How China’s Tech MNCs Circumvent Political Pushback on FDI via Privateering

• In Event: Economic Coercion in Global Politics

Abstract

Why do certain corporations get political pushback by host states upon market penetration, and how can Sovereign Wealth Funds (SWFs) be utilized to circumvent this issue? Scholars in International Political Economy have focused on the potential security risks and concerns for states that accept massive investments into their domestic corporations from these SWFs. These concerns are rooted in the outward investments from foreign SWFs to recipient states. Instead, this paper analyzes inward investments from domestic SWFs into domestic corporations. Specifically, why do states also invest their own SWFs into domestic corporations? I argue that states are investing in domestic corporations through the utilization of SWFs to bypass “security” concerns by host states, much like early-modern privateers, since these investment vehicles provide states with plausible deniability. This mechanism allows corporations to bypass those concerns by “disconnecting” their Foreign Direct Investments (FDI) from political agendas, thus making them appear that they are for economic reasons. To better explain this phenomenon, I provide case studies that explore the relationship between the Chinese companies Huawei and Alibaba where the latter received a massive investment from the Chinese Investment Corporation (CIC) SWF, while the former received funding from Chinese government grants and the Chinese State Bank.
Utilizing Computational Text Analysis, I collected original data from international news sources where both Chinese corporations penetrated those markets and categorized the text as positive or negative. The results indicate that Alibaba did not receive political pushback upon market penetration in those, mostly OCD countries. On the other hand, Huawei has been heavily scrutinized and criticized by the direct investments from the Chinese government; thus, illustrating that SWFs, in this case, provide plausible deniability of government involvement in Alibaba’s growth as it gives the appearance to be for economic instead of political reasons.

Author

• Alberto Beltran, Purdue University