Capitalist and Communist... Thumbs up, Thumbs down

Communism has known to be the direct opposite of the capitalists and the very concept of the ownership of any business in a capitalist economy is irrelevant. In implementation, it creates a controversy and clash of policies and actions. There has been a wave of takeover, some hostile and some amicable, of American companies by Japanese firms in the 1980s. The acquisition of Germany based Mannesmann by Vodafone in 2000 to the recent plethora of increasing private equity and venture capital firms and their acquisitions have often irked the social fabric of national pride and anxiety.

Social and Business Economists have highlighted the concerns which will intensify over the next decade, as BRIC and specifically Chinese state owned firms are on a inorganic activity growth radar. Chinese companies have recorded record numbers in terms of foreign M&As in 2010. They have been bidding for everything ranging from gas (Americas), oil (US) and electricity (Brazil) to cars (Swedish Volvo).

The very idea of communists buying the companies of capitalist is a disparity as far as economic theory of liberism is concerned. This is what has been irking the Repulics and the Democrats alike. Take a 2009 story, where the National Energy Administration (US) agreed to establish a special fund for China's state-owned companies to buy oil and gas firms overseas. The beneficiaries being the Petrochina, Sinopec and CNOOC, which enabled benefit in terms of low interest loans and direct capital injections.

Chinese companies were seen as an example and epitome of state capitalism. Economic
factors like emerging world's non credit culture and the huge reserves of public saving, their resource wealth and the collapse of free market model led to a hailing of state capitalism. The value of the globe’s emerging stock markets have risen fivefold ($80,000 billion from $14,000 billion), taking the emerging market share of global equity markets from 31 % to 55 %.

The so called first world has coped up with countries such as South Korea and Singapore, who have been on an acquiring spree of companies outside their countries. The developed world has the experience of tackling the rise of mercantile economies but China stands apart, it is already the world’s second biggest economy, and in another two decades is rightly poised to overtake America. Chinese firms, till the outbreak of recessionary times, have looked inwards. The rising oil prices and the recessionary pressures on the US have made them potential targets for their vast resources abroad. Nothing could be more apt then the case of Unocal.

China stands fifth in outbound investments globally. Unearthing the pages of history shows that both Britain and America had shares of about 50%, in 1914 and 1967 respectively at their prime of supremacy. The biggest weight on the scales will be the Chinese rate of government investments powered by the per capita savings of the people. These monies today are invested in government bonds and treasuries of the first world counties; tomorrow this will serve a pool which can be used to buy companies and insulate the Chinese people against the first world countries currency devaluations and financial defaults.

Taking a cue from the chapter of globalisation, very similar to the old way of annexation of countries, a company (country) tries to inorganically for primarily three reasons: secure raw materials for future production, acquire better technical knowhow and the most important, to gain access to foreign markets.

In a normal situation, private companies around the atlas, find and allocate their
resources towards the attainment of perfecting its strategy to maximize its customers base.

These are governed by market and economic logic. So far so good, now the idea that an communist government might dominate the realms of global capitalism scenario is
unappealing. The very idea of shift in the control of global resources to an body which would not be market driven but official driven, an establishment principled on politics (principle, if you please) and not profit are the real concerns. Developed countries like Australia and Canada, which were once open for takeovers from the foreign countries, are now escalading the barriers for Chinese, especially in the arena of exhaustible resources.

China has been most active in deal making for the natural resources, yet its way off the needed quantities to control the rigging capacity of the markets for such commodities.

The Americas, Australasia and the Europe should consider subsidized capital of the Chinese. The major focus in these terms should be dealt with strengthening and plugging the loopholes in the competition law rather than trying to stop the investment flow, thus constraining the movement of capital around.

Taking the example of Geely, the new owners of Volvo. It made complete sense for both the parties. Geely had been trying to launch itself into European markets but was losing on the pricing factor and Volvo was in deep crisis since it could not find distribution partners in Asia to sell its cars. Volvo's existence was threatened due to its inability to sell more care in Asia.

CNOOC was one of the greatest finds of Warren Buffet n the last century. Chinese firms are believed to come with a lot of perks such as lower operational costs and access to newer and fresh markets to otherwise flagging companies in the saturated markets. In BRIC, Indian and Brazilian firms have the maximum advantage of being the free and open market policy adopters. But China is catching up fast . . . really really fast.