The Limits of Socialist Mercantilism: China’s Corporate Expansion Abroad

The global advance of Chinese corporations has been driven by a novel socialist variant of mercantilism, in which large foreign currency reserves finance activities by state-owned enterprises. This breeds an intense focus on national security and geopolitical objectives—the supply of energy and minerals, the acquisition of technologies, and diplomatic leverage. But these aims are limited by a nonconvertible currency, strict capital controls, an insistence on state ownership of major corporations, and the modest scale of China’s foreign currency holdings relative to global capital markets. Nonstate firms skirt these limitations, pursuing commercial objectives with alternate sources of financing, but they are restrained by regulators and have so far played a distinctly secondary overall role. As China’s foreign exchange holdings have peaked, the limits of this model have become more apparent.