[MUSIC] A recent twist on China's international political economy is the decision by the central government to send China's firms outbound, what's called going out, the policy of going out. And I would define it as the government's decision to encourage Chinese enterprises to really move outward, to go out from China, to buy foreign firms. Before, we talk about foreign firms coming in in the 80s and 90s buying Chinese firms. Now it's China's turn. It's China's turn to go out, to buy foreign firms, to invest in overseas companies, to form joint ventures overseas, in foreign countries, to buy oil fields, mines or other sources of raw materials. And to buy up core technologies, and rather than, as I said, rather than it all being inbound towards China. And this policy really begins in 2003, we'll see in a second, a figure will demonstrate the importance of that year, the beginning in that year. And I've been able, through friends of mine, been able to find internal documents at both the national level, put out by the state counsel and the equivalent of the State Planning Commission and even at the provincial level from the Ministry of Foreign Trade. That tells Chinese firms which countries they could go to and what resources they could be purchasing and if they do that, they will get cheap money, cheap loans, low interest loans from the Chinese government. And so this is a way to try and encourage these firms to go out. I was reading someone's book a little while ago, and in it, they refer to government regulations introduced in 2005 that even favored state owned enterprises, still favored state owned enterprises over the private sector. Which as I mentioned in the beginning of this whole course, this whole lecture, is still an important component of China's overall political economy. Interestingly, what we have found, though, in terms of energy policies is that sometimes it gets quite chaotic. That even though we often think about China as being a planned economy and that you would think that this going out strategy will be well orchestrated and well oiled and well planned, that in fact, sometimes we see the major energy companies competing against each other for oil fields in the developing world. So there's not, just not as good, not as well planned as you would think. And another reason is also that interfirm competition has really been pushing these firms out into the global economy. So here's a table put together by Joseph Battat, who was a student in China back in the late 70s, a little bit after me, also Canadian. And he did a study for the World Bank and here he gives you a list based on a survey that was done of the key reasons that Chinese firms are going out. And one of the key, the most important reason is really the search for markets, largely because I think there's overproduction, all right? So making use of domestic production capacity. But there's a lot of overproduction in China, they, even back in 2006. And so they're looking for markets, firms are looking for their markets to sell their goods overseas. They're also looking for strategic assets, right? 51% of the firms are looking for strategic assets. It's become part of firms' global competitive strategy. And there's also, as I mentioned, support from the Chinese government. Firms can get loans if they are willing to go overseas. Now, the leaders have their own reasons, and I think that two of the most important reasons are that first of all, China is holding an enormous amount of US dollars. $3, 4 trillion, and that money is earning very small amounts of interest. So, when the economy, when the global economy is suffering and the price of resources goes down or there are firms that are going bankrupt, it's a great time for Chinese companies to take that money and for China as a country to take that money and buy up companies overseas. So that's really a big issue. And also the question of technology. Many of the large MNCs, multinational corporations, will not bring their key technology to China because of intellectual property concerns. They'll do a lot of the designing of product in China, but when it comes to the key technology, the secret component, they do that in their home country. But if Chinese firms can go outward and buy up these important companies, these hi-tech companies, overseas, then they automatically get access to that technology. And so that really solves China's sort of technology policy. Now, here is a slide that talks about the number of firms going out. And we can see here beginning, this is sort of the non-financial outward investment in the number of firms, and we can really see that it takes off in 2003. And we can only get data right now up until 2012. The 2013, 2014 data are not out. But here we can see already that 18, as of 2012, 18,000 firms, right, were already going overseas. And China had already spent or invested $80 billion overseas. Now, one of the more recent aspects of this whole going out strategy is what's known as the one belt, one road strategy. And here the idea is that China wants to use this foreign exchange that it has to create an external demand, right, to create an external demand for its own products. And that if it loans out, the strategy being, if you loan out the money, if you loan money to developing countries like Pakistan, other countries in Central Asia, Kazakhstan, and even loan money to Europe, right? You can then get them to buy China's products. If you want to build a railroad, you've got excess steel capacity, you can then build railroads out to these areas and that will enhance your own economy and make it even easier for China to ship its own goods overseas. And this is a new initiative. Begun in 2014 by the current president of China, the current General Secretary of the Communist Party, Xi Jinping, some people would feel that it's really his effort to establish his own foreign policy credentials. It's not just a strategy that goes out towards Central Asia through Turkey, and then on to Europe. But there's also a component of this, the one belt, the one road. One of the components of this is to go south down into Southeast Asia and to link up there. And there is a recognition and I think it's a very intelligent recognition by the Chinese leadership that if you build, that building infrastructure is really important, critical for economic development for these countries. That's part of the way that China's done so well. It's one of the reasons that India doesn't do as well, right? China built harbors, it built high speed rail and roads and all this kind of key infrastructure for its own development. And so China, in fact, to try and promote this kind of global or regional development put forward the idea of creating an Asian Infrastructure Investment Bank, at the AIIB, to facilitate this flow of China's overseas development investment. But actually it became a thorn and a problem between US and China. Because the United States, I believe foolishly, was not supportive of this effort. And both the United States and Japan did not join this Asian Infrastructure Investment Bank, while all of Europe very quickly, even including Britain, quickly rallied to join because they really see this as a positive strategy. So let's talk about, let's have a conclusion here, sum up briefly what do we find? Well first of all, I think overall the findings suggest that China has benefited enormously from 37 years of the open policy, right. That the previous experience of global integration, global economic integration was its relationship with the outside world was dictated by foreign imperialism. And then in the 1950s, it was dictated by the USSR. And, China, it's not an easy road to go out, to become more interdependent overseas. It's just not an easy road and so there are lots of blips on the road. Before we get to this last two points here, I do want to add, and it's not here on the slide, but I think it's important to go back and to remember as well, I think, a very important concluding idea is the fact that China was smart to promote rural development. And the decollectivization strategy beginning back in 78, 79, as you recall, in terms of its domestic political economy, was really a huge boom for China's economy. Through the 80s, into the 90s, it helped promote rural industrialization, which then helped enrich the quality of the incomes of rural people. It helped promote economic development overall. It helped integrate China into the global economy. So I think going back looking at this, one of the very, very important aspects of all of the political economy was to begin with this rural reform and I'm. For me, that was great because that's where, I was there on the countryside watching this. But in retrospect, in sort of the final thoughts that I would emphasize is really this kind of close link that emerged between the reform of the domestic political economy and China's link overseas, partly because of the exports from the township and village enterprises. And now we see the state still trying to use its excess capital, push the state owned enterprises to go overseas, to invest overseas as a strategy for developing its own economy. Now, the final effort, which I'm not going to go into great detail here, but one of the things that we do see China trying to do is to shift from this over reliance on exports. And to try and move this into sort of promote domestic consumption as a driving force of the Chinese economy. And unfortunately for China, this is happening at a time when the Chinese economy in general is slowing down. The belief was that China could let its economy slow down somewhat, go from 9% growth to maybe 7% growth as it made this difficult transition from an export-oriented to a more consumption-oriented economy. But that strategy, and we'll watch this over the next year or two, that strategy is further complicated by the current economic slowdown that's going on in China.
