Author Abstract
Recent focus on China’s surging outward investment has overlooked a puzzling fact about China’s policy regime governing outward investment: rather than increasing liberalization and enhancing domestic “push” factors, China’s policy toward outward investment has been ambivalent and vacillating, pushing large-scale internationalization while also embracing strict capital controls. This paper accounts for China’s ambivalent policy moves by focusing on the domestic coalitions that sustain capital openness. I show how three types of domestic Chinese capital—state capital (SOEs), private capital (SMEs and large competitive firms), and crony capital (firms who enjoy access to profits based non-market rather than market advantages)—differ in political vulnerability and therefore pursue globalization in different ways. While all prefer capital openness, they do so for different reasons: state capital uses preferential access to domestic credit to expand internationally for political power and prestige in addition to profits; private capital, in keeping with the theoretical expectations of the international business literature, seeks markets and/or efficiency; and crony capital seeks to transform domestic access into international safety as quickly as possible. China’s policy ambivalence can largely be explained as the party-state’s attempts to discipline or empower these groups.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: June 2019
- HBS Working Paper Number: HBS Working Paper #20-009
- Faculty Unit(s): Business, Government and International Economy
