Business Commentary: Chinese Communists Keeping Hands in All Pockets

By Heide B. Malhotra, Epoch Times
November 30, 2011 Updated: December 6, 2011
Solar panels are displayed at an archite
Solar panels are displayed at a trade exhibition in Beijing, Oct. 20. SolarWorld Industries America Inc. announced on Oct. 19 it was filing a formal complaint with Washington against Beijing's illegal dumping into the American market. (Mark Ralston/AFP/Getty Images)

There is no doubt that the Chinese regime is reigning supreme over all of China’s industrial sectors, with both public and privately held companies following solely Chinese communist dictates when dealing in international markets.

Yet, many of China’s foreign trading partners have been and still are living a pipe dream, hoping to break into the vast Chinese market and earn big profits.

“For years countries like the United States have completely ignored this problem [the Chinese regime controlling all trade], and they have been taken to the cleaners by Beijing for it,” according to an article on the Economy in Crisis website, a non-profit educational resource publishing daily articles regarding the U.S. economy.

It doesn’t matter that foreign enterprises were burned by the Chinese regime’s demands for relocating operations to China, hiring Chinese workers, and requiring them to hand over intellectual property and the foreign firm’s propriety information by dangling various benefits before their eyes. None realized that the goodies were handed out to lure foreign companies to China with the intent of developing and building up Chinese competition to the firms.

“China will hand tax incentives and kickbacks to foreign companies, but it will then do everything in its power to ‘acquire’ their technology and replace them with domestic champions,” according to the Economy in Crisis article.

Coming to mind are two of the Chinese state’s industries that benefited the most from foreign companies’ technology: the renewable energy sources industry, mainly the solar power sector, and the transportation industry, mainly high speed trains.

“More than a decade ago China offered contracts to foreign makers of high speed trains and solar power collectors. It then went to work copying (often stealing) their technology before eventually cutting off their pipeline of incentives and creating a new domestic ‘competitor’ to reap the benefits,” the Economy in Crisis article stated.

Confronting the Chinese Regime

“Experienced businesses and other stakeholders are speaking out about Chinese policies that harm prospects for sales of U.S. goods and services, limit and undermine our investments, and ultimately threaten job-creation in the United States,” Ambassador Demetrios J. Marantis said during an Oct. 25 hearing before the House Committee on Ways and Means.

Marantis, who serves as Deputy United States Trade Representative, pointed to the Chinese state’s policies that toughen up state control over all of China’s economic facets, a 180 degree turnaround from the agreements made and signed after it joined the World Trade Organization (WTO) in 2001.

The main sources of contention are the theft of intellectual property, government subsidies, creation of more trade-related barriers to entry, investment restrictions, the rogue rule of law, and a lack of transparency concerning the legal and regulatory environment.

“We are alarmed by reports indicating that China is imposing requirements on foreign automakers to transfer core NEV technologies to their China joint ventures and to establish Chinese brands in order to participate in this promising market,” Marantis testified.

The U.S. government has responded by filing complaints with the WTO and other multilateral organizations, addressing the Chinese regime’s international trade agreement violations, such as prohibiting raw materials exports, providing excessive subsidies to its firms, the dumping of products into the U.S. market, and other trade distorting tactics.

On the surface, the U.S. government suggests that it has made headway in its negotiations with the Chinese regime, and some of the issues appear to have been resolved. But only the future will tell if what the U.S. government is seeing is just window dressing or a true turnaround from restrictive policies, according to economic analysts’ publications.

“We see our significant challenges for what they are, and we know that we have a steep and difficult road ahead,” Marantis testified.

In October, a group of seven U.S. solar panel manufacturers filed a complaint with the U.S. International Trade Commission and the U.S. Department of Commerce asking for redress in the form of tariffs due to the Chinese state dumping solar panels into the U.S. market.

“SolarWorld Industries America Inc., the largest domestic [solar panel] producer, today petitioned the federal government to halt what the company describes as an ever-rising tide of heavily subsidized solar cells and panels that China’s state-supported solar industry is illegally dumping into the American market,” an Oct. 19 SolarWorld press release announced.

Chinese Firms Beholden to Chinese State

The Chinese industrial sector is beholden to the Chinese regime or the Chinese provinces in which they are located. Although on the surface Chinese firms appear to be in private hands, more often than not, the Chinese regime holds control over output, earnings, and other business issues through either majority ownership in the enterprise or government dictates, according to a report about China’s state-owned enterprises (SOEs), released by the U.S. China Economic and Security Review Commission on Oct. 26.

The Chinese regime will not release its iron grip on the country and especially its economy, which came through clearly between the lines of the 12th five-year plan, approved on March 14 by the PRC National People’s Congress. It is the prime directive by the Chinese regime to China’s industrial sector.

“The CCP is not pursing [sic] a free market economy. … To the extent China is capitalist, China is pursuing state-guided capitalism, where the overall direction of the economy, including the private sector, is guided by government policies,” according to the U.S. China Commission report.

At present, the Chinese regime’s state-controlled firms are playing a major part in the Chinese economy and represent about half of all Chinese companies. The Chinese State Statistical Bureau provides statistics, but it is not transparent as to how many of the Chinese companies are centrally, provincially, or municipally controlled.

It is also not transparent or clear whether the Chinese regime controls a certain portion of Chinese so-called privately owned firms through ownership or directives.

The SOEs “account for far more of the economy than popularly believed. … Neither specification of share-holders nor sale of stock by itself does anything to alter state control,” a 2011 Heritage Foundation report stated.

Confusing the ownership issue even further, a table provided by the Heritage Foundation report suggests that in 2010, 38 percent of Chinese firms were state-owned, 24.3 percent were limited liability corporations, and 21.1 percent were privately owned, with the remainder being of mixed ownership, including foreign ownership.

However, at issue is not whether the Chinese regime owns the majority of companies in China, but who is the controlling entity, either upfront or behind the scenes.

The Chinese regime’s “prominent economic role, coming a decade after China joined the WTO, throws into doubt expectations that China’s WTO membership would lead it to pull back from market interventions,” the U.S. China Committee report states in its closing arguments.