The Emerging International Policy Differentiation against Chinese State-Owned Enterprises

One major aspect setting Chinese multinational corporations apart from other MNCs is the high proportion of state-owned enterprises (SOEs). Despite concerns about potential competitive distortions, national security threats, and undesired corporate behavior associated with state ownership, disagreements about the extent of the difference between state-owned and private firms have left unclear how host countries should treat state-owned foreign investors.

Such uncertainties may explain why policy reactions to the emergence of state-owned investors have remained sporadic and disoriented, focused predominantly on the application, establishment and strengthening of investment screening mechanisms as ultimate safeguard against any unfavorable foreign investments. What might have started sporadically may soon develop into a trend of explicit policy differentiation against Chinese SOEs. In its outcome document on the negotiations for a China-Australia Free Trade Agreement published in November 2014, the Australian government reportedly raised, by more than four times, the threshold above which Chinese private enterprises investments in non-sensitive sectors must be screened. However, all investments by Chinese SOEs would continue to be reviewed without exception. Canada has experimented with a similar differentiation of thresholds following CNOOC’s acquisition of Nexen in 2012, when Prime Minister Stephen Harper announced the intention to review much more strictly any future takeover bids by SOEs and approve them only on rare occasions. Such differentiation allows countries to present themselves as open to Chinese investments, whilst sending a clear and contrary message about their attitudes to state ownership. Chinese SOEs might soon face harsher conditions when competing in future bids for foreign oil and mineral resources. Even more significant may be the implications for future practices in investment policymaking, as these recent cases demonstrate to the world a way to achieve policy differentiation against SOEs in FTA negotiations and corresponding national legislation. For China’s future international economic interests, these are unwelcome developments.