Money quote:
For Beijing, business is not about business -- it is about politics. This is clear from the way Beijing treats both domestic and foreign businesses. China initially welcomed foreign investment because the ruling Chinese Communist Party desperately needed capital, technology and management expertise to revive China’s moribund economy in the wake of the disastrous Cultural Revolution. In their political calculations, private Western capital was preferable to private domestic capital because a strong indigenous business community might have the potential to support social and political forces that would challenge the rule of the party. As a result, Beijing has treated foreign capital much more generously than the domestic private sector. Many important sectors, such as banking, financial services, petrochemicals, energy exploration and automobile production were opened to foreign investors but not to domestic private firms.
While favouring foreign capital over private domestic capital, Beijing has also maintained its bottom-line: it will not allow foreign firms to control and establish a significant presence in what it considers strategic sectors, such as telecom services, banking (foreigners are passive minority investors at best) and energy. Above all, no private capital -- foreign or otherwise -- is to be allowed into the sector most critical to regime security: the media.
Today, flush with $2.3 trillion in hard currency, China no longer has the same need of foreign capital and its government has readjusted its economic policy accordingly. Because state-owned enterprises are both national champions and political patronage machines (the Communist Party can reward its loyalists with lucrative appointments in these state-owned firms), Beijing’s policy now clearly favours them over both domestic and foreign capital.
As for Google, it has committed a double offense. Its search technology poses a clear and present threat to the party’s regime security, while its capacity to dominate the Internet search business would deprive China of its own national champion, Baidu (which, although a private business, is easier to control).
For Beijing, business is not about business -- it is about politics. This is clear from the way Beijing treats both domestic and foreign businesses. China initially welcomed foreign investment because the ruling Chinese Communist Party desperately needed capital, technology and management expertise to revive China’s moribund economy in the wake of the disastrous Cultural Revolution. In their political calculations, private Western capital was preferable to private domestic capital because a strong indigenous business community might have the potential to support social and political forces that would challenge the rule of the party. As a result, Beijing has treated foreign capital much more generously than the domestic private sector. Many important sectors, such as banking, financial services, petrochemicals, energy exploration and automobile production were opened to foreign investors but not to domestic private firms.
While favouring foreign capital over private domestic capital, Beijing has also maintained its bottom-line: it will not allow foreign firms to control and establish a significant presence in what it considers strategic sectors, such as telecom services, banking (foreigners are passive minority investors at best) and energy. Above all, no private capital -- foreign or otherwise -- is to be allowed into the sector most critical to regime security: the media.
Today, flush with $2.3 trillion in hard currency, China no longer has the same need of foreign capital and its government has readjusted its economic policy accordingly. Because state-owned enterprises are both national champions and political patronage machines (the Communist Party can reward its loyalists with lucrative appointments in these state-owned firms), Beijing’s policy now clearly favours them over both domestic and foreign capital.
As for Google, it has committed a double offense. Its search technology poses a clear and present threat to the party’s regime security, while its capacity to dominate the Internet search business would deprive China of its own national champion, Baidu (which, although a private business, is easier to control).
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