China’s Geopolitics and the Belt Road Initiative

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Coming from Mérida, Venezuela, I remember thinking about state-owned enterprises (SOE) in a very disappointing way. Injustice, corruption and efficiencies were justified in the name of the collective. However, the years would go by and nothing but decay was seen in these corporations. To my surprise, after a couple of years living in China, my perception of them radically changed.

Looking back at 2018 when I was living in Shenzhen, I went through a transition regarding the notion I had about SOEs. I remember talking to Chinese people and being fascinated by the way these companies were praised and admired to the level that they even called them “National Champions”. Later, the Chinese SOEs upswing within the largest project ever put forward by humanity: The Belt and Road Initiative (BRI) was something that was aligned with my studies in International Business and it immediately caught my attention. Unquestionably, said project has not only repercussions for all the nations involved, but also on China’s geopolitics. The Chinese foreign direct investment strategy through SOEs in politically unstable countries in Central Asia spotlight a series of implications that were unveiled along with the investigation.

At different levels, Chinese SOEs compromise the economic and political parties involved in ways that are, arguably by some, categorized as “unfair”. Let’s start at the business level. The study finds that Chinese SOEs reap the benefits of having significantly lower interest rates as well as having access to a significantly larger amount of loans compared to those of the private enterprises. The access to almost unlimited amounts of capital allows them to opt for higher bids in front of both local and foreign competitors when acquiring businesses abroad. Thus, it sets them in front of a race that already knows its winner.

At the governmental level, Chinese SOEs are being used as an instrument to fulfil the Chinese Communist Party’s agenda at all economic cost. SOEs do not have the pressure to focus on short-term or long-term gains as any private company would inevitably have to do. Since SOEs are not merely motivated by profit, they have a broader spectrum of business movements and resources compared to those of their counterparties. Therefore, we cannot think of Chinese SOE’s as purely economic actors abroad. Notwithstanding, they are competing vis-à-vis with any regular American, Spanish or German company.

Some of the objectives SOEs pursue for the Chinese government can be exemplified through a few cases analyzed in the investigation. Within the domestic market, we can say that apart from crushing the competition by lobbying on regulation that favours SOEs, the response these companies have with regards to dealing with natural disasters and artificial market regulation is simply remarkable as an instrument for the nation’s well-being. However, things start getting twisted when going abroad and facing other institutions.

An example of that was the acquisition of a Kazakh company, PetroKazakhstan. The USD4.2 billion investment by China National Petroleum Corporation gave China the ownership of the second-largest crude oil reserves in Eurasia. This was an attempt to secure resources China was unable to produce by itself. In this case, oil crude consumption in China is 4 times superior to its production, making it a valuable strategic acquisition that had to be secured by bidding higher than competitors and providing the best deal for the local government.

Another would be securing geostrategic areas by providing an excess of debt to politically unstable countries that do not have the economic capacity to pay back. The case of Gwadar Port in Sri Lanka allowed China to take possession of a crucial location in the Pakistan Corridor where Chinese SOEs not only own but also operate all the infrastructure they were supposed to be financing for the country. This particular move reduces Chinese dependence on the Sea of Malacca and South China Sea routes, providing China with an alternative and shorter route for energy imports from the Middle East, thereby reducing shipping costs and transit times.

All of this may look great for China right now, but as for the BRI in Europe, additional research should be made on the role Chinese SOEs have on the European Union territory. Considering that precisely the advantageous conditions SOEs had in other countries turn into a setback for the EU’s participation in the initiative, China will most likely change their game if they pretend to put forward the last section of said project.