With his stop sign to further overseas investments by Chinese private players, Xi Jinping is sending massive shockwaves through much of the Western hemisphere. Currently, Italian soccer fans find themselves wondering what will happen to two leading Serie A clubs – Inter and Milan – both owned by Chinese shareholders. Moreover, domestic media are asking whether HNA, a bidder for Italy’s carrier Alitalia, has seriously ended on Xi’s “black list.”
Angela Merkel is probably facing similar questions for Deutsche Bank, as HNA owns a sizeable stake. Some of this kerfuffle is partly because the names at stake – Wanda, Anbang, HNA just to mention a few – are indeed glamorous ones. Moreover, the October People’s Party Congress in Beijing is not making things easier at all for many of China’s tycoons whose businesses skyrocketed under previous nomenklaturas – not under Xi’s watch, to be sure.
Gone are the days in which commentators in the West safely assumed that China was on the right path to become a Western-style specimen of democratic capitalism, and its tycoons were cherished as harbingers of a new era. China is not a democratic capitalistic system.
It is an example – the world’s largest – of authoritarian capitalism. At the pinnacle of its power pyramid are the political-military élites – not tycoons. Tycoons exist, but their role and development is only accepted and fostered as long as they project and amplify the will of the political-military élite – not when they ship capital abroad and run their own agendas.
To be sure, the traditional ownership-based distinction between state players (imposing political conditionality) vs private players (purely profit-driven) remains more notion than fact. In fact, as argued by Curtis Milhaupt and Wentong Zheng in their Spring 2015 paper Beyond Ownership: State Capitalism and the Chinese Firm: “Large firms in China exhibit substantial similarities in their relationship with the state in ways that distinctions based on corporate ownership simply do not pick up.
Indeed, as preparations for the initial public offering of Alibaba on the New York Stock Exchange in 2014 revealed, it can be difficult to draw a clear distinction between a “state-owned” Chinese firm and a “private” one with extensive ties to politically powerful backers”.
Hence, the real point is not to observe the fact that ties exist between Chinese political patrons and private firms, but rather to understand how stable those ties are when a new political nomenklatura takes over.
Not so long ago Joseph Nye, the Harvard professor who coined the very expression “soft power”, clashed with Wanda’s Wang at the World Economic Forum summit in Davos. At the time, Nye proclaimed that Wang’s ambitions in cinema were an example of a Chinese soft power instrument. Today, he might need to revise his statement.
Not long ago, Russia’s Vladimir Putin, another champion of authoritarian capitalism, had to rein in Russian oligarchs who, having made a fortune by stripping assets from what was left of the Soviet Union, no longer thought they owed anything to the Kremlin. Blood was spilled, and eventually most oligarchs pledged loyalty to Putin. Little of that was felt outside Russia, at least not on a scale comparable to what is happening today with Xi and China’s tycoons.
The rise of authoritarian capitalism has also caused political risk specialists and government advisors to rethink their own modus operandi. When democratic capitalism was the dominant standard, political risk specialists would simply consider developments in the host country.
Now that authoritarian capitalism actors compete on par with their Western peers, it is up to host country governments to carefully consider the situation of the investor’s home state before taking the money.
Paradoxically, “private” investments from authoritarian capitalist countries appear to entail higher political risk than those made directly by sovereign entities such as sovereign wealth funds, central banks or SOEs. The latter are by definition aligned with political power, while the former are cyclically linked and may sporadically undergo quite brutal re-alignments with the emergence of new political élites.
Italy, for its part, has long been the recipient of significant investments from authoritarian states – think of Libyan stakes in a variety of listed Italian blue chip companies. Even after the end of Gaddafi’s regime, that money remained in Italy. So, by chance, it turned into a great deal for the Belpaese – money, lots of, without strings attached.
But Chinese tycoons are different. For one thing, they have bought stakes all over the place, and, according to PEW surveys, China’s popularity in Italy went up as Chinese FDIs in Italy rose. Also, an expectation has been created that Chinese investors would ride to the rescue if and when needed. Chinese tycoons – “yellow knights” instead of traditional “white knights” – quickly become a favorite small talk subject whenever a house is on fire in Italy.
In Spring 2016, for instance, the Italian publishing house RCS – the owner of Italy’s daily Corriere della Sera – was struggling under its debt burden. Almost immediately, Italian media fancied the idea that Alibaba’s Jack Ma could acquire RCS. After all, hadn’t Amazon’s Jack Bezos done the same with the Washington Post? Why, then, couldn’t “Asia’s Jack Bezos” do the same with RCS?
Xi’s iron fist is a rude awakening for many dreams of this sort. In fact, it is a powerful reminder that “yellow knights” are more exposed to political risk in their home state than other investors – so they may not fix situations at all, but rather end up making them even more complicated. To make a long story short: not all money is equal, not even that coming from authoritarian states. Western governments better be advised, there is no such a thing as money without strings.
Francesco Galietti, PhD (Founder of Policy Sonar, a Rome-based political risk consultancy, and former senior advisor of the Italian Ministry of Finance)
The main problem of the western countries (European countries, North American countries and Australia) is the complete domination of the USA. The USA is the absolute, authoritarian dictator. The other western countries live in fear of the sword of Damocles hanging over their heads. As Victoria Nuland once exclaimed: "F**k the EU". This exclamation by a high official of the USA pretty much sums up the kind of relationship between the USA and the rest of the western countries. And the dominant element in the USA is the military industrial complex. The American military industrial complex is the most dangerous element for the western countries. China, Russia, Iran and North Korea are not true threats, because these four countries do not wish to be enemies of USA. In fact, all of them, without any exception, want to be friends of USA. They are perceived as threats to the western countries because the American military industrial complex wants them to be enemies of the western countries.
Yes, as an American i just purchased two Brits and a German. Like Alice’s red queen, words mean whatever I say they do!
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And thats the problem with all these western self appointed experts on anything on China. I would argue that even if some havethem have lived several years in China, they still do not know let alone understand China. Every time they write about China is from their perspective and standard of the west, and that China should be gauged by their standards. Deviation from those standards seem to be totally unacceptable! Democracy (their version) is flaunted as the be all and end all standard for governing societies. It doesn’t matter if the masses of illiterate emaciated peasants queueing in the blistering sun( so often one sees in Africa and all the underdeveloped coutries) to put in a so called ballot paper in a cardboard box with no understanding of what they are doing. This the west would hail that country as democratic, and the poor bloody peasants return to their miserable lot, as they have from the moment they were born, with no hooe of where the next meal is going to come from and if they are going to live to the next day. As for China, they conveniently disregard that the country has only managed to lift itself up to what it is today in a short space of only 30 years. That there are still 1 billion people the Chinese government is attempting to give a better live, that there are still a lot of structures in their governmental system which they are trying very hard to "normalize", to change or adapt from a pure socialist mode to what they feel is a system that is suitable for them today. Over that period of 30 years while the system is changing, some have managed to use their influence to amass obscene amount of wealth, illegally. In a country where the controls are well established like in the developed western countries, it would not have been possible for mega amount of ( 10s of billions)money to be so easily remitted out of the country. While China has the Central bank, and one would assume that the provincial bank branches would be required to report to the Central Bank for approval on amounts exceeding a stated limit before being allowed to be remitted, it obvisusly failed miserably over the last 2 years in the case of Anbang, Wang Jian Ling, HNA and the few who acquired European football teams at any cost. How could it happen? When the bank system can control so efficiently the amount of $50,000/person /year thats allowed to be remitted, how it could have allowed the billions escaped? My guess is, the companies which are based in their respective provinces got the provincial governors and the provincial party secretary to ORDER the general managers of the provincial banks to remit without referring to the Central Bank for approval. If my analysis if correct, it proves my point above that the control system in China is still not as watertight as it should be. So far, the Chinese government seems to be plugging holes whenever they discover a leak. But I think, they have by now plugged most of the major leaks. I would guess that in another 2 or 3 years, the control system will function a lot more efficiently. Meatime, a few of those "naughty guys" (oligarchs?) have now been put under "supervision/investigation?" Don’t fret, Senor Gallietti. It may not be the western way of doing things, but China has its own ways, to suit its own system, culture, tradition, and problems( You, as a westerner/Italian will never undertstand China’s problems). It will get there one of these days. It may not be a country with a per capita GDP of $50,000, but it will definitely in perhaps another 20-30 years of enabling EACH & EVERY ONE of its 1.4 billion citizens to have an average per capita GDP of $15,000-$20,000! And that my friend is a GDP of US$30 Thrillion!!!!!! And that by any measure is good enough for China, don’t you think? No emaciated, miserable starving peasants queueing in the blistering hot sun to insert a piece of dirty paper into a half collapsed cardboard box in the name of democracy.
Well said…and accurate, too.
While the neocon Zionists spend 14 trillions on useless Wars that only benefit the military industrial bankster complex and improvish the masses, the State Capitalists with Chinese characteristics are able to make hays under the CPC sun.