Is China Buying the World?

By Peter Nolan

China’s ‘catch-up’ has been one of the most remarkable aspects of the era of capitalist globalisation. Below, Peter Nolan argues that the widely-expressed view that China is buying the world is damaging to international relations, especially at a time of deep crisis in global political economy.

Whatever the future may hold, it is far from the case today that China is ‘buying the world’. The statement ‘China is buying the world’ is powerful and emotive. A large body of the citizens of high income countries appear to believe that this is the reality of China’s relationship to the world in general and the rich countries in particular. Similar views were advanced in the 1980s in relation to the rise of Japan. However, the depth of feeling about ‘China Rise’ greatly exceeds that of the 1980s in relation to Japan. The widely-expressed view that China is buying the world is damaging to international relations, especially at a time of deep crisis in global political economy. It is damaging to the prospect for peace. It is important for the relationship between China and the Western world that there is balanced analysis of the relationship between large Chinese firms and the global business system. This requires thorough investigation of the nature of capitalist globalisation and its implications both for ourselves and for China.


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Who are we?
After the late 1970s China groped its way towards reform of its large state-owned enterprises and attempted to transform them into globally competitive giant firms. During the three decades since then, China’s policy-makers have watched intently as global business entered an era of revolutionary transformation. During this period the capitalist business system went through comprehensive restructuring with explosive merger and acquisition at its core. In almost every sector a small group of giant companies with leading technologies and brands emerged, which between them commanded fifty per cent or more of the global market in that sector. Pressure from the cascade effect stimulated comprehensive restructuring of the value chain surrounding core companies and intense industrial concentration took place far down into the supply chain. This system has been tremendously dynamic, with intense oligopolistic competition spurring unprecedented technical progress with tremendous benefits for society. The same basic process of industrial concentration is at work in industries as different as automobiles and beverages.

During the three decades of capitalist globalisation, firms from high income countries have enormously expanded their international operations. For leading global firms their international assets, employment and sales greatly exceed those within their home economy. They have, indeed, been ‘buying the world’ throughout the three decades of capitalist globalisation. Firms from high income countries have deeply penetrated each others’ business system, mainly through international mergers and acquisitions. A succession of iconic national companies in one high income country have been sold to firms from other high income countries. In the high income countries, we can say to each other: ‘I have you within me, and you have me within you’.

After three decades of capitalist globalisation there is a tremendous disparity in business power between firms from high income countries and those from developing countries. The companies that have established themselves at the core of the global business system almost all have their headquarters in the high income countries. In the FT 500 there are wide swathes of business activity in which there are no firms at all from developing countries. Global brands and global technical progress are concentrated among a small number of firms from high income countries that stand at the apex of the global business system. Firms from developing countries are almost entirely absent from the commanding heights of global technical progress. One hundred giant firms, all from the high income countries account for over three-fifths of the total R&D expenditure among the world’s top 1400 companies. They are the foundation of the world’s technical progress in the era of capitalist globalisation.

At the same time that ‘our’ firms have bought each other, they have become truly global. Not only have they deeply penetrated each other’s business system. They have also become deeply embedded in low- and middle-income economies as their markets opened under the influence of Washington Consensus policies. This brought many benefits to the societies, but it created a severe competitive challenge for local firms. Not only core systems integrators but also the leading segments of their supply chains have built their business systems in developing countries. Global firms, with their headquarters in the high income countries, are increasingly ‘inside’ the developing countries, typically occupying commanding positions within their business structure in high value-added sectors. This poses a severe policy challenge for developing countries. Only a small number of firms from developing countries have emerged to compete on the global stage with the leading firms from the high income countries. Much of the widespread optimism about the possibilities for catch up by firms from developing countries is based on the case of China and the perception that its firms are ‘buying the world’.

The fact that firms with their headquarters in high income countries have been ‘buying the world’ to construct global business systems poses complicated, severe and little understood challenges for political economy in the high income countries. The close identification of large corporations with the particular country in which they have their headquarters has greatly weakened. There is little incentive for a global company to contribute to a ‘national industrial policy’ if the home economy accounts for a small and declining share of the company’s assets, employment and revenue. There is every incentive to minimise tax payments in the home economy and shift profits to a lower tax regime. There is every incentive to move the company headquarters to another country if the policy framework in the home country is considered to be problematic. Since the onset of the global financial crisis the economies of the high income countries have stagnated, with high levels of unemployment, especially among young people and those with low skills. At the same time ‘our’ large firms have enjoyed buoyant sales and profits, thanks to the continued growth of their international operations, particularly in developing countries. Today’s developing countries, with China at the forefront, will become an ever-increasing part of the structure, interests and culture of firms from the developed countries. Indeed, for many of ‘our’ leading global firms China is either already the biggest market or soon will be. As capitalist globalisation continues in the decades ahead, these trends and the tensions they engender within the high income countries are likely to intensify.

It is important for the relationship between China and the West that there is balanced analysis of the relationship between large Chinese firms and the global business system.

Who are they?
China’s ‘catch-up’ has been one of the most remarkable aspects of the era of capitalist globalisation. The ‘Great Convergence’ has transformed global political economy. Among the many remarkable aspects of China’s transformation has been the emergence of a sizeable group of its state-owned companies among the ranks of Fortune 500 and FT 500 companies. In view of the extremely uneven nature of international business competition, it is unsurprising that China attempted to nurture ‘national champion’ firms through state-led industrial policy measures. In different ways, this is exactly what all of today’s high income countries did in the past, from the late eighteenth century onwards. China’s national champion companies have made large progress in terms of institutional change and technical advance. The success of China’s industrial policy under the leadership of the communist party defied the predictions of almost all international experts.

However, China is a far from having caught up with the high income countries. It is still a developing country with a low level of income per person and a population that is much larger than that of all the high income countries combined. It faces great difficulties in moving away from the path dependence of its unbalanced and unsustainable growth model. China is unique in that it has become the world’s second largest economy while it is still a lower middle income country. It is unique also in that it is both moving out of the ‘Lewis’ phase of economic development with unlimited supplies of labour and is becoming ‘grey’ while it is still a lower middle income country. It faces also heavy policy challenges to deal with the tremendous inequality in income and wealth that has emerged under the reform policies, to deal with the pervasive environmental damage, and to move the economy away from heavy reliance on high levels of investment and rapid export growth.

China’s relationship with developing countries has greatly expanded. Its imports of metals, minerals, oil and gas, and food have rapidly increased. Its developing country trade partners have greatly increased their imports of labour-intensive Chinese manufactures. China is a highly competitive supplier of a wide range of infrastructure facilities to developing countries. The fast expanding relationship in trade and infrastructure has produced tensions in China’s relationship with developing countries. However, the greatly expanded economic relationship with China has made an important contribution to accelerated development, especially in Africa and Latin America. In the high technology and branded goods sectors for the middle classes of developing countries, and in the supply chain that surrounds these firms, large Chinese companies have made negligible inroads into the dominant position held in developing countries by multinationals from high income countries, which they have built up over many decades.

China has a small share of the world’s oil and gas reserves and it is desperately short of oil and gas in relation to its extremely rapid growth of demand. It is widely thought that China is ‘buying the world’ in relation to global supplies of oil and gas. In fact, nine-tenths of the world’s oil and gas assets are not for sale, as they are owned by the NOCs. Moreover, after many decades of expanded international operations, Western oil companies have a dominant global position in those oil and gas resources outside the control of the leading NOCs. The combined reserves of oil and gas in the hands of Western oil companies are several times larger than those held by China’s oil companies. Western oil majors also are in a leading position in terms of the technologies and management skills needed to develop large, difficult sources of oil and gas. As late as the 1990s, China’s oil companies had negligible international oil and gas reserves. In the late 1990s Western oil companies went through an explosive round of merger and acquisition, including some of the biggest acquisitions ever completed in any sector. However, it is not politically feasible for China to increase its reserves and upgrade its technology through the acquisition of Western oil companies. The one exception to this was the purchase of Nexen by CNOOC. Instead, China’s oil companies mostly have had to painstakingly build up their international reserves mainly through a sequence of small-scale acquisitions of minority positions in developing countries.

The combined reserves of oil and gas in the hands of Western oil companies are several times larger than those held by China’s oil companies.

China is unique among large, latecomer developing countries in the degree of openness to international investment. A large body of leading global firms have ‘gone into’ China. That this should have happened under the leadership of the communist party is remarkable, and baffling to international experts. Multinational firms occupy key positions in large areas of the Chinese economy. They have been crucially important within China’s exports and centrally important in China’s technical progress. Many leading multinationals from Europe and North America each have invested billions of dollars building their business systems within China and each directly employ tens of thousands of people. Leading Western multinationals each have several billions of dollars of sales revenue annually in China. If employment in their supply chain in China is taken into account, then the numbers indirectly ‘working for Western multinationals’ in China would be extremely large.  Many leading Western multinationals source billions of dollars worth of goods from China. In some cases hundreds of thousands of people in China are employed making the products exported to Western multinationals. The total sum of people in China who work directly or indirectly for international firms is extremely large and beyond easy calculation. In sum, ‘our’ giant firms are deeply ‘inside’ China.

It is highly likely that China will continue in the attempt that it has sustained throughout its ‘reform and opening up’ to build a group of globally competitive large companies. However slow and painstaking the process might be they will ‘never give up’ (yong bu fang qi). The main body of China’s national champion firms are in a group of strategic industries including banking, metals and mining, construction, electricity generation and distribution, transport, and telecoms services. They have been protected by the fact that they are state-owned. They benefit from state procurement policy and the fact that they buy each others’ products. The non-financial firms benefit also from loans from state owned banks. They have benefited greatly from the high speed growth of the domestic economy.

However, expanding the position of state-owned national champion firms in a large and fast-growing domestic economy is different from constructing globally competitive firms in the international arena. Despite significant progress China has not yet nurtured a group of globally competitive ‘national champion’ firms with leading global technologies and brands, that can compete within the high income countries. Despite widespread perceptions in the international media that Chinese firms are ‘buying the world’, their presence in the high income countries is negligible. This is a remarkable situation for a country that is the world’s largest exporter, and its second largest economy and manufacturer. In other words, ‘we’ are inside ‘them’, but ‘they’ are not inside ‘us’.

China was deeply scarred by the Asia Financial Crisis. Like other East Asian economies it has accumulated large foreign exchange reserves, which it is widely thought China is using to ‘buy the world’. However, in per capita terms China’s foreign exchange reserves are far below those of most of its neighbours. China cannot simply use its foreign exchange reserves to ‘buy the world’. The primary function in accumulating large foreign exchange reserves was to protect the country from the risk of a global financial disaster, which did erupt exactly as China had long predicted and feared, not as a weapon to ‘buy the world’. Accordingly China’s foreign reserves must be managed conservatively. China’s sovereign wealth funds only manage a part of its total foreign exchange reserves. Even if China wished to use its sovereign wealth funds to acquire Western companies, the funds are small in comparison with the combined market capitalisation of Western companies. They are far from sufficient for China to ‘buy the world’. Moreover, there are severe political constraints on Chinese firms acquiring Western firms. Chinese firms have made only a small number of attempts to acquire significant Western companies. They almost all failed. There have been only two significant acquisitions in the manufacturing sector, both of which were sales by a leading Western multinational of a low-margin, ‘commercialised’ division.


The complexity of catching up.
The example of China’s banks and aircraft industry demonstrates just how severe is the challenge facing firms from developing countries. During the past three decades global banks have accumulated enormous technical and human capabilities, which enables them to function as the ‘cement’ that links together the entire global business system.  In the past decade China’s commercial banks have been transformed beyond the imagination of most people outside the country. However, they face a severe competitive challenge in international markets. A key part of that transformation involves the tremendous progress in the application of information technology. The key components of the transformation of the IT systems in China’s banks have been supplied by the global giants of the IT industry, mainly with their headquarters in the United States.

It is a remarkable achievement for China to have build its own indigenous regional jet, and, even more remarkable, to be entering direct competition with Boeing and Airbus in the market for large commercial aircraft. However, there remains a long and complicated battle to dislodge the world’s leading systems integrators from their entrenched position within the world aircraft industry. Moreover, the sub-systems inside the ARJ21 and C919 are all from the global giants of the industry. These all have their headquarters in the high income countries, principally in the United States.

China understands fully the severity of the competitive challenge that it faces across the whole value chain due to the process of industrial consolidation and international expansion of business operations that has taken place among firms from the developed countries in the last three decades. China is attempting to build its own globally competitive ‘systems integrator’ firms. In order to achieve this it has opened its doors wide to leading global firms in the most sensitive of all industries, banks and aerospace. High technology firms from the United States are at the forefront of this process, occupying leading positions deep within the value chain.

The question of who are ‘we’ and who are ‘they’ is far from resolved. China has not yet ‘bought the world’ and shows little sign of doing so in the near future.


This article is a summary of the key arguments in Peter Nolan, Is China Buying the World?, Cambridge, Polity Press, 2012.




About the Author

Peter Nolan is Professor of Chinese Management at the University of Cambridge and Director of the Chinese Big Business Programme at the Judge Business School. He has been centrally involved in discussions about the integration of China with the global economy and business system. He has testified before the US Congress’ US-China Economic and Security Review Commission and served as an Advisor to the World Bank.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of All China Review.