Are the Chinese government and Chinese Multinationals in Cahoots?


Absolutely. It’s China’s system. Every Chinese stakeholder—government agency, Chinese company, and Chinese citizen—contributes in the global struggle that is not a game. The government plays a central role in shaping every stakeholder’s long-term goals, in setting economic and industrial priorities, in nurturing and protecting domestic companies, in creating opportunities for Chinese companies to become industry world leaders, and in shaping a world order that favors the Chinese. The keys of the strategy are for the Chinese government to enlist each stakeholder in the effort, create an unlevel domestic playing field so competitive that the Chinese companies that emerge are potential global leaders when they go abroad, and provide strong direct and indirect support to Chinese organizations competing in strategic industries.

Since a critical feature of global industrial markets is how rapidly situations can change, researchers, companies, and investors around the world are in an unrelenting struggle to learn and adapt rapidly. If they don’t, they won’t succeed. The Chinese government/industry system enables the country to stay focused on long-term goals, while actively supporting various parts of the system to prevail in the strategic markets that are constantly changing interactively complex, non-linear, and chaotic. The Chinese multinationals contribute by taking risks in the foreign markets and using the Chinese government’s offered support. This decentralized approach for competing in many complex markets is not unlike the US Army’s doctrine for planning and executing operations against insurgencies in the Middle East and Africa.

With this coordinated system, in the next ten years Chinese multinationals could replace American multinationals as the face of global capitalism.


Recent signals of this integrated Chinese government and multinational system and their overseas potential include the following:

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. Increasingly, their key shareholders are state-owned organizations.

  • In a recently published book, China’s Crony Capitalism: The Dynamics of Regime Decay, the author 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.
  • A Washington Post article on December 30, 2016, entitled “China’s $9 billion effort to beat the U.S. in genetic testing,” described China’s effort to become a world leader in the use of genomics and an example of a Chinese’s company’s advanced DNA technology being used to help an American child in Boston. The article noted China is “battling for dominance in innovation and science that is more likely to determine the economy of the future” and believes “[genetic testing] technology could prove as transformational as the Internet.”
  • In the past year ending in September 2016, two state-owned investment funds have become top-10 shareholders in 39 percent of listed companies in China, according to UBS Group AG, which analyzed the shareholdings. (Interestingly, in Japan the situation is similar: According to The Wall Street Journal about 30 percent of all the companies in Japan’s three main equity indexes now have Japan’s central bank as one of their top ten shareholders. Six years ago, the Bank of Japan’s equity presence was “trivial.”)
  • A recent study by Fitch Ratings, Moody’s, and Standard & Poor’s showed state-owned Chinese enterprises received more generous lending terms from banks than private firms, largely because of the perception that the state will stand behind the state-owned enterprises.
  • An analysis by Wind Info in November 2016 indicated almost 14 percent of listed, nonfinancial companies’ profits are attributable to Chinese government support. And that’s up from 5 percent six years ago.
  • Private Chinese firms often have government shareholders, and approximately 11 percent of their profits come from the state.
  • Priority sectors, even if they’re doing well, get government support. Subsidies to China’s car manufacturers have grown 50 percent since 2010. Approximately 19 percent of Geely’s gross profits over the past five years are government subsidies and grants.

China’s domestic markets are complex, very messy affairs and Chinese business models are evolving in response to the dynamic conditions. The complex relationships with government organizations are changing and manufacturers are relying less on foreign inputs in domestic-manufactured products. China’s economy is shifting from a labor-intensive manufacturing to higher-tech industries and services.

  • President Xi wants to put politics (federal dictates) back in command, but progress against corruption and local deviation from federal policy has been slow. Market forces, local governments, and corruption often wield more power over corporate actions.
  • Chinese manufacturers are buying more raw materials and components from domestic suppliers rather than from abroad. The portion of foreign inputs in China’s exports has fallen from over 40 percent in 1995 to less than 20 percent in 2015. The annual value of China’s high-tech and new-tech imports has been slowly falling since 2013.
  • In 2015 services generated 50 percent of China’s GDP, up from approximately 40 percent in 2000; while industry generated a little over 40 percent of GDP in 2015, down from about 45 percent in 2000. Official unemployment rates have been notably steady at around 4 percent for many years, but those figures don’t reflect reality because they exclude migrants from rural areas.
  • 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.

The Communist Party is continuing to assert strict control over the political/economic/social system.

  • Hangzhou’s local government is piloting a “social credit” system the Communist Party wants to roll out nationwide by 2020. The aim of the national social credit system is to “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step.” The plan for the system is to compile digital records of citizens’ social and financial behaviors to calculate a personal rating that will determine what services they are entitled to, and what blacklists they go on. A person can incur black marks for infractions such as fare cheating, jaywalking, and violating family-planning rules.
  • China continues to limit the ability of Chinese affiliates of the Big Four accounting firms (Deloitte, PwC, EY, and KPMG) to share documents about Chinese companies publicly traded on US stock exchanges with the US Securities and Exchange Commission.
  • China is implementing new rules for nonprofits in the country. The types of activities that the nonprofits can participate in are prescribed—not everything is allowed—and foreign nonprofits that are allowed to operate will be tightly monitored and controlled.cropped-dsc_0083.jpg

Despite being the world’s second largest economy, China still dictates the participation of foreign-owned corporations in China to best serve Chinese consumer needs, transfer knowhow and capabilities to Chinese companies, and stimulate local companies to become world-class leaders.

  • After rejecting battery-operated cars—in favor of hybrids and fuel-cell vehicles—China is forcing Toyota into electric/battery cars. China is the world’s largest car market and new regulations will penalize car manufacturers that produce an insufficient number of electric, plug-in hybrid, and fuel-cell models. By 2018, such cars must account for 8 percent of the maker’s production, and the percentage will rise from there. (Sounds like totalitarian California.) It doesn’t look like Toyota will meet the deadline.
  • Didi Chuxing’s acquisition of Uber’s China business will essentially preserve China’s ride-hailing market for Chinese companies. Uber probably discovered this is the outcome the Chinese government wanted to happen.

In 2016, China made pledges to create a level playing field for foreign and domestic investors. But will it? 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 if this one-sided policy will change.

  • 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.
  • 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.
  • 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.

It’s tough for Chinese companies to expand abroad. For the most part, China’s large high-tech companies currently have only small overseas presences. Part of the reason for not being more successful is Chinese companies have tried to enter developing-economy markets first before expanding into developed-economy markets.

  • For high-tech markets, emerging market demand simply isn’t there yet. As an example, app developer Cheetah Mobile has over 600 million monthly active users, 79 percent of them overseas-mostly in India and Indonesia. But its overseas sales still account for a small portion of its overall sales.
  • Huawei has been an exception. Led by its founder, Ren Zhengfei, China’s Huawei Technologies has expanded rapidly in the global market for telecom gear and smart phones, and despite market barriers in key markets like the United States, Huawei’s revenue doubled to $60 billion in the last five years. Mr. Ren laid out an intense management philosophy when he founded the company in 1987 and Huawei employees’ dedication to the company today stands out among Chinese companies.

Leading China-market competitors are using different strategies. The Chinese government is a factor in many strategies.

  • General Motors started selling Chinese-built Buick’s in the United States in late spring 2016. The Buick Envision is built by Shanghai GM, a joint venture with SAIC Motor Corp, but was designed by GM in Michigan. The Envision is one of Buick’s top sellers in China. Made-in-China cars aren’t expected to become a big part of overall US car sales because manufacturers historically have found it more profitable to build cars where they are sold. But with China’s car factory capacity now at 40 million cars per year, it may be much more practical (and profitable) to simply build all cars in China.
  • Market access/cybersecurity problems produce foreign corporate allies. Microsoft and Chinese company Huawei Technologies just announced their joint support of the EastWest Institute, a nonprofit focused on encouraging open discussions of cyber security issues and new information technology products. Microsoft is facing the antitrust heat from Chinese regulators while Huawei can’t compete for US telecommunications-equipment opportunities because of US government concerns over cyberspying.
  • In September 2016, Nvidia Corp. of Santa Clara, CA, and Chinese internet firm, Baidu Inc. announced a partnership to develop a self-driving car. Baidu is already testing self-driving cars in China and recently received approval from California regulators to test its self-driving cars there.
  • 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 number of acquisitions by Chinese companies is taking off. The acquiring company may pay a premium, but it can develop a strong market share quickly. But acquisitions are subject to many government agencies’ approvals.
    • 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. While the media industry is closed to foreign companies in China, the movie industry in the United States is not closed to Chinese companies. Senate Minority Leader-elect Charles E. Schumer (D-N.Y.) said China’s investments in U.S. industries, including film, deserve a more critical look from Washington regulators. China’s protectionist policies, he said, have put American companies at a significant disadvantage in the world’s most populous country, even as Chinese companies like Dalian Wanda Group reap the benefits of the U.S.’ open market. “I am concerned that these acquisitions reflect the strategic goals of China’s government and may not be receiving sufficient review.”
    • 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?

China’s government is quick to protect Chinese corporate interests when foreign governments or regulators take positions against those interests. China recently responded to suggestions in the United States (including Trump) and European Union that they—the US and EU—will take actions to punish those that benefit from Chinese subsidies and discourage Chinese companies from dumping.

  • 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.
  • 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.
  • The Chinese government links international policies and economic opportunities in its foreign relations. Australia’s Liberal government announced in October 2016 that it wouldn’t be conducting freedom-of-navigation patrols in the international waters of the South China Sea, effectively ceding control of the Sea to China. Sixty percent of Australian trade moves through the Sea. Chinese companies are investing in Australia, while China is the biggest buyer of Australian commodities.
  • 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.”
  • 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.
  • A Global Times—a Chinese state-run publication— editorial predicted China will punish American companies if Trump follows through with his pledge to get tough with “cheating China. It said, “China will take a tit-for-tat approach . . . A batch of Boeing orders will be replaced by Airbus. US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted.”
  • The EU is debating whether to grant China “market economy status,” which would potentially make it harder for the EU to protect its industries from what it deems unfair trade practices by Beijing. China’s government will likely threaten retaliation if the EU doesn’t grant market-economy status to China.


The system of cooperation and collaboration between Chinese government agencies and Chinese multinationals will evolve as the number of expansion strategies get used and tested in the dynamic overseas markets, China’s economy matures, and the global order and China’s role in it changes. Global markets will operate less openly. G-20 countries will build up their trade-restriction policies. We can expect to see many of the following outcomes.


  • Global trade could continue to grow in the next ten years, stimulated by the wide-ranging activities of Chinese multinationals.
  • 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.
  • 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.

Over the next ten years the Chinese government will continue focusing on strength and perpetuation of the Communist Party regime. Still plausible, but maybe less likely is for the government to focus largely on protecting the country’s territorial integrity and enhancing the wellbeing of the Chinese population.

The Chinese government will be trying to increase its surveillance and control of its citizens. Perhaps the Chinese government will gain access to DNA data of its citizens for its social-credit system. The Washington Post article about China’s investment to beat the US in genetic testing noted the “vast warehouses of genetic information” that will be created.

China’s priority going forward will likely be to continue protecting domestic industries and Chinese multinationals and not to overhauling the Chinese system to make it more market oriented.

The Chinese government will also continue to maintain a level of authority over every Chinese corporation—state-owned or not—and every move by a Chinese corporation in a foreign market will provide the Chinese government an additional presence overseas.

China government’s active role overseas will continue. The system will provide results.

  • China’s government will actively encourage Chinese multinationals to compete in the largest markets in the world, particularly strategic ones, and become global market 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.
  • 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.

Chinese Multinationals Going International

  • Over the next ten years 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.
  • 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 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.
  • 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.

The partnerships between the Chinese government and Chinese multinationals will rapidly gain more experience in penetrating foreign markets and will likely become more effective in entering and competing in developed-country markets. The Chinese companies with their government sponsors will eventually dominate in many of those markets.

Chinese multinationals could replace American multinationals as the face of global capitalism. Chinese multinationals in the next ten years could become the global leaders—displacing the US and European ones—in many industries. Given recent signals of change, plausible outcomes 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.

  • 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.

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.

The aggressiveness of the Chinese companies and the Chinese government’s uncooperative approach in helping Chinese companies compete globally will likely spark large anti-trade sentiments in North America and the EU, create major political and security issues for G-20 governments, and force a variety of penalty and protectionist policies to be implemented.

The business climate in G-20 countries in general will become more nationalistic.

  • Business practices in the next ten years and the business leaders we follow will often be Chinese, and the business culture and competitive practices in G-20 countries will evolve. Just like there’s a Silicon Valley model based on the emergence of the online companies, there will be an East-West model that reflects the cultural, economic, and business norms of China.
  • Crony capitalism will remain strong.

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