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    Varieties of Outward Chinese Capital: Domestic Politics Status and Globalization of Chinese Firms
    10 Aug 2019Working Paper Summaries

    Varieties of Outward Chinese Capital: Domestic Politics Status and Globalization of Chinese Firms

    by Meg Rithmire
    Most popular and scholarly writing about China’s global push overemphasizes the power of the state. This paper explains how three types of domestic Chinese capital—state capital, private capital, and crony capital—differ in political vulnerability and pursue globalization in different ways. All prefer capital openness, but they do so for different reasons.
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    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
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    Meg Rithmire
    Meg Rithmire
    F. Warren McFarlan Associate Professor of Business Administration
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