A comparison of the US and EU regulatory responses to China’s state capitalism: implication, issue and direction

Abstract

The rise of ‘state capitalism’ in the field of investment catches the eyes of western countries. The North is currently getting stuck and facing uncertainty while the South is actively participating in global markets and embracing economic globalization. Protectionist stances on trade and immigration result in a more conservative view towards inbound foreign investment in the North. The South sees China becoming an active and important capital exporter. Given that, the USA and EU seek solutions to the changing investment dynamics and issues raised by Chinese state-owned investors in critical infrastructure. National security, reciprocity and competitive neutrality are frequently raised by the USA and EU when dealing with China’s state capitalism. This paper therefore aims to explore the implication of the US and EU measures on Chinese investment and domestic reform by comparing investment policies and treaty practices adopted by these two leading economies. The reasons behind and the convergence and divergence of adopted approaches are discussed. It found that concerns about China’s state capitalism is a clash between two types of development models presented by the North and South. The paper recognizes the legitimacy and necessity of state intervention in foreign investment to protect national security and ensure a level playing field while it also emphases the principles of proportionality and non-discrimination in rule-making. An adaptive version of competitive neutrality and increased transparency are critical for China to respond to the US/EU demands and to further domestic reform.