How China Promotes its State-Owned Enterprises at the Expense of Multinational Companies Doing Business in China and in Other Countries

Abstract

China’s mercantilist approach towards international business and trade uses a two pronged strategy to promote China’s state-owned enterprises (SOEs) at the expense of multinational companies (MNCs) doing business in China and other foreign countries. Within its borders, China uses the Anti-Monopoly Law (AML) and the Anti-Unfair Competition Law (AUCL) to pressure, harass, and intimidate MNCs. China uses the AML to coerce MNCs to transfer assets to SOEs, provide access to their advanced technologies to Chinese companies, and to protect famous Chinese brands from being acquired by foreign companies. China has also used the AUCL and various associated laws to crack down on commercial bribery by MNCs using dawn raids and other heavy handed tactics.Outside of its borders, China uses free trade agreements with its trading partners that do not contain provisions relating to workers’ rights, the environment, and transparency in government. China’s SOEs are also not being prosecuted for bribing foreign officials in exchange for business opportunities. By contrast, U.S.-based MNCs are subject to myriad restrictions on their conduct abroad by a complex set of federal laws, including treaties imposing obligations concerning workers’ rights, the environment, and transparency. Bribery of foreign officials by U.S.-based MNCs is subject to intense scrutiny by U.S. authorities. China’s lack of restrictions on SOEs allows them to do business abroad at lower costs and with almost complete freedom on how they wish to conduct their business activities. While China is slowly and quietly creating SOEs that will dominate international business, the international business community does not seem to have taken much notice and may not realize this development until China’s SOEs become so powerful that there may little if anything that can be done to curtail their dominance.