Academic

This is another in what I hope to be a month long series of aphoristic (?????????) essays, meant to provoke thought rather than explain it. The hope is that, built up on each other, the series will provide a matrix of thoughts that together might lead the reader in new directions. Though each can be read independently of the others, they are intended to be read together and against each other.

The Chinese state apparatus has been wrestling with these issues recently. It has produced an exposure draft of rules treating its administraiton of overseas investment. The exposure draft is provided in part below (translated from the Chinese by my research assistant Siyu Zai) to illustrate the point:

Procedures for the Administration of Overseas Investment
(Exposure Draft)
Ministry of Commerce, The People?s Republic of China

Chapter 1 Profile
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Provision 2
The term ?overseas investment? referred to in this Procedure means the establishment, acquisition of ownership, holding power or business management power by enterprises registered in China, through the ways of establishment, merger and acquisition and other means.
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Provision 4
The Ministry of Commerce is responsible for the administration and supervision of the overseas investment. Concerning departments on the provincial level are responsible for the administration and supervision of the overseas investment within their administrative regions.

Chapter 2 Approval
Provision 5
The Ministry of Commerce and concerning provincial departments exercise the authority of approval over enterprises? overseas investments. The Ministry of Commerce sets up ?Overseas Investment Administrative System? to apply electronic application. Enterprises which are approved will be granted Chinese Enterprises Overseas Investment Certificate. ?
Provision 6
Enterprises which invest under circumstances listed below ought to submit application according to the Provision 11 under this Procedure, and to apply for approval to the Ministry of Commerce according to the Provision 12 under this Procedure:
i. Investment in a country that does not have diplomatic ties with China;
ii. Investment in a country or region where the level of risk is high;
iii. Investment in which the Chinese parties? amount of investment is over a hundred million U.S. Dollars;
iv. Investment in the field of cross-border infrastructure construction;
v. Establishment of overseas companies with special objectives

Provision 8
? Enterprises are responsible for their own economic technical feasibility. The Ministry of Commerce and the concerning provincial departments will not approve the investment if it fits into one of the following circumstances:
i. Jeopardize China and the host country?s sovereignty, security and public interest;
ii. Violate either domestic or overseas law and regulation;
iii. May cause China to violate international treaties that China has signed;
iv. Involve the technology and goods that are prohibited from import or export.
Provision 9
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In respect to the approval of energy and mineral investment provided in Provision 7, the concerning provincial departments should seek opinions from entities of overseas trade; In respect to other investments, the concerning provincial department may seek opinions from entities of overseas trade.

Chapter 4 Overseas Investment Activity
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Provision 25
Before obtaining approval from the Ministry of Commerce or concerning provincial department, enterprises must not sign any legally binding documents with parties abroad.

Article 11. The individual economy of urban and rural working people, operated within the limits prescribed by law, is a complement to the socialist public economy. The state protects the lawful rights and interests of the individual economy. The state guides, helps and supervises the individual economy by exercising administrative control.

Article 17. Collective economic organizations have decision-making power in conducting independent economic activities, on condition that they accept the guidance of the state plan and abide by the relevant laws. Collective economic organizations practise democratic management in accordance with the law, with the entire body of their workers electing or removing their managerial personnel and deciding on major issues concerning operation and management.

Howevere there are a number of areas where the proposed rules might require further review. First, Provision 2 might be overbroad. It appears to apply to all registered companies in China. But to the extent that this may reach foreign enterprises which registered interests in China the provision would seem to interfere with the sovereign rights of other states to manage their own enterprises. It is clear that China ought to have the powert to manage the operation of (and register) foreign cimpanies with respect to thewir business in China and with their utilization of Chinese assets and property. But it is quite another thing to seek to control these enterprises activities outsdie of China. At a minimum that might appear to violate Chinese principles of non-interference.

Second, Provision 4 might produce ambuguity. At a minimum it might generate conflict between the Ministry of Commerce and provincvial administration. Unless there is a certain disciopline in the division of authority, it is possible that contests for control could result and the rule of law weakened. That, of course, would tend to produce a result contrary to the Chinese Constitution ("All state organs, the armed forces, all political parties and public organizations and all enterprises and undertakings must abide by the Constitution and the law. " Constitution, art. 5) and should be avoided to minimize the possibility of arbitrary (and thius lawless) action by officials who may not understand the limits of the law with respect to their power. It might be useful to revise the Provision 4 so that all applications must be made to the Ministry of Commerce, using the system described in Provision, but giving the Ministry the power to delegate decisions to provisional officials in its discretion.

Provision 6 lists a number of common sense triggers to registraiton. All of them tend to touch on sensitive matters of Chinese foreign policy. It might be prudent, though, to create exceptions for activities conducted under approved bilateral investment treaties. In a sense, though treaties would qualify as a blanket approval for investment to the extent provided in each treaty. Also, because it is not clear what a high level of risk is (a condition that triggers application obligations), itmight be useful for the Ministry of Commerce to be obligated to publish a list a countries presumed to entail such risk so that enterprises would be better able to gausge the need to apply and to make it eaier to comply with the law.

Provision 8 sensibly limits the obligations of the state with respect to the economic viability of any investment project. The only role of the state is to determine whether the outbound investment interferes with Chinese foreign policy goals. It is not clear, though, whether the reasons for disapproval listed in Provision 8 arte the only legitimate bases for rejection of an application or if the Ministry may base its negative decision on other grounds. If the later is the case, that ought to be made clear. Business operates more efficiently if it understands the rules under which it must operate. Secondly, it is not clear that the Ministry is required to report its reasons in writing and to explain its decision. For rule of law purposes and to ensure that business might more efficiently comply with the policy of the state, it might be prudent to require the Ministry to both state the specific reasons for its reject and to make those available for study.

For other states organized along the same principles as China, particularly Viet-Nam, Cuba, and perhaps Nicaragua, Bolivia and Venezuela, this approach to international engagement abroad is worth study as an alyernative to the usual rhetoric based and anachronistically Stalinist vision of world trade (sadly still the perferred vision in those states) and the relaitonship of public and private powewr projected from within such states.