Why China will not buy the world
The Chinese economy is marked by its dependence on others
How does China fit into this new world? It is a huge development success. But it has built that success on its willingness and ability to offer its workers and markets to the world’s producers. So in 2007-2009, foreign-invested companies were responsible for 28 per cent of China’s industrial value-added; 66 per cent of its output from high-technology industries; 55 per cent of its exports; and 90 per cent of its exports of new and high-technology products.
Thus, the country is a crucial contributor to systems managed by foreigners. If the citizens and governments of advanced countries look askance at these global companies, how much more so must the Chinese?
China is not buying the world. Between 1990 and 2012, the global stock of outward foreign direct investment soared from $2.1 trillion to $23.6 trillion. High-income countries still accounted for 79 per cent of this in the latter year. In 2012, the outward stock of US investment was $5.2 trillion, while that of the UK was $1.8 trillion, against $509 billion from China.
China’s net stock (the difference between its inward and outward stocks) was hugely negative, at minus $324 billion. In 2009, 68 per cent of its outward investment was supposedly in Hong Kong.
As Prof Nolan notes: “Chinese firms have been conspicuously absent from major international mergers and acquisitions.” In view of its lack of natural resources, China is investing abroad in this sector. But, even here, the scale of its foreign investments are dwarfed by those of dominant foreign companies.
What does this analysis suggest? The most important implication is that China has barely developed any globally significant companies. Moreover, such is the lead of the advanced countries’ incumbents that it is going to find it extremely hard to do so.
From the Chinese perspective, therefore, the striking feature of their economy remains its dependence on the know-how of others. This explains China’s desperate efforts to obtain that knowledge.
A further implication is that China is very far indeed from “buying up the world”. The paranoia about its impact is unwarranted.
A deeper question is whether, in a world of ever more global companies, it makes sense to worry that companies are not “yours”. I suspect the answer is: yes.
China’s own concern
China is right to worry about this. Companies still have national attachments that shape how they behave and, in particular, their role in developing a particular country’s competences. But, for a nation as vast as China, this may matter less than for most others.
In the end, almost all global companies are likely to find themselves enveloped by China: it will be too central to their activities for them to escape its demands.
If that happens, it will be because of a natural process of integration. For the future of the world economy and indeed the world, the further development of such deep global entanglements is desirable. We should keep calm and just carry on. – Copyright The Financial Times Limited 2013