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State Capitalism: Fortune 500 and Chinese Companies

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Authors: Tridivesh Singh Maini and Mahitha Lingala*

Fortune Magazine’s Global 500 list is noteworthy. For the first time, the number of Chinese companies in the list (119) nearly equals that of the US (121). If one were to add companies from Taiwan (10), the number of Chinese companies (129) comfortably surpasses that of China.

 It would be pertinent to point out however, that the revenue of Chinese companies counts for a little over 25% (25.6%) of the 500 companies as opposed to that of the US which accounts for 28.8%.

 In the top 5, there are three Chinese companies (all state owned); Sinopec group (ranked number 2),  China National Petroleum (ranked number 4) and State Grid ranked number 5). The percentage of State Owned Enterprises in the list has risen from last year (over 80% in 2019 from 76.3% last year).

A number of Chinese banks like the Industrial and Commercial bank of China, followed by China Construction Bank, Agricultural Bank of China were also on the list.

 This list, once again reiterates the point, that China’s growth has been largely propelled by a model of ‘State Capitalism’, where state run enterprises have helped China increase its clout globally.

In recent years however, a large number of private enterprises have also emerged like Ali Baba, Huawei, Xiaomi, Oppo, Dashang Group, Ping An and legend holdings have emerged.

 Ping An which is a tech giant as well which feeds its data algorithms with data harvested from its close to 200 million customers stood at the 29th place on the list with an annual revenue of $163.5 Billion.Huawei telecom jumped 11 spots from last year and was at 61st place,with revenue estimated at$ 109.03 Billion.Ali Baba witnessed fastest growth jumping 118 spots and was ranked at 182.

State Capitalism vs the model of liberal democracies

State Capitalism has been one of China’s major successes, because the Chinese government has no ambiguity in backing mega projects of its enterprises overseas like Twyford factory in the Kenyan Capital, Sunshine group’s mining activities in Tanzania, and many more infrastructural projects in the African Continent and other parts of the world. One of the most important investments is that of the Chinese Export-Import Bank provided 85 percent of the funding for the $475 million Addis Ababa Light Rail.

It would be important to point out, that even private companies, a prominent example being Huawei, are not free from Chinese interference. Australia has banned Huawei from rolling out 5G network. Trump who has dubbed Huawei as a national security threat had imposed a ‘government blacklist’. Recently, while trying to relax some of the restrictions, the US did state that Huawei was still on the entity list and would need a US government license to buy American technology.

Economic growth in democracies on the other hand is not solely dependent upon state enterprises. The number 1 company on the Fortune 500 list is Walmart. If one were to look at the case of Indian companies which are there on the list, there are two private sector companies while the rest are PSU’s. While Reliance is ranked at 99. Oil & Natural Gas Corp (ONGC) a PSU ranks 160, State Bank of India (SBI), Tata Motors, Bharat Petroleum Corp Ltd (BPCL) ranked 275 and Rajesh Exports a private sector company is ranked at 495.

How Chinese companies are benefitting from BRI

A number of Chinese companies (a prominent example being shipping giant COSCO) are seeking to benefit through the Belt and Road Initiative (BRI) .

Beijing has injected massive amounts of capital into Chinese public financial institutions, which make borrowing costs very low as their bonds are treated like Chinese government debt, allowing them to lend cheaply to Chinese companies working on BRI projects. This enables the Chinese companies to outbid their counterparts to due to the inexpensive availability of funds. China’s state owned enterprises that suffered a drought for a while, due to the slowing of the domestic market, are getting a push due to BRI as they are now investing in over-sees infrastructural projects. Most of the BRI initiatives have thus far been implemented by Chinese Companies. Right now, 89% of BRI projects have been implemented by Chinese companies, with the main beneficiaries being construction and infrastructure sector companies.

Another Chinese Industry to gain from BRI, is the tech export industry. For example , Haier Electronics which is a Chinese appliance manufacturer has built six industrial parks in BRI countries.

Projects that initially started as merely China funded projects, they were later on leased or taken over by Chinese Companies, one such project is the Hambantota port. The port was built with 85% funding from the EXIM Bank of China, but in 2016, 80% of it was leased to a Chinese company called China Merchants Ports holding company (CMPort) for debt for equity swap.

Indo-Pacific and private sector

While US, Japan, India and Australia have been speaking about an alternative vision to the BRI , through the FOIP (Free and Open Indo Pacific). One of the distinguishing factors of the FOIP can be greater participation by Private players from these countries in connectivity and infrastructure projects.

The Trump administration has been supporting a greater role for the private sector in FOIP related connectivity initiatives.

Commenting on US involvement in the Indo-Pacific, US Secretary of State Mike Pompeo had stated:‘….. We want these to be commercially available projects led by the American private sector in a way that benefits the entire region and the world,”

The US Secretary of State during an address at the US Chamber of Commerce while outlining the US vision for the Indo-Pacific (which included 113 Million USD for areas such as Digital Economy, Energy and Infrastructure  as well as ) while highlighting the important role of the private sector in the Indo-Pacific stated that US private companies.

The BUILD (Better Utilization of Investment leading to Development) act which received bipartisan support in the US Senate as well as House of Representatives, has helped in creating a new agency the U.S. International Development Finance Corporation (USIDFC) to replace the earlier Overseas Private Investment Corporation (Corporation) which encouraged private companies to invest in Africa. USIDFC is different in a number of ways first its budget is 60 Billion USD as opposed to the earlier 29 Billion allocated for OPIC. Second, it can make deals and provide loans in local currency which makes it more attractive.

Conclusion

The Fortune 500 list brings to the fore many points, one of them being that liberal democracies such as US, Japan, Australia and India, need to come up with an alternative model to that of China’s State Capitalism. While the FOIP has lacked clarity, one area where it can improve is to come up with clear aims and objectives beyond countering China (the BUILD act is a positive step in this direction). This will also help counter ambiguity surrounding the versions of Japan and US’s FOIP versions. A first step could be roping in private players from US, Japan, India and Australia into infrastructural and connectivity projects and not merely depending on governments.

*Mahitha Lingala is a student at The Jindal School of International Affairs, OP Jindal Global University, Sonipat, India

Tridivesh Singh Maini is a New Delhi based Policy Analyst associated with The Jindal School of International Affairs, OP Jindal Global University, Sonipat, India

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Economy

The CIIE: A gorgeous chorus of integrated world economy

Chang Hua

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The 2nd China International Import Expo (CIIE) will be held in Shanghai, China from November 5th to 10th. Iran will participate in Country Exhibition, Business Exhibition and Hongqiao International Economic Forum (HIEF). Here, I would like to introduce the CIIE to Iranian friends.

The 1st CIIE achieved great success. On November 5th to 10th, 2018, the first CIIE was successfully held in Shanghai, China, with a profound influence around the world. First, the scale of the exhibition was large. Covering a total area of 300,000 square meters, 172 countries and international organizations participated, and 3,617 overseas companies took part in the exhibition, fully reflecting the strong appeal of the Chinese market. Second, the level of the exhibition was high. More than 220 of the world’s top 500 companies participated in the exhibition, and more than 300 new products and technologies were first released. Third, the result of the exhibition was rewarding. More than 800,000 exhibitors and purchasers attended the conference, concluding contracts over  US$57.8 billion.

During the 1st HIEF, Chinese President Xi Jinping attended the opening ceremony and delivered a keynote speech. More than 30 foreign heads of states and international organizations delivered speeches and more than 4,500 delegates attended the forum. The Country Exhibition covered all five continents, including developed countries, developing countries and least developed countries. The Country Exhibition pavilions had different styles, highlighting their own characteristics, and making full use of high-tech means and diverse forms to display their unique regional culture and distinct advantageous industries, including goods trade, service trade, industrial development, investment, tourism and specialty.

The second CIIE is quite worth expecting. Namely, its scale will be even larger. The exhibition area has increased from 300,000 to 330,000 square meters. More than 170 countries, international organizations, over 3,000 exhibitors and 400,000 purchasers have signed up for the exhibition. There will be more than 200 supporting and facilitating activities, such as interpretation of economy policies, release of research reports, international cultural exchange, corporate promotion, as well as sellers and buyers’ matching negotiations. Its quality will be further upgraded. The exhibitors are more diversified. The number of companies in the world’s top 500 and leading industrial enterprises exceeds that of the first CIIE, and there will be even more visitors and international purchasers. Professional, high-quality, cutting-edge and featured exhibits will be more concentrated and the quality will be further improved. Its innovation will be much stronger. This year, for the first time, the CIIE news release platform will be set up. The Chinese ministries and local governments will jointly interpret important policies. International organizations and research institutions will release annual reports and industrial reports respectively. The CIIE will continue to be chosen as an ideal platform by participating companies to launch their products and technologies, the number of which is expected to overpass last year’s. Innovative exhibition forms such as quality life, technology life, and artificial intelligence will give participants a first-class experience.

As a major feature and highlight of the CIIE this year, there will be more than 60 countries participating in the Country Exhibition, covering an area of about 30,000 square meters. The theme of HIEF this year is “Openness, Innovation, Cooperation, and Win-win”. More than 50 important speakers from political, business and academic fields including WTO Director-general, UNCTAD Secretary-general, Nobel laureate in economics and leaders of global top 500 enterprises, will jointly explore the new trend of global economic development, share their views and insights on meeting new challenges, overcoming difficulties, and finding ways for further developing globe economy in the new era.

The open and cooperative CIIE will never end. The CIIE was first initiated, planned, deployed, and promoted by President Xi Jinping in person. As an event to be held on an annual basis, the CIIE will feature good performance, good results and continued success in the years to come. Adhering to the global governance concept of extensive consultation, joint contribution and shared benefits, the CIIE welcomes countries to share China’s development dividends. It provides new opportunities for countries to expand exports to China, but also develop trade relations with third countries. It builds a new platform for countries to demonstrate national development achievements and to explore global economic and trade issues. It injects new impetus to global trade and world economic growth. Upholding the spirit of openness and cooperation, the CIIE is not a China’s solo show, but rather a chorus of countries of all over the world. Working together with the international community, China is willing to develop the CIIE into an effective channel for the goods, technologies and services from the world to enter the Chinese market, an open and cooperative platform for countries around the world to strengthen cooperation and exchanges and conduct international trade, an international public product to promote economic globalization. China is willing to make joint efforts with the world to construct an open world economy, build a community with a shared future for mankind, and facilitate better development of global trade and world economy.

I believe that Iranian companies participating in this year’s CIIE will be warmly welcomed with the world-famous Persian carpets, saffron, handicrafts and etc…The Iran Country Exhibition High-Tech Pavilion will open a new window for China and other countries as well to perceive and further understand Iran’s technological strength and advanced products with its featured products in the fields of IT, energy, environment, nano, biology and health. As an important hub along the Silk Road , Iran’s voice and view will be heard at HIEF and spread to the rest of the world.

Here, I wish CIIE a gorgeous chorus of the integrated world economy and having a long-lasting profound impact of the world.

From our partner Tehran Times

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Modi’s India a flawed partner for post-Brexit Britain

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With just two weeks to go until Britain is scheduled to exit the European Union, Boris Johnson and his ministers are understandably focused on the last-minute dash to formulate a workable Brexit deal with the EU. Once this moment has passed, however, either Johnson or whoever replaces him as PM will come under intense pressure to deliver the trade deals Brexit side supporters have so talked up since 2016.

One such envisaged deal is with India. Seven decades after securing independence from Britain’s colonial empire, New Delhi has the world’s seventh-largest economy and one of its fastest growth rates. The prospect of deeper trade ties with Asia’s third-largest economy has been a major feature of the pitch for a “Global Britain” that extends the UK’s reach beyond the continent, and Johnson himself made a big thing of expanding economic ties with India while campaigning to become PM.

Unfortunately, any plans to kickstart trade agreements with India will run into problems, and not just over immigration and visa issues. India is on the verge of a serious economic downturn, hit by job losses and decreasing levels of foreign investment. With growth slowing down, Indian PM Narendra Modi has fallen back on his aggressive brand of Hindu nationalism to galvanise public support, a gambit that has most recently resulted in his government’s controversial move to strip automony from Kashmir.

Bad time for a UK-India trade deal

Whereas only a few years ago India was held up as one of the world’s fastest growing economies and an enticing prospect for global trade and investment, Moody’s new projection of a 5.8% growth rate represents a danger to Narendra Modi’s promise of a $5 trillion economy. Recently released figures show India’s GDP growth falling for the fifth successive quarter, to a six-year low of 5.2%.

India’s economic woes are reflected in patterns of foreign investment. Around $45 billion has been invested in India from abroad over the last 6 years. The downturn in the country’s economic fortunes has seen a record $4.5 billion of shares sold by foreign investors since June this year. These economic problems are linked to Modi’s failure to carry through on economic reforms promised when he came to power in 2014, when a number of structural problems were seen as inhibiting external trade relationships.

India currently has over 1,000 business regulations and more than 3,000 filing requirements, as well as differing standards for social, environmental and human rights. These have been sticking points in the moribund trade deal negotiations between India and the EU, and Brexit advocates have not explained how they plan to overcome these hurdles.

Hostility to foreign companies

Structural issues are only part of the problem. Another key concern is the Indian government’s adversarial attitude towards foreign investors. Despite Modi’s promises to make India an attractive place to do business, his government has continued protectionist policies that throttle the country’s ability to attract outside capital.

One issue is retrospective taxation. Under Modi’s predecessor, Manmohan Singh, several British and international firms were hit with sizeable, legally dubious tax bills by the Indian government. Modi came to power on a promise of ending retrospective tax bills being imposed on overseas companies, and yet British firms such as Vodafone and Cairn Energy still find themselves pursued through the courts for back-dated tax bills, despite the protections they should enjoy under the bilateral investment treaty between India and the UK.

Vodafone’s case involved its 2007 acquisition of a stake in cellular carrier Hutchinson Essar. While the deal did not take place in India, New Delhi determined Vodafone still owed $5 billion in taxes on the overseas transaction. After the Indian Supreme Court dismissed the claim in 2012, India’s previous government introduced a new law to tax transactions of this nature that retroactively applied to cases going back to 1962. Modi attacked this “tax terrorism” at the time, but his government has continued its dogged pursuit of Vodafone in the courts.

Cairn Energy has faced an equally arduous struggle with the Indian Ministry of Finance, which in 2014 blocked the British firm from selling its 10% stake in Cairn India and subsequently demanded $1.6 billion in taxes. Indian officials used the 2012 law to justify their actions, violating the bilateral investment treaty and breaking one of Modi’s own campaign promises in the process.

Immigration laws a further sticking point

This recent history should already give British businesses pause, but the most obvious obstacle in any trade negotiations between UK and India will be the issue of immigration. The Centre For European Reform has argued post-Brexit trade will be closely linked to opening up UK borders to workers from partner countries, but a UK Commons Foreign Affairs Select Committee report in June highlighted how Britain’s immigration restrictions on Indian workers, students and tourists has already impacted bilateral trade relations. The report noted how the UK has slipped from being India’s 2nd largest trade partner in 1999 to 17th in 2019, adding that skilled workers, students and tourists are deterred from coming to the UK by the complicated, expensive and unwelcoming British migration system.

It is unlikely the Modi government will agree to any UK-India trade deal that doesn’t guarantee a relaxing of immigration rules that will allow a free flow of people as well as goods and capital between the two countries. The question is whether the British government, which has veered ever more closely towards a Brexit-fuelled populism at odds with relaxed border controls, will be flexible enough to sign up to this.

Given these issues, are Britain’s hopes for a post-Brexit dividend in Indian trade dead on arrival? Unless Modi’s government starts living up to international standards and honouring his country’s investment agreements with British companies, “Global Britain” may not get much further with India than it has with the US.

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A more effective labour market approach to fighting poverty

Cynthia Samuel-Olonjuwon

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Gainful employment is still the most reliable way of escaping poverty. However, access to both jobs and decent working conditions remains a challenge. Sixty-six per cent of employed people in developing economies and 22 per cent in emerging economies are in either extreme or moderate working poverty, and the problem becomes even more striking when the dependents of these “working poor” are considered.

Thus, it is not just unemployment or inactivity that traps people in poverty, they are also held back by a lack of decent work opportunities, including underemployment or informal employment.

Appropriate labour market policies can play an important role in the fight to eradicate poverty, by increasing access to job opportunities and improving the quality of working conditions. In particular, labour market policies that combine income support for jobless people with active labour market policies (ALMPs).

The new ILO report What works: Promoting pathways to decent work  shows that combining income support with active labour market support allows countries to tackle multiple barriers to decent work. These barriers can be structural, (e.g. lack of education and skills, presence of inequalities) or temporary (e.g. climate-related shocks, economic crises). This policy combination is particularly relevant today, at a time when the world of work is being reshaped by global forces such as international trade, technological progress, demographic shifts and environmental transformations.

Policies that combine income support with ALMPs can help people to adjust to the changes these forces create in the labour market. Income support ensures that people do not fall into poverty during joblessness and that they are not forced to accept any work, irrespective of its quality. At the same time, ALMPs endow people with the skills they need to find quality employment, improving their employability over the medium- to long-term.

New evidence gathered for this report shows that this combination of income support and active support is indeed effective in improving labour market conditions: impact evaluations of selected policies indicate how people who have benefited from this type of integrated approach have higher employment chances and better working conditions.

One example of how this combined approach can produce results is the innovative unemployment benefit scheme unrolled in Mauritius, the “Workfare Programme”. This provides workers with access to income support and three different types of activation measures; training (discontinued in 2016), job placement and start-up support. The programme was also open to those unemployed people who were previously working in an informal job. By extending coverage to the most vulnerable workers, the scheme has helped reduce inequalities and unlock the informality trap.

Another success came through a public works scheme implemented in Uruguay as part of a larger conditional cash transfer programme, the National Social Emergency Plan (PANES). The programme was implemented during a deep economic recession and carefully targeted the poorest and most vulnerable.

Beneficiaries of PANES were given the opportunity to take part in public works. In exchange for full-time work for up to five months, they received a higher level of income support as well as additional job placement help. This approach reached a large share of the population at risk of extreme poverty and who lacked social protection. The report indicates that providing both measures together was critical to the project’s success.

The effects of these policies on poverty eradication cannot be overestimated. By tackling unemployment, underemployment and informality, policies combining income support with ALMPs can directly affect some of the roots of poverty, while enhancing the working conditions and labour market opportunities for millions of women and men in emerging and developing countries.

ILO

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