Re: Developments in the world economy and the concept offoreign ownership
On May 27, 2007, at 11:11 PM, Marvin Gandall wrote:
Most of this burgeoning production appears to be by foreign firms.
Since Deng, we know that the country has been thrown wide open to to foreign investment and I have understood that they were leading China’s
development, but not at all to the extent suggested in an article from the
latest issue of the Australian Marxist publication, Green Left Weekly, posted on
Lou Proyect’s list last week. Under the headline “China: Foreign capital controls three quarters of industry”, Eva Cheng - citing a study
from the Beijing Communication University - writes that “foreign capital
controls the top five firms in every industry where Beijing allows foreign
investment. Additionally, in 21 out of China’s 28 leading industrial sectors
foreign capital controls most of the assets.”
This is at odds with what most other sources say. E.g. a 2006 working
paper from the IMF
Foreign-invested enterprises (FIEs) account for a small share of
investment.6 The share of such investment has hovered around 10 percent of total investment,
roughly split between foreign-invested firms and those from Hong Kong SAR, Macao SAR, and
Taiwan Province of China. This finding is consistent with the data on sources of
financing, which show that foreign capital is only a small share of financing.
And much of the investment, reports the paper, is from firms’
internal funds (as opposed to funds raised externally from banks or
markets - thereby repeating the experience of most of the rest of the
world). Note too in the memo on the Article IV consultation
investment is a relatively small share of the BoP.
If accurate, these statistics suggest a degree of foreign control characteristic of a colonial or semi-colonial dependency - the
country’s condition before the Chinese Revolution.
China is plainly not some sort of dependency; Hank Paulson is begging
them to open up their financial markets and they’re giving him the
brushoff. Which is another reason to wonder about the stats.
Doug
May 30th, 2007 at 4:17 am
There’s a couple of things here.
Firstly, the IMF report talks about FDI being 10% of “total investment”, but foreign investment is overwhelmingly interested in industry, where it can make bucks, not so much in services (except in as much as it can get its hands on utilities, eg electricity etc, but not in general public services where the state is always the main investor), and certainly not in agriculture. So if we look at figures which in the late 1990s showed the Chinese state still controlling some 38 percent of GDP (much lower than that now) and some 47 percent of investment, at the same time, the state only controlled 20 percent of industrial output, as it was in industry that both foreign and local capital were most interested.
Even then however, the 10 percent figure claimed by the IMF seems very small, given that industry is over 40% of GDP, and Eva’s article that Marvin posted says “in 21 out of China’s 28 leading industrial sectors, foreign capital controls most of the assets.” This really is a lot.
One aspect of this, where the report quoted by Eva may exaggerate the role of FDI is in the area of “round-tripping”, which Doug mentons earlier. Because foreign firms pay a much lower tax rate than domestic firms, it is suspected that many so-called foreign firms are domestic Chinese investors who use their extensive family and business connections with the overseas Chinese community, including in Hong Kong, Macao and Taiwan, to register out of the country as a “foreign” investor and hence get a huge tax break. If this is large scale, then the 75% may be exaggerated.
However, if that is the case, then it further points to the power of the large domestic capitalst class in China, which at the end of the day is more of an indicator of the class nature of a society than the degree to which it has to compromise with (or integrate with, whatever) foreign investment. In Vietnam, while foreign investment certainly doesn’t control anything like 75% of industry (in fact it certainly could not control “most of the assets” in the leading sectors as reported for China because it is barred from more than 49% in “equitised” former SOEs, and not many in the leading sectors ahve yet been “equitised”), nevertheless, foreign capital is clearly more powerful than local domestic capitalists, who control a much smaller section of the economy than those in China, and on a much smaller scale - a good thing in my opinion. Yet foreign investment accounts for a larger share of GDP in VN than in China. The difference of course is made up by a significantly larger state-owned share in VN - though in the last couple of years, this is beginning to change.
But even the ’round-tripping’ thing raises another question about what exactly powerful ‘domestic’ and ‘foreign’ capital means in China, given that Hong Kong and Macao are now formally part of China, yet in the late 1990s these two places, along with Taiwan, accounted for 75% of “foreign” investment in China.