I want to focus on two points that Cheng Siwei made in that article. The first is that there is a fundamental distinction and incompatibility between economic and financial markets globalization. The second is that economic globalization is driven by multinational corporations, so that if a state means to be a player in economic globalization it must send its multinational corporations out into the world. Together they suggest an understanding of financial markets and of the mechanics of economic globalization that is to some extent substantially different than that held in the West. These differences in conceptualization may have a great effect as China joins the great commercial states and projects its power (as well as understandings of the nature and character of that power) on the world.
Cheng Siwei grounds his understanding of financial markets globalization in traditional Marxist-Leninist terms. He has this to say:
Financial globalization is incompatible with economic globalization. World financial globalization means world currency can only be measured by its purchasing power after breaking away from the gold standard. The exchange rate in various countries has become a policy tool for competition. World capital floats much faster than before. According to data from the Bank for International Settlements, in 2005 the surplus value of the world's financial products reached 325 trillion dollars, about 7 times the world's GDP. The scale of world finance has expanded while the world financial market are so heavily interdependent that no matter where there is a problem, shockwaves are felt everywhere (Cheng Siwei, id.).We have seen this before. It was perhaps best theorized during the 1990s by Fidel Castro in many of his writings about global capital and financial markets. See, Larry Catá Backer, Ideologies of Globalization and Sovereign Debt: Cuba and the IMF, 24 PENN STATE INT’L. L. REV. 497 (2006). Cheng Siwei’s conception is anachronistic and over narrow, of course. Cheng Siwei (and by implication, Chinese elites) continue to see financial markets in two dimensional terms—as a function of exploiting financial bottlenecks like currency exchange rates and as a means of artificially creating economic advantage. More importantly, it centers financial globalization in the state, and state to state relations. This makes sense from veterans of command economies. But it belies the realities and complexities of financial markets. It ignores the fact that capital, and the markets through which it is deployed, have to some great extent, escaped the bonds of states that had traditionally exerted a tremendous amount of regulatory control. Global financial markets do not serve the state so much as they serve the needs of productive economic activity. Just as labor migrates to meet demand and generate value, so capital now moves, even more freely than labor, to entities that most effectively generate returns, that is, that produce value. Financial markets globalization has created both a substantial amount of integration, and, as a result, a substantial amount of vulnerability to shock. But all human activity can be characterized by risk. Siwei’s statist and antiquarian views do not bode well for China’s recent forays into the global financial markets through a revivified exchange system centered in Shanghai. On the importance of the emerging different framework perspectives on capital movements and the state, see Larry Catá Backer, Economic Globalization Ascendant: Four Perspectives on the Emerging Ideology of the State in the New Global Order, 16 BERKELEY LA RAZA L.J. – (forthcoming 2006); and Larry Catá Backer, Globalização Econômica e Crise do Estado: um estudo em quatro perspectives, SEQUENCIA (forthcoming 2006).
Much more interesting, from my perspective, are Cheng Siwei’s views on multinational corporations. Again, a residue of old command economy, statist orientation tends to color his views. He has this to say:
economic globalization is based on multinational corporations. Multinational companies are the leaders of economic globalization. The behavior of some corporations, such as intervening in countries' internal affairs, influencing the local economy or evading taxes has been criticized, but most try hard to regulate their company at all levels (Cheng Siwei, id.).For Cheng Siwei, and not unreasonably from his perspective, corporations can be viewed as the means through which states now project power—economic power. Corporations are special emanations of the state, a concession of state power to individuals for the purpose of producing wealth for the benefit of the state. Indeed, like many elites in the developing world, Cheng Siwei shares the view that multinational corporations exercise not only economic but political power as well—able to intervene, directly or indirectly, in the affairs of weaker states. In this sense multinational corporations and some states exist as equals. So conceived, multinational corporations appear to be the most efficient means, not only of engaging in global economic activity, but doing it in a way that returns significant value to the home state. They are dependent on their home state, but substantially independent as well, behaving well or badly as they see fit.
Now it gets interesting. If multinational corporations are the basis of economic globalization, then if China is to become a major active (rather than a passive) player in economic globalization, then it will have to develop and project its won army of multinational corporations, corporations loyal to and working for the benefit of the state. For Cheng Siwei, then, projection of economic power reduces itself to two things: (1) the production of a sufficient number of well endowed and loyal Chinese multinational corporations, and (2) the development of acceptable governance norms for this army of agents of Chinese economic globalization.
On the importance of producing an army of Chinese multinational corporations, Cheng Siwei had this to say:
Cheng Siwei also says that China should develop its own multinational companies. Chinese companies should be able to invest in other countries, but they must learn the local laws, culture and history as well as establish local contacts. There is a lot of work which needs to be done. ‘Our enterprises have not yet been able to find representatives to establish offices and build up factories elsewhere. But there are still fewer truly transnational companies operating,’ claims Cheng. . . . Cheng Siwei stressed that it would be impossible for domestic enterprises to abandon their Chinese characteristics; they cannot avoid the situation in China, its industrial and business culture. Simply copying foreign businesses will not be enough to make Chinese enterprises the best in the world (Siwei, id.).To take advantage of globalization, China must deploy agents of economic production that share the characteristics of the most successful producers of economic wealth. This is a notion that has been well absorbed by the Chinese elites since the 1990s and the enactment of the Company Law and the securities markets. But it is not enough to reorganize productivity in corporate form. That form must be projected abroad. China, to succeed in the globalized economy, cannot merely produce wealth, it must command capital. “A transnational company must develop a global strategy and establish its profit and operation model at a global level” (Cheng Siwei, id.). And, of course, there is a certain amount of irony here. It is hard to reconcile Siwei’s views on multinational corporations and his views on financial markets globalization. An army of Chinese multinational corporations maximizing their economic wealth must be free to move capital on a global basis as part of a “global strategy.”
There is also a certain tension here as well. Cheng Siwei expects that multinational corporations from China not serve as vehicles for the production of private wealth for their principle stakeholders on a Western model. These multinational corporations cannot “abandon their Chinese characteristics” or “avoid the situation in China.” Instead, these will be agents of wealth production in which the State will take a major stake. China means to reinvent its command economy in corporate form. It is not clear, however, whether China can keep multinational corporations politically parochial and economically transnational. I have written about this mopre extensively elsewhere. See, Larry Catá Backer, Cuban Corporate Governance at the Crossroads: Cuban Marxism, Private Economic Collectives, and Free Market Globalism, 14 (2) JOURNAL OF TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS 337 (2004). And yet, Cheng Siwei has a point. Chinese multinationals will tend to repatriate wealth to some extent, and will tend to project a Chinese perspective onto global economic culture. But the repatriatrion will be limited to the extent that Chinese multinartional corporate wealth can be maximized elsewhere. See Larry Catá Backer, The Autonomous Global Corporation: On the Role of Organizational Law Beyond Asset Partitioning and Legal Personality, 41(4) TULA LAW JOURNAL – (forthcoming 2006). And Chinese corporate perspectives will be bounded by the normative framework not of China, but of the community of multinational actors in which such corporations will tend to fucntipon. That fra,mework is harmoinizing and multi national; as both economics and economic culture, it is extremely difficult for any single political community to control.
To the extent that this corporatized command economy can project its activity abroad, then all the better. This serves China in two ways. First it reverses the power relationships between China and the West. Chinese, not Western, corporations will start to be the agents of productive economic activity. It will also have significant “psychological” effect. To the extent that Chinese corporations go out into the world, China will be able to overcome its 19th century legacy as an exploited and semi-colonized state. This effect cannot be underestimated as a motivating force. Connected to this is the idea that, by holding active rather than passive economic power, it will be able to join, at least in its own mind, the ranks of the developed states.
But this sort of effort requires expertise. And here, again, there lingers a certain sense of inferiority. Siwei explains that:
"Some people think Chinese enterprises don't have much management expertise. I disagree. I think Chinese enterprises have contributed a lot to China's fast development. The problem is that we haven't seriously studied our enterprises to find out how they work. We should send our professors into companies to summarize their experiences so that those experiences can be developed as a theory." (Cheng Siwei, id.).And how are Chinese corporations to project Chinese economic power abroad? Well, in the usual way, by acquiring ownership of productive assets abroad. Cheng Siwei notes that “Some Chinese companies already want to purchase foreign enterprises ¨this is another development model¨ but they should pay attention to the market and cultural differences.” (Cheng Siwei, id.). Thus, both a recognition of the forms in which economic power is projected, and a caution about its deployment. And why the caution? Perhaps because of a mutuality principle. Were the Chinese elite to begin to advocate Chinese multinationals to act without regard to the local characteristics of the host states in which they operate, they might find themselves treated to the same actions by the large number of multinational corporations that China hosts.
The consequences and character of the free movement of capital, the character and nature of multinational corporations, the possibilities of pseudo-mercantilist policies through the medium of transnational economic entities, the projection of economic power as the new imperialism—all of these ideas are quickly being absorbed by the Chinese elites. The manner of that absorption serves as evidence of the way in which even the harmonization of “big” concepts are sometimes contextually constrained. China understands economic and financial globalization from its own perspectives, grounded in Marxist-Leninist principles, its own history as a semi-colonial state, and its organization as a command economy. This perspective will significantly affect China’s ability to be a successful player of economic globalization where it does not make the rules.