Page 104 - Azerbaijan State University of Economics

Bryan Davis: State owned enterprises: Chinese fdi in Canada via the lenses of perceptual, political,
economic and social considerations

and make more competitive the portion of the world natural resource base located in Latin

America. Twelve do not.” On the whole the FDI impact of these SOEs on natural resource

capacity does not completely warrant the common misconception that Chinese SOEs “lock up”

natural resources.

Misconception 2: Natural resources and product are shipped back to China

Many OECD countries assume that Chinese SOEs extract resources for the sole purpose of

shipping it back to customers in China thereby reducing the amount of resources available to

other customers. However, studies found quite the opposite with most of the resources being

traded regionally and sold to the highest bidder to maximize profits. The oil pipeline from

Kazakhstan to China is a perfect example with only 50,000 of the 260,000 barrels per day being

brought into China. Sudan is another example, where the volume of oil sent back to China has

been declining in recent years; with most of the production having been sold to the highest

bidder – Japan.

Misconception 3: SOEs are heavily subsidized by the state

One of the main misconceptions about Chinese SOEs is that they continue to be subsidized

by the state and have access to low-cost capital that enables them to outbid western rivals. This

government-supplied capital is further assumed to be well below market rates and is not subject

to repayment terms. Recent research however has concluded that these SOEs do not have access

to capital below market rates and are financially independent of the state. Researchers are also

quick to point out that Chinese energy SOEs are amongst the most profitable firms in China

thereby making them the most creditworthy of Chinese borrowers, so there is no shortage of

international banks interested in funding these SOEs at competitive rates.

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