Friction to rise as China favors home firms: author

By Paul Eckert

WASHINGTON (BestGrowthStock) – Chinese policies aimed at elbowing out multinationals and reserving large parts of China’s market for domestic firms could cause confrontation with the United States and other Western countries, a U.S. political risk expert warned on Monday.

Eurasia Group President Ian Bremmer said the global financial meltdown has made the United States and other Western economies seem “less indispensable” as China pursues its main priority of political stability through economic growth.

“There is a war coming between Western multinational corporations and privately owned national champions and state-owned enterprises in China in many, many sectors,” he told Reuters in an interview.

Western multinationals operating in many sectors in China are finding “that there are competitors in China, it’s not an equal playing field, the Chinese don’t need foreign direct investment dollars,” Bremmer said.

“From an investment perspective, suddenly strategies that you thought were going to lead to a lot of money and profit are looking unsustainable in that country, and that’s going to cause tensions — very big tensions — between the two largest economies,” he said.

Bremmer book, “The End of the Free Market,” identifies China as a foremost practitioner of “state capitalism” — an economic policy that applies authoritarianism, mercantilism and free markets in the service of a government’s political goals.

China’s state capitalism contrasts with the U.S. approach, in which many teams compete under a free market while the government serves as a referee, upholding rules and punishing those that break the law, he said.

“In China, you have a system where the ref has filled one of the teams with members of their family and close friends, and furthermore they’ve only told that team what the actual rules are,” Bremmer said.

The financial turmoil of the past two years, in which U.S. market regulators failed to prevent practices that led to a meltdown, has made China more confident in the state capitalist approach, he said.

As a result of the financial crisis, the Chinese are trying to decouple their economy from the West by reducing its dependence on exports and raising domestic demand, while keeping more of the value of their exports at home by making their products more sophisticated.

“The Chinese view the Americans as increasingly less indispensable than they used to be,” Bremmer said.

Conflicting approaches over trade and business increasingly spill into geopolitics as China’s quest for energy and resources to feed economic growth leads it to forge close ties with Iran, Sudan and others viewed by the West as destabilizing.

This explains why China is likely to remain at odds with the United States and its allies over sanctions aimed at stopping Iran’s nuclear ambitions and over efforts to cut carbon emissions to fight climate change, Bremmer said.

“The top priority is political stability, which requires economic growth, and those things will require a vastly more confrontational positioning vis-a-vis the West,” he said.

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(Additional reporting and editing by Simon Denyer and Stacey Joyce)

Friction to rise as China favors home firms: author