China#x2019;s Emerging Global Businesses

Since the mid-1980s, the economic take-off of China and the impact of such a take-off on the global economy have been much discussed and anticipated as well as contested. Is China going to be Asia’s next economic giant? What would it mean to the world if it is (Perkins 1986)? In what sense is the economic reform in China creating a new superpower that is taking the centre stage of the world as No. 1 (Overholt 1993, Brahm 1996b)? How much is the new millennium the dragon millennium (Richter 2000)? What heralds the awakening of the next economic powerhouse, which ‘stands poised to alter the global economy’ (Brahm 2001)? Or, indeed, does China matter at all for the world economy and for the West (Segal 1999)? The most recent debates on how much China’s accession to the World Trade Organisation (WTO) is ‘a landmark event’ for the global trading system further highlight the contested but growing economic influence of China in the foreseeable future.

Two main factors combined, the unprecedented globalisation of the world economy and the momentous economic reforms in China, are most responsible for the fundamental economic transformations in China since 1978. These two factors, one endogenous and the other exogenous to the Chinese economy, have also facilitated the emergence and evolution of China’s global businesses. This chapter explores a particular aspect of the endogenous factor and examines specifically the dynamics at the interface between Chinese economic reform and the internationalisation of the Chinese state. A number of questions need to be addressed here. Why does internationalisation exert such a strong influence on economic reform in China? How does economic reform promote the internationalisation of the Chinese state? In what sense can economic reform be seen as a process of China’s internalising norms, institutions and accepted practices of the world economy? In what way can we interpret this internalisation as China’s response to the accelerated globalisation of the world economy?

As discussed in the last chapter, the internationalisation of the Chinese state has been brought about by economic reforms in China. This process of transformation is ongoing and intensifying with China’s membership in the World Trade Organisation. At a more tangible level, it is often argued that China has been increasingly integrated into the global economy since the launch of economic reforms (World Bank 1997a, Lardy 2002). Controversies do remain as to how deep or shallow China’s integration has been and the nature of China’s current trade regimes and economic system (Shirk 1994, Lardy 1998, Naughton 2000). China’s commitment to embracing accelerated globalisation is often subject to question and contending interpretations.¹ Interestingly, these controversies confirm, rather than challenge, a simple fact: that is, China’s economic integration into the global economy is unprecedented.

This chapter discusses the political economy that conditions and promotes the evolution of China’s home-country policies towards its own multinationals and examines debates within China about the pros and cons for Chinese firms to engage in transnational operations. Because of the nature of its political and economic system, China’s home-country policies emerged out of very special circumstances and were accompanied by controversies and continuous debates as to whether, why, how, where and for what purposes transnational operations should be conducted by Chinese enterprises, most of which are state-owned. The controversies and debates are as much about economics as about politics. For one thing, the role that the Chinese government plays in the economy predetermines state intervention in promoting or prohibiting the emergence and growth of China’s own multinational corporations. Policy debate is naturally a focal point of contention. For another, until 1992 controversies abounded as to whether and in what way transnational operations and Chinese investment overseas were compatible with China’s socialist planned economy with public ownership and how they could be incorporated into China’s national development strategy.

Discussions of policy evolution and debates in the last chapter show how China has wrestled with its changing attitude towards multinational corporations in the global economy, from looking at them as part of the problem for world economic development to embracing them as part of the solution for its economic modernisation. It is at best, however, only half of the story of the political economy of China’s emerging global businesses. This chapter examines transnational operations conducted by the Chinese government and enterprises before 1978, and discusses specific policy innovations significant in the early transnationalisation of Chinese businesses. In this chapter, we also tell the story of the steady growth of China’s outward investment and rapid emergence of transnational businesses headquartered in China. Accordingly, this chapter seeks to address a number of questions that are of great interest. Were there any transnational operations and investment activities by the Chinese government and enterprises before 1978? When and how did the Chinese multinational corporations first emerge? And to borrow from Raymond Vernon, ‘Where are they coming from? Where are they headed for?’ (Vernon 1992). How does China’s outward investment promote the transnationalisation of Chinese firms?

The China International Trust and Investment Corporation (CITIC) has occupied a unique place in the transnationalisation of Chinese firms. Established in July 1979 as a state-owned enterprise under the direct leadership of the State Council, CITIC has grown and expanded as China’s economic reforms proceeded to unfold. Although just over twenty years old at the time of writing, CITIC is arguably the most reputable and successful global business in China today. In 1993, the Far Eastern Economic Review (FEER) called it ‘China’s most spectacular economic success story of the past decade’ (21 January 1993: 50). The Financial Times hailed it as China’s ‘most prominent business conglomerate’ and ‘flagship of state-owned conglomerate’ (16 March 1995, 5 June 1997). In 1996, Standard and Poor’s Investor Services invoked CITIC’s ‘domestic and international expertise and name recognition’ (italics my own), among others, as its basis for a BBB long-term foreign currency rating to three Samurai bonds issued by CITIC (Reuters, 4 November 1996).

China’s trading companies, as discussed in Chapter 4, are one of the major forces among Chinese firms engaging in transnational operations and outward investment. The original twelve national trading corporations were among the very first to internationalise. When China started opening up in 1978, these twelve firms were of comparatively large size in terms of their annual turnover. They also possessed undeniable advantages (in comparison with other Chinese firms) in engaging the international markets. They were clearly among a very small number of Chinese firms that had expertise in importing and exporting, and knowledge of the international market with existing contacts and a client base. Their monopolist position in respective lines of trade, though geared to fulfil government import and export plans, put them in an advantageous position to exploit the opportunities offered by China’s changing development strategy increasingly oriented towards export-led growth. In subsequent years, all these trading corporations have been transnationalised and engaged in global operations.

The third institutional story to tell in this study is about Shougang (the Capital Iron and Steel Corporation Ltd), which differs from CITIC and Sinochem in some important ways. First, it is one of the oldest industrial enterprises in China, and one that epitomises China’s early attempts at industrialisation. It was established in 1919 just outside the city of Beijing in the Shijingshan area. At the time of writing, it is more than eighty years old, sixty years older than CITIC and thirty years older than Sinochem. Second, unlike either CITIC or Sinochem, which are in the service sectors, Shougang is a manufacturing giant in one of the most traditional industries, iron and steel. These two characteristics have predetermined that Shougang’s pathway to transnationalisation would have to be appreciably different from that of either CITIC or Sinochem.

Quietly but surely global businesses originating in China are in the making. Over the 1990s, a growing number of such businesses have taken the entire globe as their markets and operating theatre and are becoming ever more aggressive and assertive in the global economy. ‘The spread of China Inc.’ has increasingly captured the world’s attention and imagination (Newsweek, 3 September 2001). As this book goes to print, Shanghai Automobile Industry Corporation (SAIC) made the headline story in the South China Morning Post on 14 October 2002 by its acquisition of 10 per cent of GM Daewoo Auto and Technology worth $57.9 million. SAIC has thus become the first Chinese mainland automaker to expand overseas (South China Morning Post, 14 October 2002). Following Premier Zhu’s call for implementing a strategy for Chinese enterprises to ‘go out’ and invest beyond Chinese borders, Minister Shi Guangsheng claimed at the 2002 Forum on International Investment in September that the globalisation of the world economy, China’s entry into the WTO and economic reform in China combined ‘have created right conditions and ripe opportunities’ for Chinese firms to engage in ‘going out’ strategy.