlled by the state via complex control chains. Funding from national banks (EXIM Bank and CDB) has mostly been geared towards SOEs as they spend more time cultivating relations with the government (Liang et al., 2012). However, a close relationship with state actors in this sense matters more for private MNCs as they depend on it for funding in domestic operations. However, Elite Interview F (March 2016) says: “Private companies are getting less support in Africa, if they go bankrupt and get finances from banks then they [banks] have to take responsibility and nobody wants to take that”. Elite Interview E (March 2016) concurs: “Private enterprises are dependent on themselves”. This also echoes the open market principles, which have also been the decisive factor in 2003 when private MNCs were allowed to invest abroad, and have since accumulated larger shares in manufacturing than SOEs. For instance, in Africa in 2006, there were an estimated 800 Chinese MNCs, 85 per cent of which were private. However, Gu (2009) claims that Chinese embassies and Chinese business communities in Africa estimated that there were over 2000 MNCs between 2007 and 2008, further stating that there may be as many as 28,000 across the continent. In addition, there is a growing number of Chinese private enterprises established in Africa, under the African country’s laws, and are therefore not under the perceived control of Beijing.
Furthermore, this indicates several things; the difference between SOES and private MNCs and their connection to the home state in FP – SOEs are of more importance; thus, they also
116 received more credit provisions through the national banks. Also, based on the speculation of the number of both SOEs and private Chinese MNCs in Africa, indicates that even high ranking Chinese officials do not know the exact number (Gu, 2009). This implies that, the control of the home state may in fact not be as prominent as some claim. This leads into the discussion of MNC registration with the Chinese embassy on ground in the host state, as the provision of diplomatic and legal security depends on it. In conclusion, while the provision of credit as part of the home state’s role according to the four pillars of structural power differs from SOEs to private MNCs; control of the home state over either SOEs or private MNCs cannot be taken as a given particularly in terms of operational decision making. This is due to China’s separation of economy and politics and an increasing respect for market principles; and thus, MNCs autonomy in decision making relating to operational priorities. Accordingly, I argue that despite the home state’s provision of credit to its MNCs, the home state has little to no influence in terms of MNCs operational priorities; thus, MNCs have operational flexibility.