There have been several high-profile setbacks to China’s direct investments in major overseas infrastructure projects.
In June last year, it was announced that China will not construct a high-speed railway from Los Angeles to Las Vegas.
Early this month, British Prime Minister Theresa May postponed the Hinkley Point nuclear deal amid security worries over Chinese control of the project.
May’s decision differed sharply from that of her predecessor, former British prime minister David Cameron, and former British chancellor of the exchequer George Osborne, who sought to turn Britain into China’s “best partner in the West.”
The setbacks should be understood as being against China’s aggressive pursuit of a grand economic strategy. Since the global financial crisis of 2008, China has become immensely confident of its own socioeconomic accomplishments and scornful of what it perceives as a US-led conspiracy to undermine its rise to power. The latest narrative of national development has shifted from the discourse of China’s “peaceful rise” to a more assertive one of building the “Silk Road Economic Belt” and “21st-Century Maritime Silk Road.”
Following the footsteps of the US in the post-World War II era, Japan in the 1980s and Taiwan in the 1990s, Beijing has employed international commercial activities and business contracts to achieve political, strategic and diplomatic objectives.
Because political considerations often take precedence over economic concerns, these labels highlight two interrelated dimensions in China’s global expansion.
First, Chinese leaders are determined to co-opt domestic and foreign business actors to its larger agenda of balancing against the US and building a pro-Beijing coalition in different corners of the globe. Second, Beijing is keen to exercise international economic power in regional negotiations. The most effective tactic is to launch new business initiatives with foreign nations to achieve national strategic objectives.
As William Norris writes in his latest book, Chinese Economic Statecraft, this holistic strategy is designed to deal with what Beijing sees as a growing US threat in its periphery, while preventing overt conflicts with the US.
By using material resources to co-opt neighboring nations, China plans to create stable conditions that are favorable to its national interests.
This explains why Beijing has doubled its efforts to export nuclear technology and high-speed railways to the developing and developed world. The appeal of these advanced technologies lies in the ability of Chinese state-owned companies to secure financial support from their own government.
For example, the Industrial and Commercial Bank of China provided a loan of 10 billion euros (US$11.26 billion) to finance a Beijing-initiated nuclear project in Romania. Generous funding was also available for a Sino-French consortium to construct nuclear reactors at Hinkley Point C in Britain. Before May’s decision, winning this project in a well-established nuclear nation like Britain brought great prestige to China.
For a long time, many Chinese state-owned enterprises have acted under the state to formulate their business plans. This has allowed the companies to get easy loans from Chinese banks while hiding their non-performing portfolios and distorting the value of their financial assets.
However, this top-down mode of economic statecraft has run its course. In light of China’s economic slowdown, the only way for corporate China to remain competitive internationally is to liberalize its organizational practices and to conduct business with transparency.
Joseph Tse-hei Lee is a professor of history at Pace University in New York.
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