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China and the Unicorns

Surfing the web, I recently found a cartoon depicting two shore-bound, forlorn unicorns watching an ark drift out to sea. For whatever reason, they missed the boat. Some trends left me wondering if that whimsical cartoon could possibly serve as a parable for the fates of many players in emerging markets. For example, a recent article in The New York Times describes China’s tactics to win oil contracts in Iraq. The upshot is that Chinese oil companies agree to terms that, at quick glance, seem very favorable to Iraq, thus ensuring China wins the rights to Iraqi oil fields, often at the expense of, say, American companies. (As an aside, the irony that the multi-trillion dollar “liberation” of Iraq was, is and will be funded greatly by Americans is peripheral to the central theme of this musing.) The fact that the contracts may not be immediately economically favorable to Chinese oil companies is immaterial, because so many other Chinese endeavors depend on oil.

Similar deals are being struck across Africa, giving China access to rare-earth minerals and large tracts of arable land. Sources in various countries inform me Chinese laborers typically are brought-in to drill, mine or farm the various resources. Even Vietnam, a Chinese rival for millennia, has participated in these opaque, sweet deals; much to the ire of many Vietnamese, as also recently reported in The New York Times. From Iraq to Africa to Vietnam and presumably other places that China believes its economic and political interests can be advanced, comparable agreements have been made. Some local and external observers have used the words “imperialism” and “colonialism” to describe these accords and the subsequent management of projects.

What does all this mean? We can’t be certain, but the preceding anecdotes suggest that China not only is an emerging market, it also is going to compete hard in other emerging markets. China moreover seems to be playing the game by different rules – Chinese commerce still is dominated by state-owned enterprises that are not beholden to shareholders, are not particularly transparent and are controlled by the government – and it is playing the game globally, strategically and with the intent to win. What constitutes victory in the long run remains unknown, and to be fair, Chinese investors and government officials likely would state their foreign initiatives are win-win-win, that is, good for China, helpful to the country in which China invests, and beneficial to global consumers.

Do China’s global investment tactics and strategy portend win-win-win outcomes, or something less magnanimous resulting in latter-day unicorns being left behind? Or maybe we’ll see something more nuanced resulting in an unforeseeable and unpredictable pattern of various winners –and perhaps losers– in both emerging and developed markets around the globe.

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