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On when a statist country tries to buy stuff in supposedly less statist ones

There is some controversy at present about the moves by the UK government (and not just the UK, the government of little Malta is at it) to let Chinese-owned (ie, state-owned) businesses invest in the UK, buy shares of local firms, and the like. Iain Martin more or less says we should only let the Chinese do so if they accord equal freedoms to UK firms. At present, any non-domestic organisation wishing to do business in Mainland China (it is different in Hong Kong) is required to set up a joint venture with a local Chinese partner. In practice, it means making nice to the local, often corrupt, representatives of the Chinese communist party. The comment thread on Martin’s article contains its usual share of foreigner-hating buffoons but there are some intelligent observations as well.

A difficulty presents itself. First, the UK is already one in which the state owns a fairly large share of the economy, not just through the overtly public sector bit, but by national controls and regulations over all kinds of sectors, such as transport and energy. True, the UK is a democratic polity, but given the imperfections of democracy, and Britain’s membership of the EU, the accountability of politicians for what happens in the UK is, to say the least, limited. And so does it really make sense for Britons to get in a rage about sinister foreigners buying bits of the UK?  It is not as if we are operating in a world of unfettered capitalism. (Those who remember the late 80s when Japanese firms were buying Western assets will feel a sense of deja vu coming on when reading about another supposed menace from overseas.)

Then there are the exploits of what are called Sovereign Wealth Funds. Such funds, mostly run by energy-rich jurisdictions in the Middle East and Asia, are politically and legally opaque. We have seen how the heads of these large gobs of wealth have bought such “trophy assets” as football teams (Manchester City) and so on. State-owned EDF, the French energy conglomerate, is a big player in the UK energy market. (I note that one Samizdata commenter on a previous post about energy policy seems rather upset about this. The accursed French!.)

In fact, if we are going to ban investment into a jurisdiction such as the UK from entities deemed to be opaque, or the arms of oppressive regimes of various kinds, that is going to create quite a headache. These folks have a lot of the money. They may not, of course, have it forever. China’s property market is, shall we say, an unknown quantity. If the US fracking revolution continues, and the price of energy falls a bit, some of the prowess of the SWFs might decline. It might also be a smart idea if Western governments learned to live within their means rather than go begging for such sources of money to make up the deficit gaps, which is what is really going on here.

But then again, these issues might not be all that new. In the past, politicians of various hues have tried to reinstate protectionist controls on foreign trade by objecting to things such as “dumping”, for instance (evil foreigners selling us subsidised cheap stuff). If China wants to sell us cheap things, and we can save money by paying less for such things than we would otherwise, and invest/spend what we have saved on something else, I don’t really see the problem in that.

We should remember that China needs the West to grow to sustain the value of what it wants to buy abroad. Ironically, one of the best ways to keep pushing China down the path to real capitalism rather than the odd hybrid it has now is to expose its people to doing as much business abroad as possible. So long as Western leaders play their hands intelligently and push for more penetration of China’s markets as part of that process, that surely is in everyone’s long term interests.

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14 comments to On when a statist country tries to buy stuff in supposedly less statist ones

  • PersonFromPorlock

    The best return on investment is a politician: worry about corruption first. Real property bought by foreigners can always be seized, and contracts with them abrogated, if necessary and they don’t have the government in their pocket.

  • RRS

    C’mon! Think things through.

    How is the “balance of trade” settled?

    If I give you “Schlecter Paper” for your cross trainors, what will you do with that paper? Buy U K Consols, Canadian Bonds; or something that will earn you a return not subject to political debasement – or even something to use or eat?

  • Paul Marks

    The real weight of government is in government SPENDING and TAXATION.

    That is the advantage China has – for the present the burden there is less.

    In many ways China is now like Nazi Germany in the 1930s – a collectivist regime that tolerates private industry for reasons of financing national power.

    But there are two differences.

    Firstly China is HUGE.

    Secondly (but not less importantly) the burden of taxation and government spending in Britain and the United States is vastly LARGER now than it was in the 1930s.

  • JMJaguar

    As someone who has spent several years in China managing the designing and building of industrial plant using the local resources, both labour and materials, I’d be much more concerned about what that means to safety considering we are inviting them to build a nuclear power plant…

  • revver

    I am not familiar with the legal do’s and don’ts surrounding doing business with/(in) China, but what about the so-called “free economic zones” like Shenzhen and other cities in Guangdong province? Do the same hurdles for foreigners exist there as elsewhere?

  • TDK

    If China wants to sell us cheap things, and we can save money by paying less for such things than we would otherwise, and invest/spend what we have saved on something else, I don’t really see the problem in that.

    Two possibilities
    1. A supplier sells things below cost in order to drive out competition. Once achieved, the supplier raises the price.
    2. A supplier is able to produce things more cheaply.

    No one can complain about (2). However (1) is a problem. This is a monopolistic practice which may or may not be corrected by market forces in the longer term. There’s a debate at least. Given the crony capitalist world we live in today we have to take into account the ability of large incumbents to game the regulatory structure. In a free market who would invest in Windmills?

  • TDK

    Bah lost the second half…

    Contrary to we can save money by paying less we in fact have signed a deal in which we pay more for electricity regardless of how much demand there is. Higher than both coal fired power and the Shale revolution which you mention.

  • CaptDMO

    “No one can complain about (2). ”
    Well, except the competition.

    SEE: Union “Labor” rates.

  • TDK

    I did write “No one CAN complain” in preference to “No one WILL complain” but I concede that I might have been clearer

  • Rich Rostrom

    It is certainly very difficult to avoid investment from foreign countries where the political authorities are authoritarian and potentially hostile. Some such countries have enormous piles of money they need to invest. Others have great industrial enterprises that naturally seek to be present in all markets.

    But it’s pretty obvious that “investment” which includes ownership can be a Trojan horse for activities that are destructive or subversive of the civil order.

    (The U.S. or Britain are large enough that even a major Chinese company or Arab SWF cannot gain decisive leverage over them. But how much money would it take to buy controlling interests in all the major businesses of Jamaica? Or Cyprus? Or Uruguay? Or Denmark?

    (Something like this seems to be happening in Venezuela; ironically, some observers have noted that Chinese “overlordship” would be a vast improvement over the astoundingly incompetent and massively corrupt Chavista regine.)

  • Nick (nice-guy) Gray

    I wonder if this is why the NSA is intercepting French messages- without a Cold war to worry about, why not help American companies by spying on commercial opponents? It might be the only way to justify its’ existence!

  • The Wobbly Guy

    @Rich,

    I think China has already accomplished this in many parts of Africa.
    http://www.theguardian.com/commentisfree/2011/feb/07/china-exploitation-africa-industry

  • Paul Marks

    Yes Rich – in Venezuela even the German Communist advisers are saying the place is a hopeless mess, that the regime has gone “too far”.

    Of course these Marxists are just running away from yet another failure – pretending it is nothing to do with Marxism itself.

    However, the Chinese alternative (like Nazi Germany – a socialist state that allows private industry and so on) may seem attractive in Venezuela.

    Till the locals find themselves sold for body parts.

  • Mr Ed

    For those of you who like to have links to Mr Marks’ statements, here is an article relating to the German Communist in question, who is a professor of sociology in Mexico, perhaps daydreaming that he is Trotsky about to be swept to power in the USSR, or perhaps not.

    The good news is that these days he is at little risk of getting an icepick stuck in his brain for being a ‘splitter’.

    http://en.mercopress.com/2013/10/21/inspirator-of-venezuelan-socialism-anticipates-maduro-won-t-make-it-to-april-2014