BIG IDEA | ‘When a U.S. or European firms compete against, say, COSCO Shipping or Huawei, it is the entirety of the Chinese government’s balance sheet that it must contend with, not just an individual firm.’

‘Rather than operating as a collection of individual, profit-first firms (as is the case in most developed Western economies), the CCP has created a robust set of formal and informal mechanisms that induce connectivity (of varying intensity) between state-owned and nominally private Chinese firms.’

• ‘Companies competing in non-strategic sectors can largely operate on more or less market terms, but for any sector or industry that Beijing has deemed strategic, foreign companies must expect that the Chinese government has placed its fingers on the scales to benefit domestic firms.’
• ‘Thus, when a U.S. or European firms compete against, say, COSCO Shipping or Huawei, it is the entirety of the Chinese government’s balance sheet that it must contend with, not just an individual firm.’

‘Looking beyond China, what gives this state capitalist system such immense global force are the synergies and interconnectivity between and among Chinese firms, state-owned banks and investors, and the Chinese Party-state.’

• ‘This commercial-strategic ecosystem, which I have dubbed “CCP Inc.,” possesses an unrivaled ability to deliver the complete value package when entering overseas investment deals: it can buy, build, and finance on a scale and speed that is unmatched.’

‘One important area of focus should be creating new tools to map ownership structures.’

• ‘Indeed, one of the single biggest factors aiding the expansion of SOEs and private companies globally is their ability to mask ownership through a labyrinthine network of obscured ownership and a proliferating network of subsidiaries.’
• ‘This helps mask their connections to the Chinese government and circumvent competition regulation, commercial and investment law, and sanctions.’

‘Consider one astounding statistic: “The average number of firms of the largest 100 [Chinese] conglomerates increased from 500 to more than 15 thousand from 1995 to 2015.” ’

• 'This translates into 1.5 million total companies, and that’s just for the top 100 business groups.’

My Take

Companies outside of China have to adapt to compete with this model. The problem: I see no good solution arising out of the western capitalist model - and that is among the most worrying issues in international business.