Facing a slowing economy at home, China now has new wares to sell to the rest of the world. The international commercial push is also increasing Beijing’s “soft power” around the world. President Xi Jinping’s “One-Belt-One-Road” programme is an attempt to boost his country’s global standing through investment and overseas infrastructure projects in countries along the historic trade routes between Asia and Europe.
There were more attempted overseas acquisitions by Chinese companies in the first four months of this year than in the whole of last year, which was itself a record, according to Derek Scissors, the resident scholar at Washington think tank the American Enterprise Institute, who tracks overseas investments made by China.
This suggests the Chinese economy is maturing. But it also betrays underlying tensions. “China is not a rich country, it is a middle-income country; capital should not be flowing out of it,” says Scissors. “If you’re investing abroad, then you’re saying that there are more opportunities in mature economies than in China – which is tantamount to saying China is stuck in a middle-income trap.”
Mark Leonard, director of the European Council on Foreign Relations and author of the book What Does China Think?, claims this is a “deep-seated fear” within the Chinese government. Wages are being undercut at the bottom by other emerging markets and at the top by developed market companies reshoring their manufacturing operations. “The Chinese government is desperately trying to think about how to upgrade and reinvent its manufacturing industry,” he says.
Michal Meidan, a China expert at Chatham House, believes that the international push is designed to deal with domestic overcapacity, create new markets, help Chinese companies to become more globally competitive, and have their technology internationally certified. “And the Chinese government is prepared to offer financing for projects in order to open doors for these companies,” she says.
High-speed rail
This is not to say that Beijing is constantly pulling the strings as some believe. “Companies get government support,” says Scissors. “But normal procedure does not involve directives from the government. Most of the strategic decisions are made at the corporate level.”
The formation of the China Railway Rolling Stock Corporation (CRRC) in May last year is a good example of the central government’s arms-length influence on strategy. The merger between two of China’s state-owned railroad equipment makers – CSR Corp and China CNR Corp – created the world’s second largest industrial company behind General Electric.
“The two main Chinese rail companies were merged because individually they were said not to be big enough to compete on the global stage,” says Scissors. Chinese rail companies are now (quite literally) forging international links. Last October, the Indonesian government awarded China a prized contract to build the line between Jakarta and Bandung; a Chinese consortium will build a high-speed railway connecting Moscow with Kazan in Russia.
Chancellor George Osborne – who wants China to be the UK’s second-largest trading partner by 2025 – has urged Chinese rail companies to bid for seven contracts worth £11.8bn covering the first phase of HS2, the planned high-speed rail line between London and Birmingham.
