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The Role and Characteristics of Chinese State-Owned and Private Enterprises in Overseas Investments

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The Role and Characteristics of Chinese State-Owned and Private Enterprises in Overseas Investments The Role and Characteristics of Chinese State-owned and Private Enterprises in Overseas Investments 1 The Role and Characteristics of Chinese State-owned and Private Enterprises in Overseas Investments Researched and written by Mark Grimsditch Published by Friends of the Earth US, June 2015 ©Copyright Friends of the Earth US Design by Design Action Courtesy of Creative Commons Acknowledgements Friends of the Earth US would like to thank Mark Grimsditch for his work in authoring this report. We also would like to thank our friends and colleagues for their help in reviewing this report, especially Michelle Chan, Economic Policy Director at FOE US. About Friends of the Earth Friends of the Earth U.S., founded by David Brower in 1969, is the U.S. voice of the world’s largest federation of grassroots environmental groups, with a presence in 74 countries. Friends of the Earth works to defend the environment and champion a more healthy and just world. Throughout our 45-year history, we have provided crucial leadership in campaigns resulting in landmark environmental laws, precedent-setting legal victories and groundbreaking reforms of domestic and international regulatory, corporate and financial institution policies.www.FoE.org For more information on this report, please contact: [email protected]. 2 TABLE OF CONTENTS Introduction.......................................................................................................4 Overview of Chinese Enterprises ......................................................................5 State-owned Enterprises ...........................................................................................5 Governance of SOEs .................................................................................................6 State-owned enterprises and overseas investment ..............................................7 State-owned enterprises and China’s foreign aid ...............................................10 Private Enterprises ...................................................................................................... 10 Governance of private enterprises ............................................................................................... 12 Private enterprises and overseas investment .............................................................................. 12 Modernization of SOEs and Growth of the Private Sector ............................. 17 SOE Reform and the Developing Role of the Private Sector .............................. 17 Evolving Characteristics of Overseas Investment ................................................. 19 Case Studies ................................................................................................... 21 MMG Limited: A Subsidiary of China Minmetals Corporation ........................... 21 HKND’s Nicaragua Canal Project ............................................................................. 23 China Railway Group and CISMIG in Cambodia .................................................. 25 Conclusion ...................................................................................................... 27 Appendix........................................................................................................ 28 2014 Forbes Global 2000: Top 20 Chinese Companies ..................................... 28 2014 Fortune Global 500: Top 20 Chinese Companies ...................................... 29 Top 20 Chinese Enterprises Operating Overseas, 2013 ..................................... 30 An Overview of the Regulations applying to State-owned and Private Enterprises Operating Overseas ................................................................................................... 31 Approval of Overseas Investment Projects .................................................................................. 31 Rules Applying to China’s Overseas Investment in General...................................................... 31 Guidelines for Implementation of Overseas Investment and Finance ..................................... 32 Monitoring and Evaluation of Overseas Projects ........................................................................ 32 Additional Regulations Applying to SOEs ................................................................................... 32 Regulations Affecting Listed Companies .................................................................................... 33 Guidelines Affecting the Financial Sector ................................................................................... 33 International Best Practice Guidelines and Standards ............................................................... 34 Endnotes ........................................................................................................ 35 3 INTRODUCTION The latest official statistics from China’s Ministry (SOE) reforms and the rise of the private of Commerce (MOFCOM) indicate that sector, and considers how approaches to mainland China’s outbound investment flows overseas investment are evolving. It provides reached US$107.84 billion in 2013.1 Chinese an overview of the differing structures, state-owned and private enterprises are active governance mechanisms, approaches, and in multiple sectors around the world, including regulations that apply to Chinese SOEs and energy, natural resources, telecommunications, private enterprises and how this impacts manufacturing, construction, real estate, and on their overseas investments. Three case agriculture, among others. In addition to this studies are provided in order to illustrate investment, China has dispersed over RMB the evolving strategies utilized by Chinese 345.63 billion (US$55.39 billion) in overseas aid companies when investing overseas, and since the 1950s.2 the appendix includes a summary of key regulations and guidelines that apply to Historically, SOE’s have dominated China’s overseas investment and finance. overseas investment, but the role of the private sector is increasing rapidly. This paper looks at China’s state-owned enterprise 4 OVERVIEW OF CHINESE ENTERPRISES As part of the “Going Global” policy, Chinese companies and banks have invested in many different sectors in nearly all corners of the world. Over the past few years, Chinese actors have increasingly invested in the Balkan region, including the coal sector in Bosnia-Herzegovina. Photo courtesy of Friends of the Earth. While China’s overseas investment has subsidiary of state-owned China Huadian historically been dominated by SOEs, the Corporation.7 The project received financing role of the private sector is increasing rapidly. from the Export-Import Bank of China,8 and As recently as 2005, SOEs accounted for Huadian sub-contracted construction work 3 83 percent of outbound investment flows. to several companies, including two other However, statistics from MOFCOM indicate Chinese SOEs, Gezhouba9 and Sinohydro.10 that in 2013 SOEs were responsible for less In some cases (as returned to later), Chinese than 44 percent of overseas investment.4 state-owned and private companies may also In 2006, SOEs held over 80 percent of work together in joint-ventures. Increasingly, total overseas investment stock – this had Chinese companies are also working with dropped to 55 percent by 2013.5 According local or transnational companies and to a MOFCOM official quoted in the China Daily in 2012, outbound investments by international financiers. private enterprises will eventually surpass State-owned Enterprises those of SOEs.6 During the period of 1949-1979, almost Private companies and SOEs perform a all enterprises in China were state-owned variety of functions in China’s overseas and operated. Each SOE had a party investment. They may play the role of secretary whose job was to implement financier, investor, developer or contractor, production plans created by central and and sometimes a single project may local governments. Local governments have multiple Chinese actors involved. could establish small ‘collectively owned For example, the Lower Russei Chhrum enterprises’ that were jointly owned by hydropower dam in southwest Cambodia local communities, but private ownership was developed by a Hong Kong-based of any enterprise was prohibited. After 5 Deng Xiaoping came to power in 1978, enjoy monopolies of strategic industries private enterprises were legalized but SOEs and receive strong state support, including continued to dominate the economy. As subsidies, preferential loans and lower rates of recently as 1985, 65 percent of enterprises taxation.16 The strong involvement of the state were state-owned, 32 percent collectively sometimes makes it challenging to distinguish owned, and only 3 percent private.11 between the commercial and political motivations of SOEs. Over the years, several waves of reform have altered the way SOEs function. Many In the past, the success of SOEs was often SOEs have been privatized, merged or measured in relation to production volumes, closed, but there remained some 160,000 employment levels and similar indicators. as of 2012, according to China’s National However, the Chinese Government is Bureau of Statistics.12 Of these enterprises, increasingly aware of the commercial pressures 112 are under the supervision of the central faced by SOEs. As China’s economic reforms government (as of February 2015).13 These have taken hold, pressure has risen for SOEs to major enterprises are referred to as ‘central raise revenues and become more profitable.
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