Chinese Multinationals: New World Leaders


For the last 30 years, the world’s economy has been stimulated by China’s domestic economic growth. In the next 10 years, that stimulus will be Chinese multinationals’ extensive activities to build foreign empires. Chinese corporations protected from international competition in China’s domestic markets are now rapidly penetrating foreign markets. Since the Chinese government maintains a level of authority over every Chinese corporation—state-owned or not, every move by a Chinese corporation in a foreign market provides the Chinese government an additional presence overseas. One plausible outcome over the next ten years is that the number of investments by Chinese firms will increase steadily in all the G-20 major economies and stimulate increased global trade from which everyone will benefit. On the other hand, the aggressiveness of the Chinese companies could spark large anti-trade sentiments, create major political and security issues for G-20 governments, and force a variety of protectionist policies to be implemented. In any event, business practices in the next ten years and the business leaders we follow could be defined by Chinese multinationals and their successes.


The key to anticipating possible developments in the future is to focus on recent signals of change—big, disruptive, out of the ordinary changes—in the world.

A new phenomenon in the world is the rapid growth of emerging-market multinationals, particularly from China. Cross-border production, investment, and innovation by multinational corporations have been key drivers in the world’s economic growth since 1990. According to the World Investment Report 2015 by UNCTAD, multinational affiliate sales as a share of world GDP more than doubled from 1990, increasing from 25 percent in 1990 to 50 percent in 2014. At the same time, emerging-market economies are now counterparts on more than half of global trade flows, and the share of Fortune 500 companies based in emerging markets has increased from 5 percent in 1980-2000 to 26 percent in 2015. In some industries, Chinese multinationals are growing while the traditional leaders from the United States and Europe languish. For example, in the telecom-equipment industry, Huawei had 2015 revenue of $58.8 billion, while Cisco ($48.7 billion in 2016) and Ericsson ($27.9 b) created a strategic tie-up, while Nokia ($13.8 b) and Alcatel-Lucent ($15.7 b) merged.

China’s economic boom has stimulated the world’s economy for the last 30 years, but that stimulus is changing quickly.

  • US exports to China quickly rose from $19.2 billion in 2001 to $69.7 billion 2008. With services added, the United States exported $169.2 billion worth of goods and services to China in 2014.
  • Direct foreign investment into China reached nearly $300 billion in direct investment in 2013, but has since leveled off. But Chinese manufacturers are buying more raw materials and components from domestic suppliers, and this maturation is spreading to higher-tech products as well. The portion of foreign inputs in China’s exports has fallen steadily from a high of over 40 percent in 1996 to 20 percent in 2015.
  • At the same time, investment outflows from China have been rapidly expanding; they were approximately $75 billion in 2013, nearly $200 billion in 2015, and probably will be much larger in 2016.
  • Interestingly, China’s dependence on the US market is shrinking as it builds its presence in more foreign markets. Chinese exports to the United States as percentage of China’s economy fell from above 7 percent in 2006 to 3.72 percent in 2015.
  • Still China’s gross exports to the United States are up. Since the rate of US imports as a percent of GDP hasn’t changed much over the years, the exports from other countries (like Japan) to the United States are down.

China is promising to reduce the restrictions on foreign investment and the activities of foreign companies in China. China has a long list of industries in which foreign investment in the country is either restricted or off-limits and where Chinese companies are provided direct support. Time will tell.

  • After two decades Beijing is now considering whether to let Goldman Sachs and J.P. Morgan Chase operate investment banks in China on their own. Other foreign banks would soon follow. But the opportunity may no longer be that attractive. The closed market allowed China banks to develop large balance sheets, develop close relationships with corporate Chinese clients, and become formidable competitors. Chinese banks had a 10 percent share of investment banking revenue in Asia, excluding Japan and Australia, in 2006; in 2016 that share has increased to 61 percent of a much larger market. Although US banks have invested heavily in the region, their share has declined from 43 percent in 2006 to just 14 percent in 2016.
  • The China government continues to support state-owned companies in becoming national champions in global industrial markets, even if those companies remain inefficient and showing signs of getting worse. In September 2016, China’s two largest steelmakers, Baosteel Group and Wuhan Iron & Steel Group, or Wisco, announced their plans to merge. If the government adds a couple more mills to the merger, the new company will become the world’s largest producer, topping Luxembourg-based ArcelorMittal SA. The government expects the new firm to trim excess production capacity and compete in international markets.

Private (non-state) Chinese multinationals grow up in a crony-capitalistic system that shapes their organization, business practices, and foreign growth objectives. They ultimately owe an allegiance to China.

  • In a recently published book, China’s Crony Capitalism: The Dynamics of Regime Decay, by Minxin Pei, a professor of government at Claremont McKenna College in California, describes how the state decentralized the rights of control over state property to local officials, but left the rights of ownership murky. According to the author, the Chinese state holds the residual property rights of maybe half of the new worth of the China economy. This has led to a system of corruption at every level of the government/economy, an absence of a system of checks and balances, and the motivation of political officials to keep the system in place. In a crony capitalist system it’s awfully difficult for any private Chinese corporation to grow without local politician support; successful corporate leaders learn how to thrive in this environment. All Chinese corporations must grow up playing with a different set of rules than what western corporations grow up playing with.
  • Starting in September 2016, The Wall Street Journal has been reporting on China Zhongwang Holdings Ltd.’s stockpile of one million metric tons of aluminum, worth about $2 billion and representing about 6 percent of the world’s total inventory, that is stored in a remote desert location of Mexico. Zhongwang Holdings could be trying to evade US tariffs imposed by the US Department of Commerce on Chinese aluminum products by routing the products through other countries like Mexico to disguise its origins or do a little product modifying to change the country-origin status.
  • The Wall Street Journal reported in October 2016 that the Dalian Wanda Group and its chairman Wang Jianlin, which acquired Legendary Entertainment in January 2016 and has pending deals to take over Dick Clark Productions and Carmike Cinemas Inc. to become the largest movie exhibitor in the United States, “have close ties to China’s government and Communist Party.”

That’s not to say that China’s domestic market isn’t fiercely competitive. It is very competitive, and the strong competitors that emerge from it could become formidable competitors globally.

  • Didi Chuxing beat Uber Technologies in China to add to Didi’s dominance in China’s ride-hailing market. This is the first country market in which Uber was beat.
  • China’s domestic demand for high-tech products has grown so rapidly that in some markets new products are being developed and introduced first in the world in China. For example, China is leading the adoption of virtual reality. Chinese companies will be able to leverage initial customer sales and experiences to become the market leaders in the G-20 countries they first enter.

Chinese government industrial policy and oversight are becoming more sophisticated. In 2016, China has been making pledges to create a level playing field for foreign and domestic investors. It’s too early to see if the changes will have any tangible effect. Interestingly, China has become a more attractive place to seek legal action for companies that accumulate patents for litigation and licensing purposes. Canadian patent-licensing firm, WiLAN Inc. filed a lawsuit against Sony Corp. recently in Nanjing, alleging that the Japanese company’s smartphones violated WiLAN’s wireless-communication-technology patent. The Chinese government has been strengthening its patent laws and China’s courts have developed rapidly over the years, driven largely by Beijing’s objective to promote homegrown technologies and protect the increasing number of patents Chinese companies own. In China, lawsuits are less time consuming and costly than in the United States—the normal venue for such suits. Germany is another favorite international venue for these suits.

The number of acquisitions by Chinese companies is taking off. The simplest means of developing a competitive position in foreign markets are through acquisition and joint venture/merger with an industry leader. The acquiring company may pay premium, but it can develop a strong market share quickly.

  • While the media industry is closed to foreign companies in China, the movie industry in the United States is not closed to Chinese companies. The Dalian Wanda Group acquired Legendary Entertainment in January 2016 and has pending deals to take over Dick Clark Productions and Carmike Cinemas Inc. to become the largest movie exhibitor in the United States. It already is the largest exhibitor in the world. In October 2016, Jack Ma of Alibaba and Steven Spielberg of Amblin Partners formed a partnership, Holding Ltd., to help Amblin distribute its movies in China and enable Alibaba to become a bigger part of Hollywood’s production and distribution ecosystem.
  • The Chinese conglomerate, HNA Group, that has China’s biggest privately held airline, hotels, supermarkets, etc. has agreed to spend $20 billion this year to buy 25 percent of Hilton Worldwide, the aircraft-leasing arm of CIT Group, the US computer-logistics company Ingram Micro, and the Radisson and Country Inns & Suites chains—some of these deals are pending.
  • A key feature of many Chinese investments in foreign markets is the quid-pro-quo to have an offsetting benefit in China. The HNA Group bought the Hilton stake from the US private equity firm Blackstone Group LP. Is it coincidental that Blackstone Chief Executive Stephen Schwarzman made a $100 million donation in 2013 from his personal fortune to fund a scholarship program modeled after the Rhodes Scholarship to bring 200 mainly US students to China every year?
  • International companies will be open to the new opportunities being developed by the Chinese. General Electric Co. recently announced it wishes to develop new sales in industrial equipment in developing countries by piggybacking China’s push to open more markets to Chinese companies, particularly President Xi Jinping’s initiative, “One Belt, One Road,” focused on roads, ports, and other infrastructure in some 65 countries.

In 2015 Western sentiment of industry leaders and working-class communities is rapidly growing that China’s markets are closed, Western markets are open, and Chinese companies are dumping excess capacity in the West with rock-bottom prices. These actions are then leading to suppressed wages, lost jobs, and company failures in the Western countries. The number of trade remedy cases against China by G-20 members has been steadily rising since 2010. In 2016, trade with China became a hot political issue in the presidential campaign.

Chinese government officials will support Chinese firms in foreign markets, and will act quickly to help Chinese companies facing foreign-government barriers.

  • The UK government approved a contract for Huawei to supply equipment for Britain’s telecoms infrastructure. But recently, the new prime minister, Theresa May, delayed approval of a nuclear power plant to be part-funded by Chinese investment. Xinhua, China’s official news agency, immediately commented that ditching the nuclear plant would create repercussions for Britain and British companies elsewhere.
  • Chinese takeover deals (44 each) in Germany in 2016 so far are worth more than $11.3 billion. That’s more than the previous 14 years combined. Germany’s openness to Chinese investment is changing; German government officials are trying to limit the acquisitions, reviewing proposed acquisitions more closely, and saying no to some. After Germany withdrew its approval on security grounds for a $736 million purchase of German chipmaker Aixtron SE by China’s Fujian Grand Chip Investment Fund LP. Chinese government officials immediately complained about Germany’s protectionist tendencies. German officials then complained about investment reciprocity in China, in effect saying, “We’ve always been open to foreign investment, but you haven’t been.”

Chinese and Indian immigrants are now outpacing those from Mexico in most regions of the United States. In 2014—the most recent year for which data is available—about 136,000 people came to the United States from India, about 128,000 from China, and about 123,000 from Mexico. In 2005 Mexico sent more than 10 times as many people to the United States as China, and more than six times as many as India. Workers are coming to the United States from China because Chinese corporations are expanding in the United States and because employment opportunities in China are changing. Chinese purchases of industrial robots are increasing rapidly as manufacturing labor has become more scarce and expensive. In 2010 Chinese purchases of industrial robots numbered about 15,000 units; in 2015 they were about 65,000 units; and in 2018 they are projected to be about 150,000 units.


Chinese multinationals are poised to rapidly expand in all the G-20 countries. In the next ten years Chinese corporations could become the global leaders—displacing the US and European one—in many industries. Chinese multinationals could replace American multinationals as the face of global capitalism. Given recent signals of change, plausible outcomes could range from a dynamic global trade realm with Chinese multinationals acting as leaders to an ugly global business environment where governments act to support national champions and restrict the opportunities available to foreign competitors.


  • By 2030 maybe 40 percent of the Fortune 500 will be based in emerging markets, compared to 26 percent in 2015.
  • There could be a massive shift in control of global markets from West to East.
  • Global trade could continue to grow in the next ten years, stimulated by the wide-ranging activities of Chinese multinationals.
  • On the other hand, globalization trends could stall if Western countries impose major trade barriers and severely restrict the activities of unfriendly-nation multinationals on security grounds. This is very possible.

Chinese Multinationals Going International

  • Chinese commodity producers will lead the way. As the demand for commodities begin to grow again and as prices increase in the next two years, Chinese commodity producers and product manufacturers will expand rapidly into G-20 countries. They will buy existing producers and distribution companies, taking advantage of their weakened financial states because of the commodities slump.
  • Leveraging their protected market positions in China against foreign competition, Chinese multinationals will blitzkrieg the United States and European countries to develop market share rapidly.
  • Chinese companies will operate in any country as long as their staff is reasonably safe and they get paid—North Korea, Russia, South Sudan, Venezuela, the United States, Iran, and Congo—no problem. American and European firms will continue to be limited by national laws, international sanction, and business standards for activities such as environmental management.

East West Competition

  • G-20 multinationals will partner or merge with Chinese multinationals as opportunities arise. Some interesting East-West combinations could result.
  • Chinese companies will challenge and surprise many in a number of global markets. For example, US, German, Japanese, and South Korean firms dominate the global car and truck manufacturing industry. That could quickly change with one or two acquisitions or the emergence of a new type of car manufacturing organization (like Tesla) in China.

Business Climate in G-20 Countries

  • The expat Chinese business community will expand dramatically in G-20 countries.
  • The business culture and competitive practices in G-20 countries will evolve. Just like there’s an evolving Silicon Valley model based on the emergence of the online companies, there will be an East-West model that involves cultural and economic connections to China.

The United States and European Governments

  • The number of proposed deals involving Chinese multinationals that must be approved will increase dramatically in both the United States and in Europe. Individually each deal appears rational and is hard to dispute under the country’s commerce laws, but collectively they suggest structural shifts might occur if they all are allowed to go through.
  • The explosion in number of proposed deals could overwhelm the G-20 government bureaucracies and market regulators. Governments may struggle to review and evaluate the deals in a consistent manner.
  • G-20 countries will dedicate more authority and resources to government offices to manage the growth of Chinese multinationals in their countries. Given the Chinese companies’ inevitable ties to Chinese government officials, security concerns and unfair government subsidies will be most often cited.
  • European Union markets will be particularly vulnerable to Chinese competitors because European competitors are already not dominant in many industries. EU authorities might encourage large foreign investment from Chinese companies or fight it, or do both. Given nationalism trends in the EU, Chinese companies may not be welcome; but given the unemployment problems, outside investment will be very welcome.

China’s Active Government

  • China’s government will actively encourage Chinese multinationals to compete in the largest markets in the world and become global market leaders.
  • At the same time, the China government will actively combat protectionist measures imposed against Chinese corporations.
  • China will continue to use domestic-market subsidies, access to low-cost financing from state-owned banks, etc., and new strategic initiatives like President Xi’s “One Belt, One Road” to help Chinese companies become global leaders.
  • The government will encourage Chinese companies to try and dominate commodity supply chains to protect China’s future access to commodity resources, like the United States has protected the world’s access to Middle Eastern oil.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s