Orchestration: China's Economic Statecraft Across Asia and Europe [1 ed.] 0197526349, 9780197526347

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Orchestration

Orchestration China’s Economic Statecraft Across Asia and Europe JA M E S   R E I L LY

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3 Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and certain other countries. Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America. © Oxford University Press 2021 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by license, or under terms agreed with the appropriate reproduction rights organization. Inquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above. You must not circulate this work in any other form and you must impose this same condition on any acquirer. Library of Congress Cataloging-in-Publication Data Names: Reilly, James, 1972– author. Title: Orchestration : China’s economic statecraft across Asia and Europe / James Reilly. Description: New York, NY : Oxford University Press, [2021] | Includes bibliographical references and index. | Contents: Learning China’s history lessons—Orchestrating China’s economic statecraft—Never let a crisis go to waste : Beijing’s economic statecraft across Western Europe—Creating a region : China’s economic statecraft in Central and Eastern Europe—Engaging North Korea—Crossing lines : China’s economic statecraft in Myanmar. Identifiers: LCCN 2020037920 (print) | LCCN 2020037921 (ebook) | ISBN 9780197526347 (hardback) | ISBN 9780197526354 (updf) | ISBN 9780197526361 (epub) | ISBN 9780197526378 (oso) Subjects: LCSH: China—Foreign economic relations—Asia. | Asia—Foreign economic relations—China. | China—Foreign economic relations—Europe. | Europe—Foreign economic relations—China. | China—Economic policy. | China—Foreign relations. Classification: LCC HF1604 .R447 2021 (print) | LCC HF1604 (ebook) | DDC 337.5105—dc23 LC record available at https://lccn.loc.gov/2020037920 LC ebook record available at https://lccn.loc.gov/2020037921 DOI: 10.1093/oso/9780197526347.001.0001 1 3 5 7 9 8 6 4 2 Printed by Integrated Books International, United States of America

For Reina with all my love

Contents Preface: On the Road 

ix

Introduction 

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1. Learning China’s History Lessons 

19

2. Orchestrating China’s Economic Statecraft 

37

3. Never Let a Crisis go to Waste: Beijing’s Economic Statecraft across Western Europe 

60

4. Creating a Region: China’s Economic Statecraft in Central and Eastern Europe 

89

5. Engaging North Korea 

115

6. Crossing Lines: China’s Economic Statecraft in Myanmar 

138

Conclusion  Notes  Bibliography  Index 

162 175 239 257

Preface: On The Road When my wife and I  were working for the American Friends Service Committee in China, back in 2007, we brought a delegation of China’s leading Africa experts to southern Africa so they could speak directly to African labor unions, opposition parties, and NGOs, and observe Chinese business practices in Africa for themselves. After two long days visiting Chinese mining companies across Zambia’s copper belt, Chinese embassy officials in Lusaka shared the following story with me over a late-​night dinner: A few years ago, a British company was planning to sell its copper mine in northern Zambia, and a Taiwanese company was planning to purchase the mine. We encouraged China Nonferrous Metals Company (CNMC) to purchase the mine instead, despite the low price of copper at the time. CNMC secured low-​cost capital in China for the investment, while our embassy encouraged the Zambian side to consider the Chinese offer favorably. The purchase went through, and since copper prices soon rose sharply, this ended up being a profitable investment for CNMC.

Years later, this episode has come back to me as a striking example of what I  call China’s “orchestration” approach to economic statecraft. In this instance, Lusaka received timely investment into their precarious mining industry while CNMC secured cheap investment capital and valuable mining rights as well as the gratitude of the Zambian and Chinese governments. The deal’s architects were thus justifiably proud of averting a diplomatic embarrassment: Taiwanese firms gaining inroads into Zambia, home of the famed “Tan-​Zam Railway”—​Beijing’s flagship aid project of the 1960s. Most impressive of all, orchestrating this deal required very little time, money, or political effort by Chinese diplomats. As this story suggests, the enclosed book has largely been conceived, researched, and written on the road: indeed, that was an early working title. My adventures along the way have been supported by numerous individuals and institutions—​it is a joy to express my profound appreciation to them all. Apropos for a book on economic statecraft, I’ll start with the bill-​ payers. Major financial support from the Australian Research Council

x  Preface: On The Road (DP150103365) and the European University Institute’s Jean Monnet Fellowship enabled much of my field research and writing time. Within the University of Sydney, the Department of Government and International Relations, School of Social and Political Sciences, China Studies Centre, and Southeast Asian Studies Centre all provided timely and invaluable support. As in any book with such an extended gestation period, I have incurred incalculable debts to the people who have kindly agreed to speak with me about China’s economic statecraft, guide my field research, host my public presentations, and/​or suffer through countless earlier drafts. An inevitably incomplete list must include: Avery Goldstein, Bates Gill, Ben Goldsmith, Bob Carr, Bob Ross, Brendan Taylor, Chih-​shian Liou, Chris Twomey, David Shambaugh, Deborah Bräutigam, Evelyn Goh, Ezra Vogel, Graeme Gill, Jakub Jakóbowski, James Laurenceson, Jane Golley, Jingdong Yuan, Kevin O’Brien, Li Mingjiang, Mike Glosny, Mike Mochizuki, Philipp Genschel, Rana Mitter, Ren Hongsheng, Rich Maher, Rosemary Foot, Ryan Griffiths, Shi Yinhong, Taylor Fravel, Tom Christensen, Ulrich Krotz, Will Norris, Zhang Cuizhen, and Zhang Qingming. Support by Chen Ourui, Gao Liuang, Li Junyang, Liu Xiaochuan, and Qi Fei was particularly valuable. From Madison Avenue, Angela Chnapko has remained a steadfast supporter: her kindness and professionalism are gratefully acknowledged. My apologies and appreciation to anyone not listed above who has also suffered through my verbose musing on China’s economic statecraft over the past decade. Thank you. Throughout this long journey, my far-​ flung compadres across China, America, and Australia have distracted, entertained, and sustained me. A strong shout out to the Warriors: our weekly “old man basketball” kept me sane, if frequently injured, during the long and often painful writing process. My family in America keeps me close to my roots: my brother Matt, and my mom and Elaine remain wellsprings of support and encouragement. My Chinese family provided warm food, good cheer, and strong booze—​a perfect mix for a weary writer. At home, Nainai remains a pillar of love and kindness. It is only proper that this book begins with my wife, Wuna. With her, anything is possible. Our daughter, Reina, has grown up alongside this book. Watching her do so has been the greatest of joys. To keep a promise made many moons ago, this book is—​like her mother and I—​lovingly dedicated to her. —Coto, Vietnam —January 15, 2020

Introduction National leaders have three main resources to exert influence abroad: money, military force, and diplomacy. Yet businesspeople, unlike soldiers and diplomats, generally do not work for the government. Convincing bankers, traders, and investors to act in ways likely to advance foreign policy goals is often difficult and expensive. If any country can cut this Gordian knot, it should be China. With the Communist Party controlling the “commanding heights” of the world’s second-​largest economy, China appears ideally structured to use economic resources strategically to advance its foreign policy goals—​to engage in economic statecraft. Yet as this book shows, domestic complications often hinder Chinese leaders’ efforts to deploy economic resources abroad for strategic purposes. In the following pages, I describe how China engages in economic statecraft, explain why China uses this approach, and identify when Beijing’s efforts are most effective. My core premise is that a country’s political economy and collective beliefs exert a powerful influence upon how it engages in economic statecraft. Variations in domestic institutions and ideas help explain why different countries do economic statecraft differently. In China’s case, a Leninist party retained power amidst its dramatic transition from a planned economy to a developmental state, sparking one of history’s most consequential surges in national wealth and power. Chinese leaders today enjoy unchallenged political authority over a vast economy. Confident in their government’s capacity to deploy these economic resources for strategic benefit, Chinese strategists insist that the Party-​state can and should mobilize an array of commercial actors to advance key policy goals abroad. This distinctive combination of ideas and institutions, bequeathed by China’s modern history, emboldens Beijing’s ambitious approach to economic statecraft. Yet leaders’ ambition of retaining a central role for the Party-​state while relying upon a diverse set of economic statecraft techniques to advance multiple policy goals is devilishly difficult to implement. Chinese

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2 Orchestration policymakers have responded by developing a distinctive approach to economic statecraft, best understood as orchestration. Orchestration theory was created to describe how policymakers identify subordinate actors who share their basic priorities, and then support and encourage these agents to act in ways that simultaneously advance both policymakers’ and their own goals. For Chinese leaders, orchestration offers an alluring opportunity to advance multiple domestic and foreign policy goals at modest costs—​as the Zambia example in the preface suggests. China’s orchestration approach integrates three core elements:  the “nesting” of orchestration tactics within its hierarchical structures; the use of lucrative “tournaments” designed to attract eager participants while facilitating oversight and discipline; and designing economic statecraft initiatives to maximize interest alignment between central leaders’ foreign policy goals and the interests of key implementing actors. If implemented smoothly, China’s economic statecraft requires only a light touch. The Belt and Road Initiative, described in Chapter 2, is the latest and largest manifestation of Beijing’s orchestration strategy. Instead of surrendering political authority to commercial actors, Beijing’s orchestration approach places Xi Jinping in the conductor’s stand, bolstering rather than undermining state authority over the economy. Orchestration thus enables and emboldens China’s distinctive approach to economic statecraft: maintaining a central role for the state and its constituent actors in mobilizing a broad array of domestic actors, while relying upon diverse techniques in pursuit of multiple policy goals. This book is dedicated to developing and testing my argument. I begin by surveying relevant literature, introducing my core argument, explaining my research methodology, and providing an overview of the book. We start, as I insist my students do, with a definition.

Economic Statecraft Economic statecraft is when political leaders intentionally use economic resources to exert influence in pursuit of foreign policy objectives.1 It is distinguished from commercially motivated actions by its political objectives: the pursuit of power rather than plenty.2 Ultimately, economic statecraft is an influence attempt, an exercise of power. Power, according to Weber, “is the probability that one actor within a social relationship will be in a position

Introduction  3 to carry out his own will despite resistance.”3 Dahl is even clearer: power is when A gets B to do something that B would not otherwise do.4 Economic statecraft encompasses incentives or sanctions that affect the trade, aid, finance, currency, and/​or assets of the target state. Trade sanctions limit either exports or imports to/​from the target state, while incentives such as favorable trade agreements or state purchases expand trade. Foreign aid can be increased or reduced for diplomatic purposes. Financial statecraft, including lending and investment, aims to influence capital flows by expanding or limiting a target state’s access to capital.5 Monetary sanctions seek to destabilize the value and stability of the target state’s currency through currency manipulation, fostering and exploitation of monetary dependence, or systemic disruption.6 In rare instances, assets including physical property, securities, and bank accounts can be frozen or even seized. Although countries’ efforts to deploy economic resources to exert influence abroad is one of the most important areas of foreign policy and international affairs, it remains far less studied than the use of military might. To date, most experts have focused on asking when, how, and why certain economic statecraft techniques—​ such as sanctions—​ prove effective in advancing certain policy objectives. Far less energy has been dedicated to exploring how domestic factors influence countries’ varying approaches to economic statecraft, with the important exception of China. China scholars have delved extensively into the question of how domestic factors shape the projection of China’s global economic power.7 Zero-​sum assessments of “China, Inc.” as either coherent or fragmented have been jettisoned in favor of more nuanced depictions of state–​enterprise relations.8 Intriguing work now explores how China’s domestic economic model shapes its overseas economic activities and how domestic actors can influence Beijing’s foreign economic policy.9 While economists have usefully identified economic impacts of Chinese sanctions, assessing Beijing’s effectiveness has proven more challenging.10 As Kirshner reminds us, sanctions may “work” by having an economic impact but still fail to deliver the desired political outcome.11 Using quantitative methods to identify a relationship between a country’s economic ties with China and its policy choices has yielded intriguing, though limited, results.12 Data remains a challenge. While trade levels are generally transparent, simply measuring the levels of China’s international financing and foreign aid has proven difficult.13 More promising are recent case studies, which suggest that Beijing is often unable to leverage its wealth for political influence.14

4 Orchestration Despite this rich and burgeoning field, we still lack an adequate conceptual framework for understanding how China’s complex domestic structures influence the practice and effectiveness of China’s economic statecraft. This book is designed to help fill this gap.

Opening China’s Black Box Economic statecraft, as a subfield of foreign policy studies, embarks from a state-​centric perspective. It shares a core assumption with neoclassical Realism: domestic ideas and institutions shape how rising power affects a country’s foreign policy. As Gideon Rose explains: Neoclassical realism argues that the scope and ambition of a country’s foreign policy is driven first and foremost by the country’s relative material power. Yet it contends that the impact of power capabilities on foreign policy is indirect and complex, because systemic pressures must be translated through intervening unit-​level variables such as decision-​makers’ perceptions and state structure.15

Realism alone, however, offers little guidance into how these domestic ideas and institutions actually influence policy outcomes. Drawing instead on classic works in comparative political economy, such as Katzenstein’s landmark volume, Between Power and Plenty, shows how domestic factors influence countries’ foreign economic policies.16 More recent work on “varieties of capitalism,” including “state capitalism,” further illustrate how and why domestic institutional structures and collective beliefs shape countries’ political-​economic orientations and practices.17 “The ability of political leaders to mobilize domestic resources,” Krasner explains, “is a function of (a) the structure of the domestic political system, and (b)  the convergence between public and private interests.” Such convergence can be created, Krasner adds, since “the defining characteristic of a political system is the power of the state in relation to its own society.”18 State effectiveness, Samuels notes, arises not just “from its own inherent capacity but from the complexity and stability of its interactions with market players.”19 Applying this logic to economic statecraft, Stein argues that a stronger state will be better able to implement sanctions than a weaker one, since “it often takes state power to align private interests with public ones.”20

Introduction  5 Davis highlights two types of institutional capacity that determine whether a state can effectively implement a strategy of economic persuasion: (1) the degree of functional autonomy, coordination, and continuity within bureaucratic process; and (2) state capacity to extract and channel domestic resources to target countries.21 From these perspectives, the Chinese Party-​state appears ideally situated to engage in economic statecraft. The government literally owns the “commanding heights” of the economy, including all major banks and most large enterprises in key strategic sectors, and enjoys unchallenged and extensive authority over much of the economy. Yet, having greater authority over more sectors of the economy may not necessarily result in more effective economic statecraft. By having to coordinate across a broad segment of the bureaucracy and oversee a proliferation of economic actors (many of whom are closely linked to the state), while facing high requirements for effective information flow across a complex political-​economic system, large states with more managed economic policies face a particularly daunting set of challenges in implementing economic statecraft—​none more so than China. This set of challenges has traditionally been viewed as a principal–​agent problem. When a lead actor (principal) delegates authority to a subordinate (agent), the agent’s own preferences, greater access to information, and autonomy of action limit the principal’s ability to control the agent. The principal–​agent framework, developed to examine how managers delegate responsibilities to workers in modern firms, is grounded in two core assumptions: divergent preferences between principals and agents, and the principals’ scarcity of information. The agent can use “hidden information” to take “hidden actions” unobserved by the principal, resulting in “agency slack.” As Laffont and Martimort explain: “By the mere fact of delegation, the principal often loses any ability to control those actions that are no longer observable.” 22 The principal–​agent framework usefully shows how agents’ diverging interests, privileged access to information, and autonomy of action can impede principals’ effective monitoring and enforcement. The framework also highlights how principals rely upon a system of rewards and punishments to shape agents’ actions and to encourage behavior that advances the principals’ objectives. Such efforts by principals incur transaction costs. Therefore, principals may prefer to allow agents to capture gains or “rents” from their own actions instead of trying to identify and punish all undesired behavior.

6 Orchestration In international relations, the principal–​agent approach has primarily been used to explore how national governments delegate authority to international organizations.23 For foreign policy, the framework has been most widely deployed by European scholars interested in identifying the delegation and oversight challenges generated by the EU’s complex governing structures.24 In 2007, Bates Gill and I were among the first observers to identify how a structural principal–​agent problem was constraining China’s economic statecraft.25 By 2011, Alden and Large argued that the principal–​agent dilemma had emerged “at the heart of the problem of developing sustainable Chinese ties” with developing countries.26 More recently, William Norris has applied the framework to China’s economic statecraft by focusing on state control: “the ability of the state to control or direct the behavior of commercial actors.” “By controlling commercial actors,” he argues, “states can manipulate the security externalities that result from international economic interactions.” For Norris, state control is a “prerequisite” and is “at the heart of economic statecraft.”27 Norris’s study successfully shows that preference compatibility between principals and agents, and coherence among multiple principals, help explain variation in levels of state control. However, as his case studies also reveal, having tighter control does not always make China’s economic statecraft more effective.28 In fact, states often choose not to have tighter control over their agents. As the principal–​agent framework reminds us, sustaining such controls is costly.29 For Chinese leaders, maintaining commercial actors’ autonomy from political influence not only increases their economic efficiency but also enhances the deniability of a political influence attempt, while helping to alleviate target countries’ anxiety about Beijing’s political influence. While Norris is correct that Chinese leaders face considerable difficulties in relying upon commercial actors to implement much of China’s economic statecraft, this challenge is best understood more broadly, as a classic problem of “indirect governance.” In practice, most governance is indirect since “governors” frequently rely upon third parties to increase efficiency, effectiveness, and legitimacy. Rather than always seeking tighter control, political leaders rely upon a variety of strategies to shape third-​party behavior, including their selection of agents, foreign policy design, and employing varying modes of incentivizing, oversight, and enforcement.30 As Fukuyama explains, state leaders tend to grant greater autonomy to more capable agents whose interests are already aligned with national leaders’ priorities.31 Certain economic statecraft techniques

Introduction  7 can ease interest alignment. For instance, encouraging firms to expand trade or investment is generally easier than trying to restrict them from doing so. “Where market forces work against negative sanctions they can reinforce positive ones,” Crumm notes.32 Ensuring coalition cohesion and domestic implementation of sanctions is also much easier when corporations and partner governments see their own interests being advanced.33 A number of recent studies have pointed out how China’s domestic political economy is structured in ways designed to mitigate the challenges of indirect governance. Eaton and Zhang, for instance, explain that maintaining multiple sovereign wealth funds is “Byzantine by design,” since the resulting competition enhances Chinese leaders’ control.34 Bell and Feng similarly argue that Chinese leaders’ reliance upon the People’s Bank of China’s expertise and bureaucratic position fostered a “reciprocal alliance relationship” in which “party elites control the strategic direction but delegate parcels of authority and policymaking to the central bank.”35 Building on these studies, I argue in this book that China’s economic statecraft is best understood as a type of “orchestration” strategy.

Orchestration and the Governor’s Dilemma Strategies of indirect governance, Abbott et  al. argue, can be usefully divided into two “ideal types”: delegation and orchestration. In the delegation approach, “principals select agents according to their governance capabilities with little regard to agents’ governance goals . . . The principal writes a contract that creates incentives for the agent to pursue the principal’s governance goals. The stronger the incentives the contract creates, and the more closely the principal monitors the agent’s behavior through its own efforts  .  .  .  the lower the risk of agency slack.” The principals—​Chinese leaders—​retain hierarchical “hard control” over their agents, offering only a “conditional grant of authority.”36 However, Chinese leaders are likely to find themselves relying upon implementing agents whose goals may diverge from their own priorities. Relying upon compensation, oversight, and punitive measures to shape agents’ behavior is costly in terms of time, resources, and political capital. A more attractive option for Chinese policymakers seeking to implement their ambitious approach to economic statecraft at modest cost is to identify implementing agents whose interests are already aligned with

8 Orchestration policymakers’ goals. In an orchestration relationship, Abbott et al. explain, “the orchestrator identifies an ‘affine’ third party that sufficiently identifies with the orchestrator’s governance goals to voluntarily serve as intermediary.” By providing conditional support—​both material and ideational—​ the orchestrator strengthens the intermediary while retaining leverage. Abbott et al. thus define orchestration as the “mobilization of an intermediary by an orchestrator on a voluntary basis in pursuit of a joint governance goal.”37 In an orchestration strategy, the principal (or “orchestrator”) identifies a like-​minded agent who shares the orchestrator’s basic priorities, and then utilizes a set of incentives and other techniques to support the agent as it acts in ways that should advance both the agent’s and the orchestrator’s goals. Orchestration theory was developed to capture situations in global governance when a principal lacks hierarchical controls over agents, and so “can only influence its exercise through positive or negative inducements.”38 On first glance, orchestration hardly seems an appropriate concept to describe governance tactics by the world’s largest Communist Party, particularly amidst the dramatic centralization of Party authority in the Xi Jinping era. However, orchestration tactics offer a number of benefits for China’s economic statecraft. Orchestration enables Chinese policymakers to expand their “repertoire of regulatory, promotional and operational techniques” and to “better match their activities to their often limited resources, to specific issues and to specific global settings.”39 Orchestration also helps Chinese leaders extend their authority. As Alcazar explains in the case of the EU, “self-​aware that its political imprint in faraway markets may not always be “fungible,” the EU seeks to build up its pockets of power and on-​the-​ground performance by working with proxies.” Even though Brussels, like Beijing, enjoys “parallel and unmediated channels to leverage its market size and regulatory reach,” it often chooses to rely upon “softer and less hierarchical measures to back and prod intermediaries.”40 Minimizing at least the appearance of their direct control over Chinese commercial actors and regional authorities enables central-​ level Chinese policymakers to benefit from firms’ expertise, creativity, legitimacy, and commitment potential. “Orchestration is less conspicuous” than delegation, Abbott et al. add, and so misbehavior by such agents is less costly. “Blame avoidance . . . is facilitated if the governor can deny close association with the third party.”41

Introduction  9 For Chinese leaders, an orchestration approach also minimizes the financial costs associated with incentivizing domestic actors and avoids the politically challenging efforts of monitoring and punishments. Chinese leaders can pursue multiple policy objectives by including domestic economic and commercial interests alongside foreign policy goals. Perhaps most importantly, instead of surrendering political authority to commercial actors, Beijing’s orchestration approach bolsters rather than undermining state authority over the economy. Orchestration thus enables and emboldens China’s distinctive approach to economic statecraft: maintaining a central role for the state and its constituent actors in mobilizing a broad array of domestic actors, while relying upon diverse techniques in pursuit of multiple policy goals. While attractive, orchestration is not cost-​free. As Abbott et al. explain: “if principals depend on agents’ intrinsic motivations, they must sacrifice some behavioral control.”42 They describe this trade-​off as “the governor’s dilemma:” Competent agents are difficult to control because their policy contributions give them leverage over the principal; principal control impedes agent competence by constraining the development and exercise of agent capabilities. If a principal emphasizes control, it limits agent competence and risks policy failure; if it emphasizes competence, it provides opportunistic agents freedom to manoeuvre and risks control failure . . . . The problem is that competence and control are inversely related . . . . The principal thus faces a trade-​off: it can maximize either competence or control, but not both.43

Politics, of course, remains the art of the possible. We would expect policymakers to pursue strategies of indirect governance designed to capture the benefits of both approaches while minimizing their downsides. Orchestration and delegation are, after all, only “ideal types” which “often overlap in practice” and so are best understood “more as a continuum than a sharp distinction.” In the real world, Abbott et  al. admit, “governance arrangements frequently combine both approaches.”44 As this book shows, Chinese policymakers have responded to the governor’s dilemma by developing a distinctive orchestration approach for implementing economic statecraft, one designed to maximize their controls over agents while still capturing the benefits of orchestration.

10 Orchestration

Beijing’s Orchestration Strategy The easiest solution to the challenges of indirect governance is, as any parent of a small child knows, to do something yourself. Henriksen and Ponte thus expect that “successful orchestration trajectories [will] entail the use of plural governance tools and a combination of direct and indirect instruments—​ together with active participation of the orchestrators themselves.”45 “Governors often mix elements of delegation and orchestration,” add Abbott et al. “One strategy is to empower agents by formal acts of delegation, but then rely on soft means of orchestration to support and steer their actions.”46 Alcazar, for example, argues that the EU has pursued a “blended exercise of delegation and orchestration to collaborate with intermediaries,” and thus labels the EU a “principal-​orchestrator.”47 China’s “nested” approach to orchestration, the first of its three core techniques, reflects a similar approach. Top Chinese leaders play a direct role in designing and implementing many important economic statecraft initiatives. They also delegate authority to line ministries and government agencies. Central leaders rely upon a set of coordination and oversight mechanisms to manage the informational challenges that result from delegating authority to these agencies. In turn, these government agencies deploy a variety of orchestration techniques to encourage participation from a diverse set of financial institutions, enterprises, and regional authorities across China. The most important of these orchestration tactics is when central-​level policymakers encourage line ministries and financial institutions to establish investment funds and offer policy support for broad-​based initiatives. Companies and regional governments are rewarded for successfully proposing and implementing specific projects or “schemes” that fit within these broad policy parameters. The Belt and Road Initiative (BRI), described in Chapter  2, is the latest and largest manifestation of this use of competitive “tournaments” with “prizes” designed to entice and reward agents for implementing China’s economic statecraft. As Abbott and Snidal expect, this tactic enables central Chinese leaders to mobilize participation “by endorsing and supporting superior schemes, promoting common standards across schemes, and shaping inter-​scheme competition and collaboration in line with [their] policy objectives.” They predict that such “effectively-​orchestrated” initiatives “may mitigate the problems resulting from diverse interests and objectives by bringing the

Introduction  11 actors together in independent, collaborative . . . schemes.” Relying on “multiplicity and competitiveness,” this technique “allows for comparisons across schemes that allow some to be identified as better performing.”48 Moreover, implementing agents are likely to “provide their own evaluations of scheme performance,” which provides additional information to central Chinese leaders about how relative “schemes” are performing.49 The BRI also reflects traditional Chinese Communist Party governance tactics of allowing local experiments to emerge before choosing among them.50 Encouraging competition among a large supply of potentially qualified agents strengthens the authority of Chinese policymakers while making agents more pliable. Competition among agents, Abbott et al. explain, drives down their “inducement price.”51 This second technique thus facilitates Beijing’s control while attracting and supporting motivated actors. At the core of China’s orchestration approach to economic statecraft is the third technique: Beijing’s reliance upon economic statecraft techniques designed to facilitate interest alignment among the implementing actors. By carefully choosing certain types of economic statecraft initiatives and designing the goals of these initiatives to align with the priorities of implementing actors, Chinese policymakers are able to entice (or “mobilize”) a broader array of domestic agents to help advance their goals. As a result, China’s economic statecraft frequently only requires a light touch. Using techniques and articulating policy goals that enable commercial actors, economic ministries, and regional authorities to act in ways that also advance their own interests is the third core element of China’s orchestration strategy. This effort to align the interests of multiple implementing actors helps explain one of the most distinctive aspects of China’s economic statecraft: its pursuit of multiple goals through a single initiative. Pursuing multiple goals aligns interests within the government, thus facilitating bureaucratic support. Given the array of government agencies involved in the design and implementation of China’s economic statecraft, initiatives that make powerful enemies are less likely to emerge as approved policies or obtain thorough implementation. Economic statecraft initiatives are particularly vulnerable to bureaucratic resistance, since they are likely to impinge upon multiple areas of bureaucratic authority. Since economic statecraft requires using economic resources for foreign policy purposes, the economic-​minded actors that dominate China’s policy deliberation process will likely insist that any such initiative also generate economic benefits. To secure their support in policy design and implementation, economic statecraft initiatives that emerge as

12 Orchestration central-​level policy are thus likely to be laden with economic goals, alongside their strategic and diplomatic objectives. These multiple goals reflect the impact of China’s interest-​alignment strategy on its economic statecraft. In sum, China’s orchestration approach to economic statecraft integrates three core elements: the “nesting” of orchestration tactics within its hierarchical delegation structure; the use of lucrative “tournaments” designed to attract eager participants while facilitating oversight and discipline; and designing economic statecraft initiatives to maximize interest alignment between central leaders’ foreign policy goals and the interests of key implementing actors. This book is designed to develop and test my argument.

A Curious Case Selection Since this book’s core premise is that domestic ideas and institutions exert a powerful influence upon how a country engages in economic statecraft, I begin with two chapters examining Chinese ideas and institutions. The first chapter argues that China’s tumultuous modern history forged a distinctive, coherent belief system about economic statecraft: what it is, what it can accomplish, when it is justified, and how it is most effective. This collectively held set of beliefs justifies, influences, and sustains China’s orchestration approach to economic statecraft. The second chapter describes how institutional structures shape China’s three core orchestration techniques and denotes several weaknesses embedded within Beijing’s approach. The next two chapters examine China’s economic statecraft in two regions:  first in Western Europe and then in Central and Eastern Europe. I conclude with two country-​level case studies from China’s periphery:  North Korea and Myanmar. These cases may appear a curious choice. My case selection is driven by two sets of logic: the use of most-​ similar and most-​different methods of comparison. Since I  am claiming that China applies a consistent approach to economic statecraft shaped primarily by domestic factors (ideas and institutions), I have chosen four cases that are extremely different. My cases vary along many of the variables traditionally assumed to shape economic statecraft practices and outcomes: levels of development and regime type, as well as diplomatic affiliation, economic dependence, and geographic proximity to the “sending” state. Each of the four chapters examines

Introduction  13 three to four distinct techniques of China’s economic statecraft (my sub-​ cases), including foreign aid, sanctions, state-​guided investment, regional cooperation, and financial statecraft. The cases encompass participation by a wide range of Chinese actors, include a diverse set of policy objectives, and cover the Hu Jintao and Xi Jinping eras. This diversity provides a robust test for my argument. If we find that Beijing applies a similar orchestration strategy across so many different instances and over two different leadership teams, this increases our confidence that China does indeed deploy a consistent approach to economic statecraft shaped primarily by domestic institutional and ideational factors. I also hope to identify the factors shaping the outcomes we observe across my research questions (see below). I  therefore have structured my four cases into two sets of similar, paired comparisons, thus enabling me to focus on likely key factors while “holding constant” the most likely alternative explanations for the observed outcomes. Specifically, I expect that variations in the level of domestic governance capacity within the “target” countries/​regions will likely have the greatest impact upon outcomes across my research questions (as explained below). I thus compare North Korea with Myanmar, as they are both small, non-​democratic adjacent neighbors that are highly economically dependent upon China, though their level of domestic governance capacity varies greatly. Similarly, the countries of Western Europe enjoy much stronger domestic governance capacity than their eastern neighbors, though the two regions share many other important attributes in their relationships with China. My case selection also allows us to compare China’s economic statecraft practices across both Asia and Europe. The scaled diversity of my cases—​ ranging across development levels (from the world’s wealthiest nations to moderately wealthy to impoverished) and regime types (from stable democracies to newer, more fragile democracies to different types of authoritarian regimes)—​yields general findings about China’s economic statecraft. Tracing the trajectory of Beijing’s policy initiatives from their domestic origins through implementation in diverse contexts around the world also offers valuable insights into the origins, outcomes, and implications of Chinese foreign policy practices. The conclusion chapter leverages these case study findings to offer policy recommendations for countries targeted by China’s economic statecraft.

14 Orchestration

Research Methods and Sources Within each case study, my primary task is to identify if Chinese actors deployed the orchestration techniques that I  describe above. Namely, did Beijing rely upon the “nesting” of orchestration tactics within a delegation approach; use “tournaments” to attract and reward multiple agents; and deploy economic statecraft initiatives designed to align the interests of key implementing actors with central leaders’ foreign policy goals? If we do observe China’s orchestration in action, was it effective? My approach to assessing the effectiveness of China’s orchestration approach is threefold. First, was Beijing successful in mobilizing domestic actors to engage in economic activities in the direction that Beijing desired?52 This is an easy test: we would expect that Chinese officials would generally be able to encourage a broad array of commercial actors to rapidly expand investments and trade with any given country, region, or sector, particularly when enjoying strong backing from top leaders and aligned with the implementing actors’ own commercial or bureaucratic interests. Economic statecraft initiatives designed to bolster bilateral or region-​wide economic ties should encourage Chinese actors to take steps in this direction. How do we know that commercial actors were actually influenced by government policy and not simply acting in line with their own interests? Since I  argue that China’s economic statecraft initiatives are generally designed to align with implementing actors’ own interests, isolating the impact of policymakers upon commercial actors is particularly difficult. The best method is careful process tracing, while acknowledging the inherent limitations to any causal claims. It is easier to isolate Chinese policymakers’ impact when they seek to punish a target state by reducing trade, aid, and/​or investment. My case studies thus also ask: how effective were central leaders in implementing such reversals? My second test of effectiveness asks: how coherently was China’s economic statecraft implemented in each case? Implementation coherence assesses the degree to which relevant Chinese actors acted in ways likely to advance (or undermine) Chinese leaders’ foreign policy objectives.53 Coherence is particularly significant for assessing orchestration approaches to economic statecraft. Regardless of whether it derives from top-​down “control” or from utilizing agents’ inherent motivations and “competence,” what policymakers care about is that the actors tasked with implementing economic statecraft act in ways likely to advance leaders’ policy objectives. Implementation

Introduction  15 coherence is best assessed relatively, by comparing over time and across issues and target countries. My primary expectation here is that Beijing’s implementation coherence will vary with the intensity of the principal–​agent challenges in a given context. Specifically, problems with implementation coherence are more likely when Chinese leaders rely upon regional and/​or commercial actors who are difficult to monitor and have strong economic interests in the target state, and when the target state has weaker domestic governance capacity. Three types of problems are most likely to emerge in such instances. First, we are more likely to see instances of “policy stretching”: when government agencies, regional authorities, and/​or commercial actors alter the content or even goals of central-​level policy, such as through lobbying. Indeed, although both the Myanmar and North Korea chapters document such dynamics, they were far more severe in Myanmar. Secondly, situations with more intense principal–​agent challenges are likely to generate more severe moral hazard problems. Specifically, when top-​down controls are weaker and commercial interests are stronger, then wealthy, powerful state-​owned enterprises (SOEs) are more likely to feel free to act in a fiscally irresponsible manner because they expect they can rely on state-​controlled banks for financial support regardless of their economic performance. Indeed, economists have found that SOEs are most likely to invest in risky environments if the country has strong political ties to China and/​or high export dependency upon China.54 This suggests that SOEs in such situations expect Beijing’s support if their risky investments fail. The third—​and most potent and most likely—​threat to Beijing’s implementation coherence is enterprise malfeasance. The diversity of Chinese economic actors, from massive SOEs to nimble private firms to individual entrepreneurs, helps facilitate China’s rapid and deep expansion into target economies. However, these actors also uniquely generate a full spectrum disruptive presence: from massive state-​backed investments by some of the world’s largest companies through to a surge in inexpensive laborers and aggressive entrepreneurs. Accustomed to operating in a highly competitive environment characterized by widespread corruption, limited oversight, and cutthroat competition, Chinese firms going abroad are likely to engage in predatory business practices with limited attention to political or social risk. As principal–​agent theory predicts, monitoring these diverse sets of actors represents a considerable challenge for Chinese officials. “Most times, we don’t even know how many Chinese companies are involved in a given

16 Orchestration country,” a former embassy official told me. “We don’t even see them until they have a problem.”55 While Chinese SOEs spur most Westerners’ anxieties, in fact private firms are likely to be even more aggressive than SOEs. They have few obligations to Chinese diplomats or national bureaucracies, relying instead upon a carefully cultivated local base of support. Successful local private entrepreneurs in China must cut corners to prosper. Commonplace acts such as bribing officials, falsifying contracts, and evading laws are unlikely to decline as they move far from home. Effective orchestration requires that officials identify and curtail such problematic behavior. My third and final measure for assessing effectiveness is thus: were Chinese policymakers able to effectively identify and alter agents’ behavior that undermined Beijing’s foreign policy objectives? As principal–​agent theory reminds us, such responses are unlikely when information flows are limited or when the principal has become “captured” by their own agents. This question also helps assess Chinese policymakers’ capacity to learn and adjust as problems emerge. Since orchestration is inherently an evolving approach, it demands a high capacity for learning and adaptation. When problems reach the attention of top Chinese leaders, they should be able to readjust their approach and perhaps tighten their controls over agents. This ability to toggle between prioritizing control and competence is essential for the effective and sustainable implementation of China’s orchestration approach. In sum, my case studies are designed to (a) identify if Chinese policymakers utilized the three core orchestration techniques described above, and (b) assess the effectiveness of China’s orchestration approach. I assess effectiveness along three lines. First, did Chinese leaders successfully mobilize domestic actors to engage in economic activities in the direction that Beijing desired? Second, how coherently was China’s economic statecraft implemented in each case? I expect that situations with an intense principal–​agent problem will generate problems with policy stretching, moral hazard, and enterprise malfeasance. My third and final test for effectiveness is whether Chinese policymakers were able to identify and alter agents’ behavior that undermined Beijing’s foreign policy objectives. My research for these six empirical chapters draws upon a wide range of Chinese and English-​language sources: government documents, economic data, public opinion surveys, media coverage, and scholarly studies. Yet, the most important sources have been my own eyes and ears.

Introduction  17 Over the past decade, I  have traveled widely along the highways and byways along which China’s economic influence flows. While living in Dalian in 2012–​2013, I traveled the entire Chinese border with North Korea and extensively throughout both sides of the China–​Myanmar border region. I  also draw, indirectly, upon my seven visits to North Korea from 2001–​2009. I  traveled along and across China’s borders with Kazakhstan, Laos, and Vietnam, and through Thailand. Along the way, I conducted numerous interviews with local officials, businesspeople, experts, and residents in Jilin, Liaoning, Guangxi, and Yunnan provinces, and in Beijing and Yangon. I began my European research by traveling with my family for six weeks, overland, from central China to Florence, where I took up my post as a 2015–​16 Jean Monnet Fellow at the European University Institute. Over my year at the EUI, I conducted interviews and field research in Almaty, Ankara, Belgrade, Berlin, Bologna, Brussels, Istanbul, Geneva, Lodz, London, Malta, Milan, Oxford, Paris, Rome, Sofia, Tbilisi, Torino, Trabzon, Warsaw, and Zagreb.

Conclusion This book seeks to identify how China engages in economic statecraft, explain why China uses this approach, and to assess and explain variations in Beijing’s implementation effectiveness. This is a relatively unique approach:  few studies have asked why a given country practices economic statecraft in a particular fashion. In the conclusion, I build upon my findings to suggest several pathways for future scholarship in comparative economic statecraft. Instead, most studies of China’s economic statecraft assess effectiveness by comparing target country responses to China’s influence attempts. Audrye Wong, for example, argues that China’s provision of “subversive carrots” tends to influence target countries with low public accountability.56 While my emphasis is different, my conclusion chapter compares Beijing’s success in achieving its policy goals across all cases, denoting key policy implications for countries targeted by China’s economic statecraft. The conclusion chapter also raises the possibility that China’s orchestration approach is self-​reinforcing. As explained above, orchestration is an attractive option for China’s leaders due to its potential for delivering multiple benefits at modest cost. As Chinese leaders rely more heavily upon orchestration techniques, they are likely to feel encouraged to engage in even

18 Orchestration more economic statecraft, fostering an even greater need to utilize a low-​ cost, multiple-​benefit strategy. If my presumptions are correct, we should see continued, and even expanded, orchestration tactics by China over time and across regions and issues. Our journey down this long road, however, must embark more modestly. We begin by returning to the past, as we explore the history lessons that Chinese strategists draw from their country’s long experience as both a target and practitioner of economic statecraft.

1 Learning China’s History Lessons Even when people think they are striking out in new directions, their models often come from the past.1 Margaret MacMillan

China’s orchestration approach to economic statecraft emerged out of its long experience as both a target and practitioner of economic statecraft. From its earliest days, the People’s Republic faced economic coercion from the United States and the Soviet Union. Chinese leaders responded in innovative and ambitious fashion, leveraging access to China’s domestic market to break the US embargo while distributing foreign aid throughout Asia and Africa to forge new diplomatic ties. By the late 1970s, the aid program’s burgeoning costs led Beijing to shift to a more pragmatic approach of ensuring commercial opportunities for Chinese firms. Confronting diplomatic isolation after 1989, policymakers once again leveraged China’s booming domestic market to secure diplomatic concessions. As China rose to global economic pre-​eminence, it began to develop one of the world’s most active and consequential programs of economic statecraft. This tumultuous history forged a distinctive collective belief system about economic statecraft: what it is, what it can accomplish, when it is justified, and how it is most effective. Chinese experts and policymakers demonstrate confidence that economic resources can be deployed for both strategic leverage and reassurance, faith that economic statecraft can be deployed in ways that advantage both China and the recipient country, and a belief that the Party-​ state can and should mobilize commercial actors to advance Beijing’s foreign policy goals. They justify China’s pragmatic, ambitious, self-​interested approach to economic statecraft by skepticism toward Western claims of morality, identification of China as a developing country, and faith in the overriding benefits of economic growth.

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20 Orchestration This set of collective beliefs can best be understood as a subset of China’s Realist strategic culture—​what Alastair Iain Johnston labels China’s “cultural realism.”2 Strategic culture, according to Jack Snyder, is the “sum total of ideals, conditional emotional responses, and patterns of habitual behavior” that nations acquire through instruction or imitation over time.3 A nation’s strategic culture reflects the incorporation of “past learning” into the “collective consciousness,” and so tends to “set parameters and mental boundaries within which conscious policy decisions are made.”4 These collective ideas are not static or uniformly shared; debates and diversity abound. Ideas always evolve, shaped by historical, social, and political forces. Pervasive censorship also demands that we treat Chinese-​language sources with caution. Nonetheless, surveying the rich field of Chinese scholarship on economic statecraft—​the first such study in English—​reveals a set of overlapping ideas and assumptions, parallel to the public statements of Chinese leaders and reflected in policy and practices. Collecting these assumptions under the umbrella of “strategic culture” offers useful methodological guidance, yielding unique insights into the ideational foundations of China’s economic statecraft. I begin by denoting key “lessons learned” from China’s historical experiences, before discussing three apparent contradictions in Chinese conceptions of economic statecraft and exploring justifications for China’s approach. I  conclude by considering how this belief system influences experts’ views on policy challenges and proposed solutions.

Learning from the Past Learning reflects the effect of previous experiences and observations on foreign policy beliefs.5 As Brands and Suri note, “history—​an understanding, whether accurate or inaccurate, of the past—​is omnipresent in foreign policy.”6 Lessons from historical experience are shaped, Levitt and March explain, “less by history than by the frames applied to that history.”7 Established concepts, historical analogies, and perceived successes or failures all shape how policymakers interpret and apply lessons from the past.8 Mao’s decision to enter the Korean War, for instance, was influenced by his conception of the threat as US imperialism, derived from his experiences and ideology.9 In China, learning from the past has always been a deeply political process, typically deployed by the Party for the “inculcation of doctrine.”10 Under Mao,

Learning China’s History Lessons  21 injunctions to “learn from the Soviet Union” in the 1950s carried potent political implications.11 Decades later, Chinese leaders learned another set of lessons altogether from the USSR, as a state-​led study program sought to identify the pitfalls causing its collapse.12 While all historical experiences have the potential to influence collective beliefs, Chinese experts’ writings show that three rounds of historical experiences with economic statecraft were particularly significant: the geopolitical struggles of the early Cold War era, Beijing’s strategic use of foreign aid following the Sino-​Soviet split, and China’s leveraging market access in the 1980s and 1990s.

Geopolitics and Economic Statecraft: The Early Days Upon coming to power in 1949, China’s new leaders confronted not only an economy decimated by decades of war and turmoil but also a US-​led multilateral embargo aimed at crippling the Chinese economy and bringing down the communist government. Beijing responded in innovative fashion, reaching out to non-​aligned states such as Indonesia and Egypt, as well as US allies like the United Kingdom and Japan, by using the lure of the Chinese market and resources. In 1954, Zhou Enlai promised Japanese Diet members that China could “open up a few new coal mines to bring about an increase of [a]‌hundred thousand tons of coal.”13 The two sides soon signed a series of “private” trade agreements. By 1956 bilateral trade exceeded $126  million. Britain’s trade with China also soared, from $35 million in 1952 to over $200 million by 1957. As a 1957 State Department memo admitted: “to the simple-​minded, the Commies won and the US lost.”14 Initially, the US-​led embargo rendered China dependent upon economic assistance from Moscow. In the early 1950s, some 38,000 Chinese technicians went to the Soviet Union while 11,000 Soviet experts came to China.15 Yet as tensions mounted between Moscow and Beijing, Chinese leaders grew wary. Zhou Enlai warned in a 1956 internal meeting that Moscow was likely to “hold back a trick or two,” and so China should “treat self-​reliance as essential and foreign aid merely as a supplement.”16 The benefits also declined: by 1956, China’s repayments for earlier Soviet loans exceeded new grants.17 Following the 1960 Sino-​Soviet split and collapse of all Soviet aid, Chinese leaders had imbibed a powerful lesson on the risks—​and potential power—​ of economic dependence.18

22 Orchestration Chinese policymakers responded by playing a weak hand in strategic fashion, directing foreign aid to bolster potential diplomatic allies, most importantly Vietnam and North Korea. Following the 1954 Geneva Accords, China pledged $338 million in grant aid to North Vietnam over 1955–​1957.19 Zhou Enlai reassured a visiting Vietnamese delegation, “In order to support you, we do not mind accepting the greatest national sacrifices.”20 China’s largest aid recipient in the early Cold War era was North Korea. Following the end of hostilities on the peninsula, China cancelled North Korea’s wartime debt of 729 million Renminbi (RMB) ($362.5 million) and provided a grant of RMB 800  million ($400  million).21 China also offered the free labor of nearly half a million Chinese soldiers.22 The program’s scale was extraordinary, equivalent in 1954 to 3.4 percent of China’s national budget.23 Undaunted, in 1954 Mao Zedong pledged to Kim Il-​Sung that “the Chinese people will continue to wholeheartedly support the North Korean people in their just task [of economic development] until their final victory.”24 From 1950–​1970, China provided $614 million in aid to North Korea, just slightly under Soviet support levels.25 China also eventually turned its trade surplus into loans that Beijing later forgave.26 Sun Luxi insists that aid to Vietnam and North Korea “helped strengthen these neighboring countries’ military development, and so therefore enhanced China’s own national security.”27 Yet diplomatic affinity proved elusive. Ever since Kim Il-​Sung’s 1956 purging of the “Yan’an faction,” North Korea has proven “more of a strategic liability and uncomfortable neighbor than trusted ally.”28 After having been Hanoi’s most generous donor over the previous two decades, by 1975 Beijing also found itself frustrated by lingering territorial disputes, Vietnam’s treatment of ethnic Chinese, and Hanoi’s closeness to Moscow. In response, Chinese leaders deployed economic coercion, suspending trade agreements, imposing new trade quotas, and cancelling aid programs. Taking a page from Moscow’s book, on July 3, 1978, Beijing announced: “The Chinese government was compelled to decide to cut off all economic and technical assistance to Vietnam and bring back home all Chinese experts who are currently working in Vietnam.”29 The move was a prelude to Deng Xiaoping’s 1979 decision to “teach Vietnam a lesson” by instigating a brief border conflict. Being targeted by first the United States and then the USSR with economic coercion early in the Cold War underscored for Beijing both the risks and the potential influence derived from economic dependence. It also

Learning China’s History Lessons  23 demonstrated to Chinese leaders the strategic utility of foreign aid, a lesson they carried forward for decades.

China’s Aid Lessons China has the world’s most distinctive experience with foreign aid. While still desperately impoverished, Beijing emerged as one of the globe’s most active and consequential aid providers. Amidst its economic reforms and rapid growth of the 1980s, China became the world’s largest aid recipient. Today, China has resumed its position as a major aid donor. The lessons Chinese strategists derived from this tumultuous process continue to shape Chinese thinking on foreign assistance.30 As the Sino-​Soviet split deepened in the 1960s, Beijing dramatically expanded its aid program, seeking to bolster diplomatic ties with non-​aligned states by pledging support for nations “fighting against colonialism and hegemony” (反殖反霸).31 China was the world’s poorest aid donor; its aid levels were the highest as a percentage of per capita income. The generosity was astounding. In delivering a $60 million loan to Cuba in 1969, Zhou Enlai reassured Che Guevara: “it does not have to be repaid.”32 Instead, Zhou wanted to buy diplomatic recognition. From 1969 to 1970, China’s annual foreign aid increased 15-​fold. The following year, the People’s Republic of China (PRC) established diplomatic ties with fourteen aid recipients. In 1971, Albania proposed that the PRC take up the China seat in the United Nations (UN). Almost all Chinese aid recipients supported the proposal, particularly African nations.33 As Mao Zedong trumpeted:  “We were lifted into the UN by our African brothers.”34 In reviewing the heady days of China’s aid program, Chinese scholars tend to agree that “foreign aid was an important strategic tool for implementing China’s concept of a peaceful foreign policy.”35 They recognize that foreign aid played a crucial role in shoring up Beijing’s diplomatic position, encouraging countries such as Albania and Mongolia to “at least remain neutral” in the Sino-​Soviet split while helping Beijing break down the isolation imposed by Western sanctions.36 Some scholars still praise Mao’s bold use of “economics to promote politics” (以经促政) in contrast to today’s more conservative leaders, who use “politics to promote economics” (以政促经).37 Yet, the costs of Mao’s ambition soon became clear. By 1973, official development assistance (ODA) spending equaled two percent of China’s GDP,

24 Orchestration absorbing an astonishing 6.9  percent of total government expenditures—​ 25 percent larger than China’s educational budget.38 While acknowledging the success of Beijing’s “artful application of checkbook diplomacy,” experts criticize Mao-​era aid as excessive and misguided.39 “The individuals who designed China’s aid policies primarily considered political and security interests, but ignored economic interests,” explains a Peking University professor. “Because of this, China’s true national interests suffered.”40 By 1980, an official State Council assessment denounced China’s aid as “unsustainable . . . particularly in taking on overly-​heavy aid burdens toward certain countries without considering laws of economics, and wasting a great amount of resources.”41 A Central Party School article went even further: In many years, the amount of aid given far exceeded the levels which Chinese people could afford . . . providing excessive amounts of foreign assistance negatively influenced China’s own development and the living standard of Chinese people. It even reached the point when there wasn’t enough food for Chinese people. Buying food and sending it abroad exacerbated famine within China. Many people paid the price with their own lives . . . this proves that providing excessive amounts of foreign assistance cannot be sustained.42

As China embarked upon economic reforms, it dropped its aid levels and began to accept assistance from non-​socialist states for the first time. By 1989, China had become the world’s largest aid recipient, receiving $2.2 billion that year.43 Japan quickly emerged as China’s largest bilateral aid provider, providing 330 billion yen ($1.4 billion) from 1979 to 1984.44 In 1978, the two countries also signed a “countertrade” agreement whereby China agreed to buy $10 billion in capital goods from Japan between 1978 and 1985 and pay for them by exporting the equivalent value of oil.45 Western nations quickly followed Japan’s example, establishing “compensatory trade” (补偿贸易) in which the Chinese company first imported foreign equipment and machinery while paying later with raw materials. As a sweetener, they offered low-​interest loans and aid projects. As Deborah Bräutigam explains: China saw all of these tactics as beneficial for China’s development. Japan and the West could use their modern technologies to exploit natural resources that Chinese technology could not yet unlock. China could pay for this investment later, with the resources that were uncovered. The subsidies

Learning China’s History Lessons  25 and aid used by the West and Japan to wrap their naked hunger for China’s markets meant that China was getting a discount on finance the country needed for its modernization.46

In the early 1980s, China began to incorporate similar countertrade agreements in its own aid programs, to swap unpaid debt for equity in former aid projects, and began issuing aid funds directly to Chinese companies to build infrastructure abroad, ensuring, in one official’s phrase, “a friendly project and a friendly price.”47

Using the Market to Serve the Nation In the 1950s, Chinese policymakers deployed the lure of their domestic market to eviscerate the US-​led embargo. This success encouraged a similar effort two decades later. Seeking to erode US constraints on high-​technology exports to China, Deng Xiaoping promised his American hosts in 1979 that expanding economic ties would be “mutually beneficial.” Deng pledged that China would import food products and advanced technology from the United States, paid for by exporting China’s coal, nonferrous and rare metals, and chemical and handicraft products.48 Anxious about the Soviet invasion of Afghanistan, the Reagan administration responded favorably by expanding US high-​tech exports to China, marking the onset of a “golden age” in US-​China–​Japan relations.49 Leveraging market access again proved useful following Beijing’s violent suppression of the June 1989 protests in Tiananmen Square. As China once again found itself targeted by an array of US-​led sanctions, Chinese policymakers returned to an inducement strategy, using the lure of China’s massive domestic market.50 Once again, Japan was among the first to crack. In July 1990, Tokyo promised to resume foreign aid to China, dropped most of its China sanctions, and urged other G-​7 states to follow suit. Deng Xiaoping responded effusively, praising Japan for its timely willingness to “send charcoal in snowy weather” (雪中送炭).51 By expanding its aid to African countries, Beijing also successfully encouraged many of them to ignore the US-​led sanctions.52 This successful use of market leverage and foreign assistance to erode the international sanctions “marked a major success for China’s economic diplomacy,” proclaim Li Wei and Sun Yi.53

26 Orchestration Experiencing China’s market power encouraged strategists’ interest in Hirschman’s explanation of how larger countries gain “vulnerability interdependence” over smaller states.54 Chang and Cheng describe “attraction economic power” (吸引性经济权) in similar fashion: “the use of incentives and the established structure of interests to increase the dependence of other international actors, thus providing economic benefits in order to influence other actors’ actions.”55 They add: Offering incentives does not mean simply giving things away. When a country’s actions conflict with China’s national interests or policies, we can use our economic power to intervene and influence others’ choices. China can adjust its regulations over market access as a pointed economic incentive to encourage foreign companies or countries to shift in ways beneficial for China’s national interests.56

Xue Benhui and Wang Li explain that Taiwan’s “economic marginalization” due to its dependence upon China “provides an opportunity for economic sanctions” and creates a “bargaining chip” for Beijing.57 Junhua Wu similarly extols the “psychological impact” of Beijing’s “economic achievements” in enhancing Japan’s relative trade dependence upon China.58 As Zhang Xiangzhen explains: The attractiveness of our country’s domestic market is our most valuable bargaining chip, but this economic card is not easy to play. Above all, we have to expand the positive contribution of our imports to the economic development and consumption levels of the people [in the target country]. At the same time, by deploying other diplomatic chips, we can engage in an ‘exchange of interests’ [利益兑换].59

In sum, China’s modern history bequeathed powerful lessons for Chinese strategists on the potential leverage derived from economic dependence, the strategic utility of foreign aid, and the power generated from China’s vast domestic market. These history lessons soon began to shape strategic thinking on economic statecraft.

Learning China’s History Lessons  27

Turning Wealth into Power Chinese academic discussions of “economic diplomacy” (经济外交) emerged in the mid-​1980s.60 By the 1990s, China’s Japan scholars brought the term into the academic mainstream, cautiously praising Japan’s pre-​ 1972  “people-​to-​people economic diplomacy” toward China, and Japan’s post-​WWII strategic use of foreign aid to Southeast Asia.61 The concept received official endorsement at the August 2004 National Working Meeting on Economic Diplomacy toward Developing Countries, as Premier Wen Jiabao lauded economic diplomacy as a “win-​win” (双赢) mode of foreign policy.62 In his March 5, 2005, Annual Work Report to the People’s Congress and in an August 2005 meeting of Chinese embassy representatives, Wen reiterated the importance of economic diplomacy in China’s foreign policy, firmly establishing the concept in China’s political lexicon.63 Chinese definitions of “economic diplomacy” (经济外交) generally include the use of diplomatic resources to advance China’s economic interests and using economic resources to advance foreign policy objectives:  two distinct concepts in most Western scholarship—​including this study.64 For instance, Song Guoyou characterizes economic diplomacy as “economics and foreign policy advancing each other,” while Zhang Xiaotong envisions “mutual conversion between wealth and power” (财富与权力相互转化).65 Zhang uses the term “economic statecraft” (经济外交术) in terms parallel to this study: “using economic means to advance foreign policy goals.”66 Chang and Cheng use instead “economic power” (经济权力), defined as “a country using economic resources to influence external actors’ actions or their policies.”67 Li Wei similarly defines China’s “financial statecraft” as the use of financial resources to advance foreign policy goals.68 Despite varying terminology, the tools are familiar. Chang and Li, for instance, include within “economic diplomacy . . . trade and investment, natural resources, finance, ODA, economic sanctions, international economic institutions, and other resources.”69 Commonly cited examples include sanctions, foreign aid, free trade agreements, infrastructure projects, high-​speed rail, and RMB internationalization.70 While reflecting China’s diverse historical experience, Chinese conceptions of economic statecraft remain grounded in pragmatic Realism. Assuming the fungibility of economic resources, experts fume over Beijing’s failures “to turn our strengths into results.”71 Beijing’s inability to counter US pressure on RMB exchange rates in the early 2000s, for instance, revealed

28 Orchestration that China’s economic statecraft remained “immature . . . insufficient to protect our national interests.”72 As Zhao Kejin insisted in the Party School’s Study Times in 2010: “China’s economic advantage has not been translated into strategic advantage. We still lack a diplomatic strategy that focuses on increasing our international political influence—​this is a very urgent task.”73 “Six years of the ‘Go Out’ policy has enabled China to accumulate a great deal of strategic capital,” Zhang Shuguang urges. “We should more actively use economic measures to achieve our strategic and political goals.”74 “As China’s economic strength increases, economic statecraft is assuming ever greater significance within China’s overall foreign policy,” former ambassador Ye Hao explains. “China today absolutely has the capacity to develop a comprehensive strategy deploying economic resources to enhance the power of our global foreign policy and bolster our international influence.”75 “Although China pursues mutual benefit,” a leading military scholar insists, “the primary obligation of economic statecraft is to ensure that China maintains preferential access (自身优势) to strategic resources.”76 As Yan Xuetong, a leading Realist, announced in 2014: In the future, China will decisively favor those who side with it with economic benefits and even security protections. On the contrary, those who are hostile to China will face much more sustained policies of sanctions and isolation.77

Amidst the inevitable diversity of perspectives are three common assumptions, to which we now turn: confidence that economic resources can be deployed for both strategic leverage and reassurance; faith that economic statecraft can concurrently benefit both China and recipient countries; and a belief that the interests of Chinese enterprises can be neatly aligned with Beijing’s foreign policy goals. Encouraged by their historical successes, Chinese strategists remain largely unconcerned by the obvious tensions within, and across, these three assumptions.

Buying Trust Drawing on Mao’s diplomatic successes of the 1960s, Chinese strategists widely presume that economic statecraft can help ease anxieties amidst China’s rise. Chen Demin explains:  “economic diplomacy enables China

Learning China’s History Lessons  29 to adopt ‘non-​ confrontation’ (非对抗) foreign policies,” thus reducing “conflicts of interest.”78 Similar to “cultural” and “multilateral” diplomacy, economic diplomacy can augment China’s “soft power.”79 By easing regional anxieties, it also supports the Hu-​Wen regional policy of “view neighbors positively; treat neighbors as partners” (与邻为善, 以邻为伴).80 As a 2010 editorial notes:  “having friends is the foundation for building our great power foreign policy; if we have friends, then we will have a positive international environment.”81 While agreeing that economic diplomacy can promote “friendship” (友谊) between China and its neighbors, Wang Lijuan insists that economic tools concurrently offer strategic leverage.82 China’s economic statecraft toward the Philippines, for instance, can “peacefully secure access to natural resources and other key factors of production” while simultaneously easing diplomatic tensions.83 Zhang Shuguang calls for deploying economic “weapons” (武器) against major powers while offering incentives toward smaller, weaker states.84 Fu Xiaoqiang, a scholar affiliated with the Ministry of State Security, explains that “certain acts by the US . . . have created a situation in which neighboring countries rely on China economically, but on the US for security. We plan to use our economic strength in order to break this stalemate.”85 These experts appear unconcerned with the likelihood of such economic pressure undermining Beijing’s reassurance efforts.

Doing Good While Doing Well Chinese policymakers and experts also rarely see a tension between helping China and helping recipients. For some, Japan’s post-​WWII infrastructure support and strategic use of aid to promote its exports and investments into China and Southeast Asia offer a model for how to “promote the mutual development of donor and recipient countries.”86 Diplomats similarly praise the United States’ Marshall Plan and Japan’s strategic use of postwar reparations.87 These historical examples encourage policymakers’ confidence in strategic foreign aid. As Minister of Commerce Chen Deming explains, China’s foreign aid helps recipients and promotes economic cooperation, while enhancing Chinese firms’ “international competitiveness.”88 For instance, development assistance bolsters China’s Belt and Road Initiative (BRI) by making projects more attractive to recipient countries while facilitating Chinese companies’ entry into overseas markets.89 Ding Xueliang thus

30 Orchestration insists that China’s aid recipients should be required to purchase Chinese products or ensure other economic benefits for China.90 Experts argue that China’s economic statecraft can benefit overseas recipients while also addressing Chinese problems such as industrial overcapacity.91 Zhu Feng sees one of the main tasks of China’s economic diplomacy as “fostering favorable conditions overseas for China’s domestic industrial development and economic transformation,” an argument echoed by NDRC Vice-​Chairman Hu Zucai and by Ding Yifan, Vice-​Director of the State Council’s World Economics Research Institute.92 Cui Shaozhong agrees that a major task for China’s economic diplomacy is to improve the political environment for Chinese investment abroad.93 Given this alluring possibility of advancing multiple policy goals, such arguments have attracted leaders’ support. In 2004, President Hu Jintao praised economic diplomacy as augmenting Beijing’s strategy of “attracting in [foreign investment] and sending out [Chinese companies]” (引进来和走出去).94 A  decade later, Foreign Minister Wang Yi pledged:  “We will vigorously pursue economic diplomacy, deepen win-​win cooperation with other countries and create more favorable conditions for the transformation and upgrading of China’s economy.”95 Designing and deploying economic statecraft techniques that advance both Chinese and recipients’ economic interests, and that exert strategic leverage while still reassuring nervous neighbors, is already a daunting task. It appears nearly impossible when we recall that most economic statecraft is carried out by commercial actors. For most Western analysts, tensions between commercial actors’ pursuit of profit and the state’s diplomatic objectives represent a considerable—​perhaps insurmountable—​obstacle. Yet for Chinese strategists armed with the confidence of history, such tensions elicit few concerns.

Enterprises as the “East Wind” Official Chinese descriptions of economic statecraft downplay potential contradictions between corporate priorities and foreign policy objectives. A rosy image of seamless government-​business cooperation emerges, for instance, from a 2013 Xinhua article re-​posted on the central government’s official website. Top leaders, it explains, “are the preeminent representatives of China’s economic diplomacy . . . behind Chinese leaders are the beneficiaries

Learning China’s History Lessons  31 of China’s economic diplomacy: leading firms and sectors.” Grounded in the confidence that “the world needs China’s experience, technology, and capital,” China uses “the logic of the market” to expand ties abroad. “Enterprises are like an ‘East Wind.’ They are the most important starting point for China’s economic diplomacy and the most important entities for implementation.”96 Chinese experts generally share this presumption that government officials and Chinese companies enjoy common interests. “The main reason China’s economic diplomacy has been so successful,” Fu Yunwei explains, “has been China’s rapid economic growth, and the close overlap between politics and economics within China.”97 Xue Lei describes diplomat–​corporate ties as a “relationship of mutual support and mutual dependence.”98 Close business-​ government cooperation, six leading scholars conclude, are at the “core” of China’s “unique model of economic diplomacy.”99

Justifying China’s Economic Statecraft Chinese strategists might believe in the effectiveness of their ambitious approach to economic statecraft, but how do they justify it? In China, where ideological and/​or moral rationalizations accompany any major policy thrust, developing a coherent justification for Beijing’s pragmatic, self-​interested economic statecraft is essential. Three interlocking moral claims, reflecting China’s collective identity and historical experiences, stand out.

Skepticism of the West Chinese experts’ justification for their country’s pursuit of “mutual benefits” through foreign aid is grounded in their Realist-​derived skepticism about why countries give assistance.100 They repeatedly cite Hans Morganthau’s 1962 argument that national interests drive foreign aid decisions.101 “From the perspective of Realism,” Tian Dewen explains, “foreign aid is an act of exchange between a donor country and a recipient country . . . we must pay particular attention to how aid policy advances the national interests of the donor country.”102 Commerce Ministry (MOFCOM) researchers add: For major powers, aid is an important foreign policy tool. While promoting the social and economic development of recipient countries, it also serves

32 Orchestration the national interests of the donor country . . . it always has as its primary goal promoting the donor country’s economy, and particularly promoting the donor country’s exports and supporting private companies’ investments abroad.103

Hu Zaiyong contrasts Western countries’ surreptitious pursuit of “political goals” through “unconditional foreign aid” with China’s more straightforward and transparent “mutual benefits” approach.104 “Western donors,” Ding and Yang argue, “provide foreign aid with specific strategic, political, economic, and humanitarian objectives. To achieve these goals, donors set additional conditions to directly influence the countries in need of aid.”105 A conference report puts it bluntly: the West uses aid as “a tool of economic, political and military control over recipient countries.”106 For China, the historical lessons are two-​fold: as a recipient country, avoid dependence; as a donor, Beijing must ensure that its foreign aid advances its own diplomatic interests.107 Chinese perspectives are widely supported by international scholarship documenting how aid flows reflect donors’ economic, strategic, and ideological interests.108 US aid, for instance, targets strategically important states, while France and Australia overwhelmingly give to their former colonies.109 Even Sweden’s aid correlates more closely with its trade relations than humanitarian needs.110 Domestic interests, a growing “securitization” of foreign aid, and the “aid industry” are also key drivers.111 As one quantitative study concludes: “OECD members have little humanitarian motivation for aid giving.”112

China as a Developing Country In China, aligning new policies with established ideology eases dramatic policy changes. When Deng Xiaoping was looking to shift foreign aid from socialist solidarity toward economic pragmatism, he thus turned to the first of Zhou Enlai’s 1954 Five Principles of Peaceful Coexistence, “equality and mutual benefit,” informing a 1974 Politburo working group: “we must ensure that both the donor and the recipient country can receive benefits.”113 Proving useful, the rhetoric has endured. In 1982, Premier Zhao Ziyang told his African hosts that China would continue to prioritize “equality and mutual benefit,” explaining “it is precisely because we have difficulties that we

Learning China’s History Lessons  33 urgently need mutual help.”114 China’s 2006 Africa White Paper used the phrases “mutual” or “mutually” twenty times in eleven pages.115 “What stands out,” notes Julia Strauss, “is how consistent the dissemination of this discourse has been over the last half-​century; flexible enough to continue to frame changing content and even accommodate quite radical changes in policy direction.”116 The phrasing also enables China to claim the moral high ground. As Zhai Dongsheng insists: “The Chinese government and the Chinese people do not need to look down on aid recipients, using a ‘master’ perspective to understand aid recipient countries and citizens. Our national perspective is one of equality . . . the relationship is one of equality and of practical mutual benefit.”117 Beijing’s pragmatic egalitarianism is grounded in China’s collective identity as a developing country; in Zhou Enlai’s memorable phrase: “poor friends in the same boat, rowing together.”118 “China is the world’s largest developing country,” the 2014 ODA White Paper explained, and so “it has endeavored to integrate the interests of the Chinese people with people of other countries, providing assistance to the best of its ability to other developing countries.”119 The previous year, Foreign Minister Wang Yi insisted: “China is still a developing country; this remains a distinctive and guiding element in our foreign policy.”120 Xi Jinping reiterated in October 2017: “China’s international status as the world’s largest developing country has not changed.”121

It’s the Economy . . . Drawing on China’s own experience, policymakers also insist that aid should prioritize economic growth, and that promoting trade and investment is often more effective than simply providing aid.122 As Ex-​Im Bank President Li Rougu told the 2007 World Economic Forum:  “The solution to all kinds of development challenges is to have economically sustainable growth . . . .Everything should be focused on development, which is the overriding need.”123 Experts such as Mao Xiaojing insist that China’s combination of aid, trade, and investment has fostered sustained economic growth in developing countries over the past decade.124 Win-​win is possible, agrees Zhang Cuizhen. “The empirical results prove that China’s aid to Africa is beneficial to both sides.”125 In aggregate, skepticism toward Western morality claims, self-​ identification of China as a developing country, and belief in the centrality of

34 Orchestration economic growth provide a moral underpinning for China’s economic statecraft. Grounded in Realist assumptions and underpinned by faith in the potential for state–​corporate collaboration, these collective beliefs encourage Chinese strategists in their ambitious pursuit of economic, strategic, and diplomatic objectives through economic statecraft.

Minor Problems and Modest Solutions One of the most powerful effects of collective beliefs is in shaping how analysts identify problems and devise solutions. In this case, Chinese experts define enterprise malfeasance, bureaucratic competition, and aid recipients’ ingratitude for Chinese assistance as minor problems requiring only limited adjustments. Proposing practical, modest solutions reinforces strategists’ confidence and their underlying belief system.

Enterprise Malfeasance Many Chinese experts recognize that Chinese firms’ aggressive commercial expansion has fed anxiety and animosity abroad, as the Myanmar chapter demonstrates. Yet instead of indicating the need for structural changes such as sharper state–​corporate distinctions, to most experts enterprise malfeasance requires more government involvement. Xue Lei insists:  “Chinese diplomats should provide information, communication, and help with concerns that these companies face, trying to reduce tensions between Chinese companies and the local community.” He expects these strategies will expand China’s access to natural resources while still enhancing China’s diplomatic and strategic environment.126 Experts acknowledge that Beijing’s strategy of delegating responsibility to enterprises encourages them to pursue their own interests. “Special interest groups,” Zhang Shuguang warns, “should stand on the side of long-​term overall national interests, not just advancing their own interests.”127 Zhang Xiaotong explains: “one of the greatest challenges China faces in signing free trade agreements is the strength of opposition or subversion by domestic interest groups, even reaching the point of making it impossible to reach agreements on certain trade deals.”128 Song Guoyu also highlights the risk of “foreign policy being taken over by narrow local economic interests.” Yet his

Learning China’s History Lessons  35 solution is for the central government to expand its support for border provinces promoting cross-​border economic ties.129 China’s aid program has faced similar criticism. “Insufficient attention is paid to local employment or environmental protection,” explain Huang Meibo and Liu Ailan. “This has a definite, negative impact upon China’s international image.” Their answer is for Beijing to “soften” (弱化) its aid by funding social welfare, not just infrastructure construction.130 Tan Haojun warns: “the countries we help don’t necessarily feel close to us. Also, China’s investment or other assistance often becomes politicized within the recipient country.” Yet he insists that Chinese companies can and should continue to benefit from aid projects “as long as they are delivering real benefits to the local people.”131 Unlike Japan’s revamping of its aid program in the 1990s, there is no serious questioning of China’s “mutual benefits” approach to aid.

Bureaucratic Restructuring Chinese experts also worry about bureaucratic in-​fighting. He Maocun warns that involving too many agencies renders China’s economic diplomacy “out of touch and prevaricating” (脱节和推诿).132 Zhang Xiaotong, with two colleagues, bemoans:  “even with China’s abundant power resources and shrewd strategic deployment of those resources, we still are not achieving our desired outcomes. To explain why, we must look inside our domestic processes.” The “losses” (损耗) in transforming wealth into influence result from “competition among different domestic interest groups, which is growing fiercer by the day. Different government departments have their own perspectives, interests, and priorities.” Yet, instead of urging sharper state–​corporate distinctions, they call for a more active central state role, including tighter collaboration with firms and regional officials.133 Elsewhere, Zhang extends these arguments: To realize the full exercise of power, we must strengthen our internal coordination, reducing internal losses while cleverly using our foreign policy strength, effectively combining politics and economics through closer coordination among different economic actors.134

Bureaucratic restructuring thus represents an alluring policy response. In 2012, Li Wei called for a new supra-​ministerial body focused on economic

36 Orchestration diplomacy to coordinate across ministry-​level entities, provide policy advice to top leaders, and centralize policy design and implementation. This new institution, he concludes, would bolster leaders’ influence over economic diplomacy while “limiting the interference of departmental interest groups over macro-​level, strategic foreign policy.”135 Experts’ advice was soon reflected in Beijing’s massive bureaucratic restructuring announced in March 2018.136 Yet there were no prominent calls for more thoroughgoing changes in China’s approach to economic statecraft.

Conclusion China’s surge into global pre-​eminence, alongside dramatic changes in domestic governance structures and practices, has enabled the Communist Party to defy countless predictions of its imminent demise. Overcoming such daunting obstacles would give any political elite confidence in their capacity to deploy economic resources abroad in strategic fashion. Chinese experts and policymakers thus share (a)  a broad confidence that economic resources can be deployed for strategic leverage and for reassurance; (b) faith that economic statecraft can be deployed in ways that advantage both China and the recipient country; and (c)  a belief that the Party-​state can and should mobilize commercial actors to advance Beijing’s foreign policy goals. Most remarkable of all is their lack of concern with the obvious tensions within and across these three concepts. Underpinning this confidence is a set of moral justifications grounded in skepticism toward Western claims of morality, identification of China as a developing country, and faith in the overriding significance of economic growth for all countries. The strength and breadth of these collective beliefs derive from lessons learned from China’s historical experiences. They encourage Beijing’s ambitious pursuit of multiple goals and its reliance upon a diverse set of domestic actors, creating the conditions for China’s orchestration approach to economic statecraft, to which we now turn.

2 Orchestrating China’s Economic Statecraft China has established a comprehensive structure for economic diplomacy. This system ensures that China’s economic resources are not divided up or wasted, but instead are used to advance China’s overall foreign policy and national interests; and ensures that China’s economic and diplomatic interests are both advanced at the same time.1 ​Li Wei and Sun Yi

This book’s core premise is that domestic ideas and institutions exert a powerful influence upon how a country engages in economic statecraft. The preceding chapter explored how China’s history as a target and practitioner of economic statecraft encouraged strategists’ confidence that economic resources can be deployed for strategic leverage and for reassurance; a faith that economic statecraft can be deployed in ways that advantage both China and the recipient country; and the belief that the Party-​state can and should mobilize commercial actors to advance Beijing’s foreign policy goals. To these ideas, this chapter adds a second explanation for China’s orchestration approach to economic statecraft: institutional structures. China’s unique experience as a planned economy followed by a development state, all under a single Leninist party, left Chinese leaders with unchallenged political authority over their burgeoning domestic economy. State ownership of the “commanding heights” of China’s industrial and financial sectors, overseen by powerful economic agencies, Party oversight mechanisms, and ambitious regional officials, encouraged Chinese leaders to adopt an ambitious approach to economic statecraft. Yet this combination of ambition and power creates new challenges. Having to coordinate across China’s vast political-​economic complex, seeking to mobilize a broad array of domestic actors to advance multiple policy goals, is devilishly difficult.

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38 Orchestration Beijing’s predominant solution is orchestration: identifying affine agents and then encouraging these agents to act in ways that simultaneously advance both policymakers’ and their own goals—​as this chapter’s epigram by two leading scholars suggests. Beijing’s innovative orchestration approach integrates three core techniques. First, China’s “nested” orchestration combines direct action with delegation and orchestration. Top leaders implement some economic statecraft initiatives, while delegating authority to line ministries and government agencies. In turn, these agencies deploy orchestration techniques to mobilize and manage financial institutions, enterprises, and regional authorities. Second, line ministries and financial institutions establish policy initiatives and investment funds that reward companies and regional officials for developing innovative projects. The Belt and Road Initiative, described below, is the latest and largest manifestation of this technique. Finally, Beijing also relies upon economic statecraft techniques designed to facilitate interest alignment among the implementing actors. As a result, China’s economic statecraft frequently only requires a light touch. After describing how institutional structures and governance practices shape each technique, this chapter concludes with several weaknesses embedded within Beijing’s approach.

China’s Nested Orchestration Henriksen and Ponte expect that “successful orchestration trajectories [will] entail the use of plural governance tools and a combination of direct and indirect instruments—​together with active participation of the orchestrators themselves.”2 China’s “nested” orchestration reflects this prediction. Top Chinese leaders implement key initiatives themselves, but also delegate authority to ministries and agencies, which in turn deploy orchestration techniques to mobilize an array of domestic actors. At the apex of China’s political power sit the seven members of the CCP’s Political Bureau (or Politburo) Standing Committee. In addition to making all key policy decisions, they directly announce major aid packages and commercial deals, sign trade deals, and restart stalled projects. However, the breadth of central leaders’ authority and ambitions demands that they delegate authority for designing, overseeing, and implementing much of economic statecraft to the following agencies.

Orchestrating China’s Economic Statecraft  39 The Ministry of Commerce (MOFCOM) plays the “core implementing role” for economic statecraft.3 MOFCOM is the “leading” (龙头) agency, He Maocun insists; all others must “follow behind its flag.”4 MOFCOM is responsible for policies on external trade and investment, as well as “guiding and approving” Chinese companies involved in foreign trade and overseas investments.5 MOFCOM oversees China’s foreign aid program and jointly supervises Economic and Commercial Counsellor (ECC) offices based in Chinese embassies.6 The National Development and Reform Commission (NDRC) is responsible for industrial policy and overall economic policy. For economic statecraft, NDRC takes responsibility for approving and overseeing foreign investment projects, while MOFCOM regulates companies involved in the projects. Given its expansive authority, the NDRC is frequently referred to as the “small State Council”; its lucrative allocations are colloquially known as the “pocket budget” (口袋预算).7 The State-​owned Assets Supervision and Administration Commission (SASAC) exercises state ownership over state-​owned enterprises (SOEs).8 The Ministry of Finance (MOF) oversees the financial sector, manages the budget, sets fiscal policy, issues economic regulations, and dominates macroeconomic policies.9 China’s central bank, the People’s Bank of China (PBC) manages currency and monetary policy. It oversees all financial SOEs (including state-​owned banks), thus playing an equivalent role to SASAC in the financial sector.10 While its declining influence has been widely noted, the Ministry of Foreign Affairs (MOFA) remains a “unique source of analyses and information about the outside world, a major source of proposals on policy options and a privileged channel of foreign-​policy implementation.”11 MOFA has not so much lost power, but rather, as the scope of China’s foreign policy expanded, other actors assumed new roles. In 2012, MOFA responded by creating a new Department of International Economic Affairs (DIEA) (国际经济司) to “enable MOFA to more actively participate in the making of economic diplomacy policy.”12 The crowded and competitive foreign policy domain includes province-​level foreign affairs offices (外事办) and the influential International Liaison Department of the CCP (ILD), which manages party-​to-​party relations, including in North Korea and Myanmar.

40 Orchestration

Delegation: Problems, Solutions, and Their Limits The preceding structure is designed to maximize ministries’ exclusive authority over discrete policy areas. However, economic statecraft’s cross-​ functional nature means that numerous government agencies could potentially be involved in any policy initiative. In addition to the agencies listed above, an effort to expand China’s investment, trade, and infrastructure projects with just one of China’s smaller neighbors could also involve a number of functional agencies. The difficulty in coordinating across so many agencies, each with distinct interests and power bases, is exacerbated when ministerial priorities diverge. For instance, while MOFA may suggest offering generous trade terms for diplomatic purposes, MOFCOM remains the lead agency for trade agreements. Meanwhile, NDRC is reportedly reluctant to expand market access for foreign competitors while MOF is loath to agree to tax incentives (including tariff reductions) that might undermine China’s fiscal position.13 MOFA is generally seen as a minor player in such negotiations, increasing the difficulty of Beijing using trade deals for diplomatic purposes. A second coordination challenge is that ministries’ subordinate entities at the province and city level have allegiances both vertically upward (to their bureaucratic superiors) and horizontally—​to the province or city-​level leadership: a complex structure described in Chinese as 条条块块.14 These province and city-​level agencies play particularly active roles in China’s border provinces. Yunnan’s NDRC, for instance, represents China within the Mekong River Association.15 To meet such challenges, Chinese leaders rely upon coordination and oversight mechanisms. High-​level coordination on economic statecraft occurs primarily through the State Council, which brings together 20 ministerial heads, the chairmen of three ministerial-​level commissions, the PBC governor, and the head of the National Audit Office.16 However, this structure also enables agencies to influence top-​level policymakers, and thus facilitates fierce lobbying. When top leaders issue a specific policy decision, the State Council Executive Committee generally establishes a cross-​departmental task force and allocates lead responsibility. Ministries are then empowered to draft and issue specific policies, though considerable leeway for creative implementation remains.17 Yet most policy initiatives emerge from one ministry’s section (司). The draft policy is then “circled for signatures” (回签), seeking support from relevant agencies, with coordination via a

Orchestrating China’s Economic Statecraft  41 “consultation network” (互建网络). If no major objections emerge, the initiating ministry generally issues the regulation (条例); multiple issuing agencies may appear if signaling broad support is deemed necessary.18 The most powerful set of oversight mechanisms are within the Party. Structurally distinct from the state, Party agencies derive their authority directly from the CCP’s Central Committee. As the government’s primary accounting agency, the Party’s National Audit Office (NAO; 审计署) has the right to inspect all SOEs and government ministries for irregularities. Its leader sits on the State Council and reports directly to the Premier.19 NAO inspection work in uncovering financial irregularities often provides the materials for investigations by the Party’s Central Commission for Discipline Inspection (CCDI; 中纪委).20 CCDI has emerged as the leading vehicle for Xi Jinping’s anti-​corruption campaign, becoming one of China’s most powerful institutions. Yet, as Kjeld Erik Brødsgaard argues: The key factor that holds the Chinese system together and makes it work both in government and business appears to be personnel control. By wielding personnel control, the Party maintains the balance of power between the Party-​state and Chinese big business. The nomenklatura system prevents business leaders from successfully challenging Party rule and helps to ensure that the achievements and the continued growth of the business sector will benefit the Party and contribute to regime stability.21

Indeed, the CEOs of China’s 53 largest SOEs, which enjoy equivalent ranks with State Council ministers and province governors, are appointed directly by the Party Central Committee’s Organization Department (组织部). While SASAC nominally holds joint responsibility for all other CEO evaluations and appointments, the Organization Department retains final authority.22 In sum, Chinese policymakers seek to mitigate problems with indirect governance by directly implementing economic statecraft, delegating authority to line ministries, and through coordination and oversight mechanisms. However, the “governor’s dilemma”—​the trade-​off between agent competence and leaders’ control—​remains. Offering exclusive authority over a given area increases ministries’ competence but also bolsters their autonomy. Moreover, ministries do not invest, lend, or trade abroad; nor do they build roads or railways. To mobilize and monitor commercial actors in implementing economic statecraft, ministries rely upon orchestration techniques.

42 Orchestration

Orchestrating Engagement For lifelong communists, Chinese leaders retain a remarkable clarity as to the most effective way to motivate enterprises: money. In repeated interviews, MOFCOM officials insisted: “the government has no real ability to direct investment.”23 “The banks have to make their own decisions about whether they will support a given project,” one MOFCOM official told me. “This is largely based upon a commercial assessment about risk and profits.”24 In fact, a key reason that China’s banking system has not been privatized is so the state can direct capital flows toward politically desired projects and politically compliant enterprises. As Heep explains, the “high degree of control over the domestic financial system . . . has allowed the authorities to control the allocation of the country’s financial resources and to channel them into sectors and companies that are considered strategically important.”25 In some instances, the PBC (China’s central bank) will openly demand that banks lend funds to support a policy initiative. In 2009, for instance, the PBC along with the banking, insurance, and securities regulators declared:  “to support the NOCs’ [national oil companies] overseas expansion, China’s financial institutions are required to give credit and foreign exchange support to aid firms investing in strategic resources in foreign markets, carrying out foreign resource exploration and production, or transferring China’s surplus productivities and ripe technologies.”26 Chinese banks take such demands seriously. As one scholar explained privately: “even if a project is commercially risky, the banks might still consider supporting it if the politics involved are important.”27 A government researcher told me that policy banks are expected to “consider” (考虑) and “support” (配合) government policy:  “otherwise they could have some trouble.” For instance, banks may offer favorable terms on project loans aligned with an important government initiative.28 Beijing relies upon structured competition to direct the financial flows of its sovereign wealth funds, policy banks, and commercial banks, thus balancing between control and competence. The establishment of China’s first major sovereign wealth fund under the PBC, the State Administration of Foreign Exchange (SAFE), reflects this effort. All Chinese banks must clear their foreign exchanges and convert all foreign currency to RMB through SAFE, leaving SAFE in control of most of China’s $3 trillion in foreign currency reserves, much of which SAFE invested into government bonds

Orchestrating China’s Economic Statecraft  43 overseas.29 Reportedly dissatisfied with SAFE’s conservative investment strategy and seeking a share of these resources, in 2007 MOF led the charge to create a new sovereign wealth fund, the China Investment Corporation (CIC).30 Beijing relies upon competition between the two funds to bolster central-​level authority, explain Eaton and Zhang.31 Two policy banks dominate economic statecraft:  the China Development Bank (CDB) and the Export-​Import Bank (Ex-​Im Bank). CDB plays a crucial role in financing infrastructure and energy projects in China and abroad, and in backing Chinese firms’ overseas acquisitions. Ex-​Im Bank provides a range of trade subsidies for Chinese firms and funds the subsidized loans in China’s aid program. As policy banks, they receive budgetary transfers from MOF in exchange for providing financial support for firms and projects that advance China’s national policy objectives.32 Initiatives to turn them into commercial banks were blocked in 2008 and 2010, reflecting the leadership’s determination to retain control over its policy banks amidst global financial uncertainty.33 As one expert explained to me: In reality, the policy banks want to make profits. It is good for them: they have more money to play with. For instance, they can offer higher salaries to retain valued staff. The banks thus play ‘edge-​ball’ [擦边球; hitting the ping-​pong ball on the table’s edge] striving to make money while also advancing government policy. CDB is particularly good at this.34

Like policy banks, China’s commercial banks are also owned by the state and subject to state regulations. They benefit from government policies and capital provision, though they face stronger profitability expectations. The four largest commercial banks are the Bank of China (BOC), the China Construction Bank (CCB), the Agricultural Bank of China (ABC), and the Industrial and Commercial Bank of China (ICBC). To maximize the capital collected in these institutions, Beijing turned to the market. In 1999, MOF allowed the “Big Four,” along with the PBC and CDB, to first transfer their massive nonperforming loans to four new asset management corporations, and then list on international stock markets.35 BOC’s 2006 initial public offering (IPO) was the largest IPO in London, New York, or Tokyo for the previous six years. ICBC’s subsequent IPO raised $22 billion, the largest capital collection to date.36 By 2017, the world’s two largest banks were Chinese state-​owned banks.37 The nation’s leading foreign currency lender, CDB,

44 Orchestration soon controlled more assets than the World Bank and Asia Development Bank combined.38 From 2002 to 2012, Ex-​Im Bank’s loans to sub-​Saharan Africa vastly surpassed funds lent by the World Bank.39 In 2017, CIC was ranked as the world’s third largest sovereign wealth fund, with $813 billion, with SAFE ranked twelfth with $441 billion in assets.40 Yet, as Victor Shih explains, “the domination of the state in the financial sector continues beneath a series of cosmetic changes.”41 Like the financial sector, Beijing relies upon structured competition among SOEs to maximize both control and competence. The first step was sectorial consolidation. In 2003, Premier Zhu Rongji spearheaded the effort to “seize the big and drop the small” (抓大放小); anointing the remaining 121 SOEs as “national champions.”42 By 2006, as Barry Naughton explained, “government ownership in the economy has stabilized. A tier of large, centrally government-​controlled firms has been demarcated and a rationale for continued public ownership articulated.”43 Like the banks, SOEs were then permitted to list on international stock markets. By 2015, three Chinese SOEs made Fortune’s top ten:  Sinopec (2nd), China National Petroleum (CNPC) (4th) and State Grid (7th).44 Of the 98 Chinese companies in the 2015 Fortune Global 500 list, three-​quarters are SOEs. China’s 20 largest outward investors, generating 92 percent of outbound investments, are all state-​owned.45 SOEs’ policy role has grown under Xi Jinping. The Party’s 2014 3rd Plenum Statement declared: “Owned by the whole people, SOEs are an important force for advancing national modernization and protecting the common interests of the people.” It insists: We must unswervingly consolidate and develop the public economy, persist in the dominant position of public ownership, give full play to the leading role of the state-​owned sector, and continuously increase its vitality, controlling force and influence.46

Indeed, a key objective of Xi’s anti-​corruption campaign is to strengthen state control over SOEs.47 Beijing’s orchestration strategy encourages financial institutions to compete with each other in lending to SOEs, who in turn compete to implement lucrative overseas projects aligned with central-​level policy objectives. National-​level SOEs are thus often the lead investors in Chinese projects overseas, either using the enterprises’ own funds and/​or drawing upon a

Orchestrating China’s Economic Statecraft  45 Chinese bank loan. SOEs also implement Beijing’s “purchasing diplomacy,” such as purchasing Airbus planes at politically useful moments or building infrastructure funded by China’s foreign aid budget. SOEs are thus expected to balance commercial and political objectives. One SOE staff member told me: “Most important is to protect and develop state assets. If you defied a direct political request, that would be a problem, but otherwise, economic performance is most important.”48 A Sinosure employee weighed the balance differently: Profit is not so important to us. If we minimize losses (少亏), then the government is happy. But we are mostly supposed to be implementing national policies. That is essential—​especially if the bosses want to advance. At the end of the year, they will be evaluated based upon how well they implemented the key national policies of that year.49

National-​level SOEs also have numerous province and city-​level affiliates, many having been absorbed into their massive “groups” (集团) amidst previous consolidation campaigns. These regional affiliates, along with province and city-​level SOEs, are more closely connected to regional officials, whom they rely upon for political support—​including easy access to state-​backed capital. Central control is looser at this level, encouraging more creativity and ambition. Such local firms are often the vanguard for China’s economic engagement, particularly in developing countries on China’s periphery. They have the local knowledge, flexibility, and relationships necessary to conduct business in difficult environments, and can operate small-​scale operations with low profit margins. Once they establish a presence, national-​level SOEs may join their projects, bringing along their capital, high-​level political connections, and distribution networks. As the Myanmar and North Korea cases show, regional officials play a leading role in supporting and encouraging their local firms to “go out,” facilitating China’s rapid economic expansion into developing countries. At the base of this power pyramid sit China’s nine million private firms, producing two-​ thirds of China’s GDP and employing nearly 90  percent of Chinese workers.50 Their ambition and creativity enable Chinese policymakers to rapidly bolster investment and trade with a particular country, region, or sector—​a key part of Beijing’s economic statecraft. While policymakers retain an array of formal and informal political, legal, and

46 Orchestration financial control mechanisms over private firms, they rely heavily upon financial incentives to influence firms’ behavior—​an orchestration tactic at the heart of Beijing’s massive Belt and Road Initiative (BRI).

Orchestration Along the Belt and Road The second core technique of China’s orchestration is creating massive investment funds that lend to Chinese firms, which in turn invest in major infrastructure projects overseas. Presented under the rubric of “development,” these initiatives operate like tournaments, offering lucrative prizes to eager enterprises for implementing projects in line with foreign policy goals. Reflecting traditional CCP tactics of encouraging local experiments before picking winners, this tactic fosters competition among agents while strengthening policymakers’ authority by enhancing information flows, encouraging compliance, and driving down agents’ “inducement price.”51 The first major such initiative was the China–​ Africa Development Fund, begun in 2007 with $1 billion in CDB funding. Three years later, the China–​ASEAN Investment Cooperation Fund was established with $1 billion, largely from Ex-​Im Bank.52 Another $10 billion was been set aside to fund projects under the China and Central and Eastern European Countries (CEEC) initiative (see Chapter 4). The BRI is the latest and largest manifestation of this technique. The BRI is designed to encourage regional governments, SOEs, and financial institutions to design, promote, fund, and implement large infrastructure projects in China’s border regions and overseas. To attract eager participation without requiring extensive oversight or coordination, the BRI relies upon encouraging domestic actors to develop new infrastructure projects or rebrand existing projects while setting few limits on project scale, location, type, or time frame. This helps explain why the program has expanded so rapidly, moving beyond its initial vague geographical focus and incorporating a diverse array of projects and initiatives that are domestically oriented, existed well before 2013, and/​or demonstrate only loose connections to the BRI’s nebulous nominal goals. At the highest level, associating the BRI with Xi Jinping’s personal prestige helps limit bureaucratic resistance while increasing domestic actors’ confidence in the initiative’s durability and likely rewards.53 To further signal unified leadership support for the BRI and ensure coherent messaging, the

Orchestrating China’s Economic Statecraft  47 BRI Leading Small Group (LSG), established in March 2015, brings together key Politburo Standing Committee members.54 A coordinating “BRI Office” was established within the NDRC, with subordinate leadership roles allocated to MOFCOM and MOFA.55 The BRI Office began to issue a series of vague “action plans,” allocating the BRI brand to an array of well-​established initiatives, including investment, connectivity standards, China–​ Europe 56 freight trains, and even sports tourism. The only other new institutional mechanism developed to implement the BRI has been the Silk Road Fund (SRF). The SRF enables powerful bureaucratic actors to pursue their own institutional interests while also advancing central-​level policy goals—​most importantly, the PBC. China’s central bank provided $6.5 billion of the SRF’s initial $10 billion total in authorized capital through SAFE.57 The SRF helps the PBC shift China’s foreign currency reserves’ investments away from low-​yield government bonds. “Some of these reserves,” the SRF website explains, “are needed for the ‘go global’ effort. A major part of the Fund’s work is to make good use of China’s foreign reserves.”58 Aside from these entities, no other new institutional structures have emerged to drive the BRI forward. Instead, financial institutions, SOEs, and regional governments were encouraged to rebrand their existing projects or propose new projects that could plausibly fit under the BRI’s broad umbrella, even though many projects are domestically oriented, predate the 2013 announcement, and demonstrate only loose linkages with the vague BRI goals. Rather than revealing a loss of control, this was intentional. As the BRI Office’s 2017 vision document explains: “To turn the concept into reality, relevant departments, with the authorization of the Chinese government, issued” their individual BRI plans in 2015. These were amalgamated into the 2017 “top-​level design,” resulting in “a grand blueprint for building the Belt and Road.”59 Banks responded by rebranding and developing new initiatives that fit within the BRI’s broad tent while also advancing their own interests, such as overseas lending. By 2016, for the first time, new overseas loans by three of the “big four” commercial banks exceeded their domestic corporate loans.60 They claimed that $66.7 billion of these loans went to BRI projects, even though many BRI-​branded loans, such as CDB funding for the UK’s Hinkley nuclear power station, appear unconstrained by the BRI’s nominal geographic focus.61

48 Orchestration The BRI has also been utilized to promote RMB internationalization, a policy initiative that Chinese banks have eagerly implemented. By mid-​ April 2019, BOC had issued five “Belt and Road” bonds worth $15 billion.62 ICBC issued three “Green Silk Road” bonds the following week worth $2.2 billion.63 The BRI offers banks an opportunity to pursue their institutional interests while still meeting their political obligations. In March 2019, CDB claimed that over $100 billion (34 percent of its international loans) was allocated to BRI countries and projects.64 “Active participation in the BRI,” CDB President Zheng Zhijie explains “is our unshakable responsibility.”65 Yet, as Arthur Kroeber notes, “It costs them little to put out press releases touting their future plans, especially if they have lending projects in the pipeline that can plausibly be rebranded ‘Belt-​and-​Road’.”66 Provincial and city governments have followed a similar tactic, seizing upon the BRI to advance their preferred initiatives.67 Henan province’s BRI plan centers upon extending the province’s road and rail linkages throughout central China, while Hubei created a “BRI International Educational Activities Plan.”68 “Some provinces,” Yu Jie observes, “have begun to form alliances with certain central ministries to bid for project approvals, while other provincial governors and some CEOs of SOEs have taken to bypassing central ministries and communicating directly with the members of the LSG to gain their approvals.”69 Jones and Zeng explain that “BRI was not really a new initiative but rather a scaling up and agglomeration of many existing, bottom-​up projects, typically led by provinces and SOEs.”70 This is probably intentional: domestic propaganda praises the BRI as one of “three great strategies” (三大战略) advancing domestic economic development.71 BRI also facilitates a diverse array of “spin-​on” initiatives. Institutions behind Beidou, China’s satellite-​navigation service, have pledged to first extend coverage to “BRI countries.”72 The branding exercise has even extended to China’s “Polar Silk Road.”73 Rather than revealing a loss of central-​level control, such extensions reflect the BRI’s orchestration strategy. Encouraging domestic institutions to populate the vaguely defined BRI helped Chinese leaders mobilize domestic actors who would advance an array of policy objectives without requiring institutional restructuring or dramatic resource reallocation. The BRI also utilizes the third core technique of Beijing’s orchestration: interest alignment.

Orchestrating China’s Economic Statecraft  49

Aligning Interests: Foreign Aid, Trade, and Sanctions As the introduction chapter explains, Chinese leaders choose certain types of economic statecraft initiatives and design the goals of these initiatives to align with the priorities of implementing actors. Interest alignment eases policymakers’ efforts to mobilize a broad range of domestic agents to help advance their goals at modest cost. Interest alignment also explains one of the most distinctive aspects of China’s economic statecraft: its pursuit of multiple goals through a single initiative. The importance of interest alignment is evident in China’s foreign aid program. Overall authority for the aid program is delegated to one lead ministry—​MOFCOM—​which is responsible for coordinating horizontally among other relevant ministries. MOFCOM also oversees the bidding process in which domestic firms compete to secure contracts for implementing specific aid projects.74 Being empowered to dole out these lucrative “prizes” eases MOFCOM’s oversight obligations—​though problems with enterprise malfeasance and corruption remain, as the North Korea chapter documents. Chinese foreign aid is distinguished by the high percentage of subsidized loans that support large infrastructure projects implemented by Chinese firms.75 MOFCOM certainly benefits from this approach:  in 2014, ODA represented 82 percent of MOFCOM’s budget.76 Despite MOFCOM pledges to shift funding priorities, as of 2016 some 60 percent of China’s concessional loans to Africa still funded infrastructure construction.77 State banks and their oversight agencies benefit from such loan opportunities, while economic agencies such as NDRC and SASAC appreciate SOEs generating income and gaining a foothold in new markets. While most bilateral aid projects are approved and funded through MOFCOM, other ministries, regional authorities, and even companies also fund training programs and provide smaller aid packages directly to recipient countries. Regional governments and line ministries such as Agriculture and Education profit by participating in aid projects, while MOF has few objections, since the state’s fiscal position is not directly affected. MOFA, as Zhang and Smith note, “supports high levels of foreign aid because it enhances China’s relations with other countries, making it easier for MOFA to achieve its political mandate.”78 The result is a high degree of interest alignment throughout China’s massive foreign aid program, securing political support while encouraging eager implementation by a range of powerful domestic actors.

50 Orchestration China’s distinctive approach to sanctions also reflects Beijing’s efforts to facilitate interest alignment among key implementing actors. Deploying sanctions in ways that enable individual consumers, enterprises, economic ministries, and regional authorities to act in ways that they perceive as advancing their own interests is central to China’s orchestration strategy. For example, Beijing’s 2017 restrictions following Seoul’s pursuit of a US-​ backed missile defense system (THAAD) were eagerly taken up by Chinese firms, as the measures effectively excluded Korean competitors for Chinese supermarkets, cosmetic manufacturers, and media companies.79 In contrast, when China’s undeclared sanctions targeting Norwegian salmon entailed tightened inspection measures at four major airports, Chinese salmon importers simply shifted to smaller airports, where they bribed local Customs officials to ignore the restrictions. Local authorities “welcomed the shifting of salmon shipments” as it expanded their tax revenues. Hangzhou airport was particularly efficient “because the shipments are ordered by a state-​ owned import company in Hangzhou City.” Chinese importers also switched origin labels and began trans-​shipping via Vietnam, whose salmon exports to China suddenly soared.80 As the Chinese saying goes: “higher levels have policies, but lower levels have counter-​measures” (上有政策, 下有对策). Today, Chinese sanctions are increasingly designed to advance domestic economic interests. China’s retaliatory trade sanctions imposed amidst the 2019 US–​China trade war were carefully calibrated to support key domestic sectors by raising the costs of US competitors’ prices.81 The contrast with US tariffs on Chinese products—​which hurt US importers, retailers, and consumers, with scant benefits for US producers—​was striking. China also tends to rely upon limited, targeted sanctions designed to exert maximum diplomatic pressure with limited pain for Chinese domestic economic interests. To avoid harming key economic interests, Beijing’s sanctions tend to be limited in both scope and duration. Although Chinese sanctions shaved an estimated 0.4 percentage points off South Korea’s 2017 growth, overall bilateral trade grew by 14 percent in 2017. Beijing also refrained from targeting South Korea’s lucrative semiconductor sector; probably since China still imports 65 percent of its semiconductors and needed South Korean imports for its own production.82 Tourism is a particularly attractive tool for Beijing due to its flexibility and limited impact on China’s economy. For instance, seeking to improve relations with Japan following intense bilateral tensions, in May 2011 Premier Wen Jiabao traveled to Japan in the wake of Japan’s devastating earthquake

Orchestrating China’s Economic Statecraft  51 and tsunami, where he pledged to promote Chinese tourism. In December 2011, Japan’s National Tourism Organization announced that Chinese visitors had increased 35 percent over November 2010, the first increase since March 2011.83 Since China now has the world’s highest number of outbound tourists and the world’s highest level of tourist spending, the economic impact of increasing or decreasing Chinese tourist levels is considerable.84 Another key tactic, targeted trade sanctions, helps minimize the costs to Chinese firms while pressuring foreign firms to lobby their own government on Beijing’s behalf. In March 2019, for instance, Canada’s largest exporter of canola (Richardson International) suddenly lost its permit to sell canola to China amidst a dispute with Canada over its arrest of Chinese executive Meng Wanzhou. Since China bought nearly half (40 percent) of all Canadian canola exports the year before, the impact was considerable.85 Beijing also deployed this strategy toward Japan amidst their 2013 territorial dispute. As Foreign Minister Wang Yi explained at the time: If friends in the Japanese business circle are truly worried and do not want the decline to continue, they should step forward and speak their mind, in an effort to stop behaviors that undermine the relations and trust between China and Japan or even turn back the wheel of history. This is what is really needed to fundamentally preserve the cooperation between our two countries.86

Orchestration techniques rely upon mobilizing a set of domestic actors whose interests are already aligned with Beijing’s policy goals. Encouraging consumer boycotts is a perfect example, as it offers a “release valve” for an angry public while leveraging public anger to advance foreign policy goals.87 In January 2018, for example, Chinese “netizens” discovered that foreign companies were listing Taiwan (and even Tibet) as a separate country on various websites. Marriot Hotels and Delta Airlines, among others, soon found their websites in China blocked until they complied with Beijing’s demands.88 The impact can be considerable. Consumer boycotts of South Korean products caused sales by Hyundai and Kia to fall by 52 percent in March 2017.89 Most countries deploy sanctions to impose high costs upon the target country through sustained economic isolation. Chinese sanctions, in contrast, are often more bark than bite. Beijing uses the threat of sanctions to signal frustration, warning that if a country does not reverse a certain action, stronger repercussions will follow. A gentle touch on the brakes may be

52 Orchestration all it takes to send a powerful signal, with limited cost to Chinese firms. In November 2016, for instance, nine Singaporean military vehicles were briefly retained in Hong Kong following a training exercise in Taiwan, sending a “less than friendly reminder to both Singapore and Taiwan of the One China policy.”90 China’s tourism ministry sent a similar signal in June 2019 amidst the US–​China trade war by urging tourists to “fully assess the risk” from America’s “frequent occurrence of shootings, robberies and theft.”91 In addition to sanctions and foreign aid, the utility of interest alignment is also starkly illustrated by Beijing’s efforts to offer favorable trade deals for diplomatic purposes. As Zhang Xiaotong explains: “one of the greatest challenges China faces in signing free trade agreements is the strength of opposition or subversion by domestic interest groups, even reaching the point of making it impossible to reach agreements on certain trade deals.” In negotiating and signing trade deals, Chinese policymakers must take into consideration “who is opposed to this deal, and how strong are they?”92 For instance, the generous “early harvests” that Beijing proffered to ASEAN under the China–​ASEAN FTA, expanding their access to Chinese markets, required Chinese leaders to assuage provincial leaders’ resentment through side payments—​offering investment capital and greater policy autonomy to Yunnan and Guangxi provinces.93 Without addressing domestic interests, implementation of such favorable trade agreements often proves challenging. For instance, China’s “patronage policy,” which promised to expand Taiwan’s exports to the mainland and support Taiwanese investors, undermined the interests of local officials and state-​owned enterprises. As a result, Taiwanese businesses soon found themselves crowded out of mainland markets. “The rise of economic nationalism and local protectionism,” Taiwanese scholars concluded in 2016, “is undermining and constraining the credibility and sustainability of Beijing’s patronage policy.”94 In sum, Beijing’s three main orchestration techniques—​“nesting” orchestration within delegation, establishing competitive tournaments with lucrative prizes for implementation, and interest alignment—​build upon China’s institutional structures and established governance practices. Yet in describing these orchestration tactics, this chapter risks replicating simplistic images of a seamless Chinese juggernaut inexorably spreading its influence around the world. While Beijing’s orchestration approach is well-​suited to rapidly expanding China’s economic presence into targeted countries, regions, or sectors, it retains numerous shortcomings.

Orchestrating China’s Economic Statecraft  53

Cracks in the Edifice As the introduction chapter explains, Beijing’s implementation coherence—​ the degree to which Chinese actors behave in ways likely to advance (or undermine) Chinese leaders’ foreign policy objectives—​is likely to face three types of problems: policy stretching, moral hazard, and enterprise malfeasance. China’s institutional structures often impede timely responses to such problems. By seeking to align economic statecraft initiatives with the interests of implementing actors, China’s orchestration approach is vulnerable to local and commercial actors ‘stretching’ policy initiatives beyond central leaders’ initial objectives. Song Guoyu warns of “foreign policy becoming overly localized . . . [and] taken over by narrow local economic interests.”95 China’s border provinces have indeed promoted cross-​border engagement with China’s neighbors in ways that have undermined Beijing’s foreign policy goals, as both the Myanmar and North Korea chapters demonstrate. Province leaders enjoy a variety of channels to push initiatives such as Hainan’s “blue national land” (绿色国土) promoting Chinese tourism to contested South China Sea islands and Fujians’ calls for expanding economic ties with Taiwan.96 Even when in line with a current policy direction, such initiatives can tie Beijing’s hands and undermine a nuanced diplomatic strategy. Province leaders also send their officials to Beijing to seek NDRC support for local infrastructure projects—​a task dubbed “running after projects” (跑项目).97 Province or city leaders also send “send up” (上报) study reports via ministerial channels, requesting that top leaders send representatives to “investigate” (考察) project proposals. These delegations are notoriously easy to influence.98 Structural imbalances further empower regional officials. As one expert told me: The province’s vice-​governor in charge of economics holds a vice-​minister rank (副部级) while the province-​ level NDRC representative is only bureau-​level (正局级). The local NDRC representative can hardly refuse a vice-​governor.99

Moral hazard represents another major challenge. In 2012, Premier Wen Jiabao reassured the National People’s Congress that the government would “guide Chinese enterprises under various forms of ownership in making overseas investments . . . in an orderly manner.”100 Yet, providing government

54 Orchestration support for Chinese companies and asking them to implement projects for political rather than purely commercial goals encourages firms to act in a fiscally irresponsible manner, since they expect to bailed out for losses: a classic moral hazard problem. Indeed, economists have found SOEs are most likely to invest in risky environments if the country has close political ties to Beijing and/​or high export dependency upon China.101 Risky investments into infrastructure are particularly likely, since political leaders generally tend to overestimate the benefits of infrastructure while underestimating the costs.102 Investments aligned with Beijing’s policy thrust—​a core aspect of orchestration—​are particularly likely to engender moral hazards. For instance, massive BRI-​ branded investments into Indian Ocean ports in Sri Lanka, Pakistan, and Myanmar have gone ahead despite daunting commercial and practical hurdles.103 Similarly, massive government subsidies have encouraged risky BRI-​ branded investments into rail lines linking China to Europe despite scant commercial prospects.104 The likelihood of government support inspiring risky corporate behavior was neatly captured by Vice Premier Wang Qishan’s sharp response to Sany’s 2009 request for government support during the National People’s Congress: Do you have a handle on your own management capabilities? Have you analyzed the cultural differences of the two sides? Do you understand the relationship between unionized labor and management in that place? If the other side’s engineers resign, are you really going to send people from Changsha overseas, and make the whole company speak Hunanese? If you don’t know yourself and know your opponent, then this kind of confidence scares me.105

Enterprise malfeasance represents the third major challenge to Beijing’s policy coherence. Chinese economic actors uniquely generate a full-​ spectrum disruptive presence:  from massive state-​backed investments by some of the world’s largest companies through to a surge in inexpensive laborers and aggressive entrepreneurs. Accustomed to operating in a highly competitive environment characterized by widespread corruption, limited oversight, and cutthroat competition, Chinese firms going abroad are likely to engage in predatory business practices with limited attention to political or social risk. Broad state authority over the economy bolsters officials’ capacity to “send out” Chinese enterprises and entrepreneurs, but also renders

Orchestrating China’s Economic Statecraft  55 officials vulnerable to criticism when commercial actors misbehave while raising anxieties abroad. Military cooperation with Pakistan, the Beidou navigation system, RMB internationalization, and Chinese corporate malfeasance all appear more threatening when presented by the New York Times as an integrated global strategy led by Beijing.106 Ethnic linkages with the global Chinese diaspora, as well as cross-​border ethnic affinity shared by China’s ethnic minorities living in border provinces, also speeds and deepens economic engagement but blurs national divisions in ways that feed populist anxieties—​as the Myanmar chapter demonstrates. Addressing these problems in a timely and effective manner is impeded by institutional structures. All of the central agencies overseeing enterprises and financial institutions (MOFCOM, NDRC, SASAC, PBC) prioritize economic goals:  expanding China’s overseas investment and trade, building stronger companies, curtailing corruption, ensuring investment efficiency, or advancing national economic development. While they enjoy regulatory oversight of Chinese enterprises, they are unlikely to rein in a powerful and wealthy SOE even if its actions risk undermining diplomatic relations in a host country. MOFA has an interest in raising such issues, but has scant oversight responsibility for Chinese enterprises or financial institutions. As Li Wei notes:  “Officials tend to view problems from their own ministries’ perspectives, and lack a broader, strategic perspective.”107 Chinese diplomats are left with limited authority and few resources in their struggle to ensure that Chinese companies and projects advance (or, at least, do not undermine) diplomatic relations. As one Chinese scholar explained to me: “If a large SOE secures a bank loan for a major infrastructure project abroad and enjoys strong support from both MOFCOM and NDRC, it is almost impossible to imagine MOFA being able to stop or even significantly alter the project for diplomatic reasons.”108 This helps answer Freeman’s question as to why Beijing failed to rein in its dam-​building companies, even when their behavior undermined China’s diplomatic agenda.109 In such situations, a seasoned Chinese diplomat explained, the most sensible practice is “多一尺; 少一事” (give another inch and you’ll have fewer problems).110 In response to surging anti-​China populist backlashes around the world, MOFCOM has expressed concern with a growing “public opinion risk” (舆论风险) and urged Chinese firms to adopt a more “low-​key” (低调) approach when investing abroad “to protect [China’s] national interests.”111

56 Orchestration Government officials have also repeatedly highlighted how Chinese firms’ overseas investment practices exacerbate “social and environmental risks.”112 Yet even these modest efforts are undermined by countervailing pressures to expand overseas investments by reducing regulatory oversight, such as NDRC’s May 2014 decision to further lift the ceiling for unregulated overseas investments to encourage enterprises to “leap into the sea” (出海).113 Interviews with NDRC and MOFCOM officials suggest that they see their primary responsibility as promoting and supporting Chinese companies to expand abroad, while viewing their regulatory obligations as more perfunctory. “In practice, we emphasize supporting enterprises,” explains one MOFCOM official. “If they succeed in making money, this looks good for us. There’s little benefit in trying to punish a major SOE.”114 Another MOFCOM official told me, “If a Chinese company is convicted of breaking laws abroad or of consistently having other such problems, they may end up on the ‘blacklist’ (黑名单) that we send to all major banks. This could obstruct their ability to borrow money in the future. But in practice, this is rare. We want the companies to succeed and make money.”115 MOFCOM’s emphasis upon economic success is evident in China’s aid practices, as Lucy Corkin notes: The MOFA and the MOFCOM do not see eye to eye on the purpose of concessional loans . . . . While the MOFA sees these loans as primarily a mechanism for fulfilling its mandate of improving diplomatic relations between China and other developing countries through foreign aid, the MOFCOM sees them as principally a market entry tool for Chinese companies’ goods and services.116

China’s ECC officials thus often find themselves outranked and outflanked by SOE representatives abroad. The ECC is responsible for supporting and monitoring all Chinese economic activity in the host country, including major investment projects and all aid programs. Hired and “guided” by MOFCOM (though nominally under ambassadorial supervision), ECC officials’ primary task is to support Chinese companies in the host country by facilitating ties with the host government. “In reality, the ECC has very limited power to shape the behavior of the Chinese companies,” one former embassy staffer explains. “Oftentimes the ECC is of equal or lower rank than even the local representatives of large SOEs. They often must ‘beg’ (求) the companies to attend their events to show their support for MOFCOM initiatives such as the ‘good corporate citizen’ campaign.”117 Private corporations also usually have

Orchestrating China’s Economic Statecraft  57 powerful bureaucratic allies within their home province or city governments, which generally provide sufficient political backing for the company to ignore the local embassy. Even within China, controlling SOEs is difficult. To enable SOEs to transform into internationally competitive corporations while expanding overseas and securing access to strategic natural resources, they have been permitted to retain most of their earnings and list their subsidiaries on domestic and international stock markets. This reduces their dependence on capital from banks or state budgets. Chinese banks frequently compete to lend to SOEs for projects seen as “too big to fail,” thus giving SOEs considerable negotiating leverage.118 SOE autonomy is further augmented by their political clout. The largest SOEs enjoy a ministerial-​level rank, which provides opportunities to lobby top decision makers, privileged access to state resources, inclusion in select information flows, and the autonomy to ignore demands from equivalent-​ranked individuals or regulatory agencies.119 As one Chinese expert told me: “MOFCOM cannot control SOEs—​they rank at almost the same level and SOEs have their own money. It’s hopeless (没戏).”120 In many ways, SOEs are the easiest to monitor and influence. As large corporations with long time horizons, SOEs tend to have considerable sunk investments in host countries and worry about their international reputation. Beneficiaries of Chinese government support, they are wary of running afoul of Beijing and tend to be willing to support central government initiatives such as promoting corporate social responsibility. As one former ECC staff member explained: In general, the SOEs are easier to deal with. They are required to interact with us and are concerned about their image. If the ambassador issues a direct order, they should follow it. The smaller, private companies cause more problems. They don’t get contracts to do big aid or investment projects, and so they feel little obligation to listen to the embassy. For instance, we sometimes would hold a ‘consultation meeting’ (吹风会) to tell local companies which way the political wind is blowing. The SOEs would send a representative, but not the private companies. Generally, the only time private firms come to the embassy is when they have a security concern.121

Private firms are also likely to be more aggressive than SOEs. They have few obligations to Chinese diplomats or national bureaucracies, relying instead upon a carefully cultivated local base of support. Successful local private

58 Orchestration entrepreneurs in China must cut corners to succeed. Commonplace acts such as bribing officials, falsifying contracts, and evading laws are unlikely to decline as they move far from home—​problems which erupted in Ghana in 2013. At the time, some 50,000 Chinese migrants were involved in small-​scale gold mining in Ghana, most of them from Guangxi province. They pooled investment capital at home and traveled to Ghana in groups, leasing mining rights from local residents while paying “fees” to tribal leaders—​even though foreigners are legally prohibited from operating small-​scale gold mines in Ghana. When anti-​Chinese violence exploded in June 2013, the Ghanaian government responded by arresting and deporting “illegal” Chinese miners. As images of beaten and bloody Chinese miners spread across the Chinese internet, a wave of online pressure forced the Chinese government to get involved. Beijing was forced to deploy economic pressure, freezing a pending $3 billion loan before Ghana finally released all detained Chinese citizens and ended the mass violence.122 Of course, top Chinese leaders retain the authority and capacity to compel any private firm, SOE, financial institution, provincial leader, or government ministry to take a particular action. No institution or individual would dare defy a direct order from a senior Chinese leader. However, such instances are rare. Top leaders are busy, and their attention is often elsewhere. These weaknesses, like the strengths noted above, are built into the structures and practices of China’s orchestration approach to economic statecraft.

Conclusion The combination of ideas and institutions—​lessons learned from Beijing’s historical experiences filtered through China’s unique political-​economic structures—​have encouraged Chinese leaders to adopt an ambitious approach to economic statecraft, seeking to advance multiple goals by mobilizing a diverse array of domestic actors. To implement this approach, policymakers have turned to orchestration:  nesting incentive techniques within their hierarchical bureaucracy; rewarding ambitious enterprises, banks, and regional officials; and designing policies aligned with these implementing actors’ own interests. While remarkably effective in rapidly mobilizing economic engagement abroad, this approach generates moral hazard problems and encourages policy stretching and enterprise malfeasance. Such problems are most likely

Orchestrating China’s Economic Statecraft  59 to emerge when Chinese leaders rely upon regional and/​or commercial actors who are difficult to monitor and have strong economic interests in the target state, and when the target state has weaker domestic governance capacity—​a proposition we will begin to test as we turn to the first of our four case studies, on Western Europe, to examine China’s economic statecraft in action.

3 Never Let a Crisis Go to Waste Beijing’s Economic Statecraft across Western Europe

In the cold winter of January 2009, I visited Europe. I brought with me not only the confidence needed to overcome the financial crisis, but also a procurement delegation to place orders in European countries . . . . China did not just ‘passively observe’ (袖手旁观) when some Eurozone countries were in trouble. We continued to hold and buy Euro-​denominated bonds and helped Iceland, Greece, Spain, Portugal and Italy in their most difficult time. We will continue to render assistance and tide some countries over their difficulties. China is a friend indeed.1 Premier Wen Jiabao in Brussels October 10, 2010

As the global financial crisis spread across Europe in 2009, Europeans were desperate for signs of economic confidence. Chinese policymakers seized the moment through a coordinated program of purchasing diplomacy, targeted investments, and financial support for the euro. Beijing also leveraged the allure of China’s domestic market and its economic potential while encouraging competition among EU members. Europeans’ eagerness for Chinese markets and investments enabled Beijing to present itself as bestowing benevolent “gifts” that also quietly advanced China’s own economic interests. Chinese policymakers also shrewdly offered selective benefits to key interest groups within European countries, including influential financial sectors across the continent and Greece’s shipping industry, who then dutifully urged their home governments to support Beijing’s policy preferences. Implementing this nuanced policy required mobilizing a range of commercial actors and economic agencies, while coordinating among them to ensure coherent policy implementation. Chinese policymakers solved this

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Never Let a Crisis go to Waste  61 potential principal–​agent problem through proactive leadership and preference alignment. Top leaders played direct and active roles, allocating state resources to purchase sovereign debt issued by EU member states and to invest in EU funds designed to stabilize the euro. They were energetic diplomats, leading business delegations to Europe and presiding over major investment announcements, thus helping secure diplomatic benefits arising from firms’ investments and purchases. They also helped forge institutional linkages that built upon and sustained economic cooperation, while providing political backing for state-​owned enterprises (SOEs) and financial institutions to invest in Europe. As explained earlier, despite their unquestioned authority at the apex of China’s political system, Chinese leaders still face considerable challenges in influencing enterprises’ behavior and coordinating across a range of bureaucratic agencies. China’s economic statecraft in Europe thus relied upon techniques designed to align the interests of these key implementing actors with policymakers’ foreign policy priorities. Specifically, policymakers encouraged commercial actors to make investment and purchasing decisions that would yield commercial, as well as diplomatic, benefits. This alignment of preferences eased Beijing’s coordination and incentivizing difficulties while limiting the need for oversight or punitive measures. China’s economic statecraft across Western Europe thus exemplifies orchestration in action. This chapter examines four distinct economic statecraft initiatives. We start with Beijing’s “purchasing diplomacy”:  the public presentation of investments and purchases by major Chinese enterprises in the wake of Europe’s financial crisis. I  next turn to China’s financial statecraft, examining Beijing’s purchases of euro-​denominated debt and support for the EU’s currency stabilization efforts. Despite domestic criticism of both initiatives, Chinese policymakers effectively incentivized and coordinated among both banks and economic agencies. The third case examines Beijing’s promotion of RMB internationalization in Europe. Policymakers successfully leveraged competition among Europe’s financial capitals to secure political support for Beijing’s policy objectives, including inclusion in the IMF’s Special Drawing Rights (SDR) basket. Beijing’s selective support for influential interest groups in target countries was also evident in our final case, an example of infrastructure investment by a state-​owned enterprise: COSCO’s massive investment into the Greek port of Piraeus. I conclude by briefly assessing the impact of China’s efforts upon European public attitudes and key policy decisions.

62 Orchestration

Purchasing Diplomacy By 2007, China’s relations with Europe had fallen sharply from their “honeymoon” peak only a few years earlier.2 Europeans were growing frustrated with China’s trade surplus, currency policies, and human rights practices. Relations hit a new low as Beijing reacted to French President Nicolas Sarkozy’s planned meeting with the Dalai Lama by withdrawing from the 2008 EU–​China Summit: “a spectacular gesture and an unprecedented step in the bilateral relationship.”3 At just this moment, the global financial crisis began hitting Europe hard. In 2009, every EU member experienced negative growth; GDPs declined an average of −4.1 percent.4 Reflecting traditional Chinese strategic thinking, seasoned diplomats quickly recognized a “strategic opportunity.” 5 Indeed, the Chinese word for “crisis” (危机) combines the characters for “danger” and “opportunity.” To seize this opportunity, Beijing deployed economic statecraft. Consistent with the “nested orchestration” tactic, top leaders assumed a direct role in policy implementation. Premier Wen Jiabao led the way, describing his early 2009 visits to Switzerland, Germany, Spain, the UK, and Belgium to the Financial Times as a “journey of confidence.” I have brought with me confidence in tiding over the difficulties caused by the financial crisis. I have brought with me the confidence that China will work closely with the European countries to push forward our strategic partnership. And I have brought with me the confidence that China will work with the international community to get through the difficult times together.6

Wen also brought along NDRC Chairman Zhang Ping and Minister of Commerce Chen Deming, a clear example of delegating authority to government agencies. These line ministries were in turn expected to mobilize commercial actors. Indeed, Wen’s pledge to dispatch a “purchasing delegation” (采购团) was soon fulfilled; Chen Deming quickly returned to Germany, Britain, Spain, and Switzerland with two hundred business leaders.7 They signed contracts worth over €8 billion in Germany alone.8 Over the next few years of Europe’s deepening financial crisis, Chinese investment into Europe experienced “explosive growth.”9 China’s annual investment flows, modest before 2008, rose to some €2 billion annually in 2009 and 2010, then soared to over €7 billion in 2011 and 2012. By 2014,

Never Let a Crisis go to Waste  63 investment flows reached €14 billion, then rose 44 percent in 2015 to reach €20 billion, and then climbed again to €35 billion, a remarkable 77 percent increase.10 From 2011 to 2015, annual Chinese foreign direct investment (FDI) into the EU averaged over €10 billion, compared to some €1 billion annually over the preceding five years.11 Most economists rightly attribute this surge of Chinese investment to market factors. Hanemann and Rosen argue that “China’s outward FDI stems from changes in China’s growth model and marketplace rather than a political agenda.”12 “The role of the state,” Nicolas agrees, “should not be overblown. Chinese ODI undoubtedly benefits from easy finance provided by the Chinese government, but the strategies followed by Chinese investors are primarily based on commercial and economic considerations. It would thus be a major mistake to assume that all investments belong to a grand strategy designed in Beijing.”13 However, Chinese leaders did effectively coordinate investment announcements to maximize diplomatic leverage and demonstrate Beijing’s benevolent intent. This coordination by Chinese policymakers was evident in the timely joint announcements at diplomatic summits by competing Chinese firms. On President Hu Jintao’s November 2010 visit to France, for instance, three Chinese airlines jointly announced they would purchase 102 Airbus planes for €10 billion; China Power Investment and Guangdong Nuclear Power Corporation announced a dual major investment; and China Mobile, China Telecom, and China Unicom reached a combined deal with French counterparts worth €770 million. Their investments added credibility to Hu’s pledge that China would double the value of its annual imports from France within five years.14 In Portugal the following week, Hu oversaw major pledges by the Industrial and Commercial Bank of China (ICBC), Huawei, China Power International, and Three Gorges Corporation. As the Financial Times noted: “This massive influx of investment amidst a looming sovereign debt crisis offered a crucial sign of support for the beleaguered Portuguese economy.”15 By successfully coordinating among key actors while presenting firms’ investments as reflecting Beijing’s goodwill, Chinese leaders were able to pursue diplomatic benefits. In October 2010, Wen reassured the Greek Parliament that China was issuing a “vote of confidence” by promising to purchase Greek government bonds, encourage investment and tourism, double China’s imports from Greece, and establish a $5 billion fund to help Greek shipping companies buy Chinese ships. In exchange, Wen explained,

64 Orchestration “we hope the EU recognizes as soon as possible China’s full market-​economy status and will relax restriction on high-​technology exports to China and oppose trade protectionism.”16 Going on the October 2010 EU–​China Summit in Brussels, Wen urged that European business leaders “not participate in putting pressure on the RMB to increase in value.”17 European policy accommodation yielded generous rewards. After Angela Merkel squashed EU punitive tariffs on Chinese solar panel imports, German firms signed contracts in Beijing worth €4.8 billion, including 50 Airbus jets.18 In September 2014, Spanish companies signed deals worth €3.2 billion in Beijing after their government dismissed a court ruling denouncing Chinese “genocide” in Tibet.19 Signaling the importance they attach to “purchasing diplomacy” (采购外交), Chinese leaders took time to preside over even minor commercial accords. In March 2014, Xi Jinping stopped off on his way to a major G7 summit at the Hague to sign a deal pledging to expand Dutch dairy exports to China.20 The timing and sectors of investment announcements also reflect Chinese leaders’ political attentiveness. On his March 2014 visit, Xi Jinping announced that Dongfeng Motor Corporation would be investing €890 million in PSA Peugeot Citroën to help mitigate unemployment in France’s hard-​hit Lyon region.21 In June 2014, Premier Li Keqiang signaled support for Merkel’s signature industrial policy, “Industrie 4.0,” by leading a 130-​ member delegation to Berlin that signed deals worth €15 billion, including 70 Airbus planes.22 In classic orchestration mode, Chinese leaders also mobilized government ministries and experts to encourage investment in Europe amidst the financial crisis. Vice-​Minister of Commerce Chen Jian pledged in early 2011 that Chinese investment into Europe was still at an “early stage” and would grow.23 MOFCOM convened meetings urging Chinese firms to “seize the opportunity” in Europe.24 Xiao Qian, from MOFA’s Europe division, called for Chinese sovereign wealth funds to lead the way.25 Ding Yifan, from the State Council’s Development Research Center, described Europe’s crisis as a “historic opportunity,” while Han Shumu, from the Chinese Academy of Social Sciences, urged the government to build a “bridge” for Chinese investors heading to Europe.26 Most Chinese scholars attributed the investment surge into Europe to “the low price of investment opportunities combined with growing Chinese government support for investing overseas.”27 They praised Chinese leaders for establishing a “firm foundation” for China–​EU economic ties.28 Luo Ning, an ICBC economist, sought political kudos for his bank’s “active support” for investment into Europe.29

Never Let a Crisis go to Waste  65 One indication that such encouragement influenced firm-​level decisions was that the surge into Europe was led by massive SOEs making big bets. SOEs accounted for nearly half (44 percent) of all China’s investments from 2008 to 2012; these represented 79  percent of all deals by value.30 They paid a considerable price:  three European economists found that the average premiums paid by Chinese companies for mergers and acquisitions in Europe from 2003–​2013 were double the price paid by European investors for similar targets.31 This is typical:  economists have shown that China’s SOEs tend to pay higher premiums for such deals than private firms.32 A few Chinese experts were bold enough to warn against this moral hazard problem of political support encouraging financially risky behavior. Ye Tan, for instance, deplored China Investment Corporation investing into a UK real estate firm as “yet another stupid business [decision].”33 Others denounced “risky” investments into loss-​making European firms, denoting Europeans’ “embedded biases” (固有偏见) against Chinese investors.34 Some Chinese experts perceptively warned that rapidly expanding investment into Europe risked triggering a protectionist response.35 Despite these risks and obstacles, Chinese policymakers successfully combined direct action, delegation, and orchestration to encourage a range of commercial actors to expand Chinese investment into Europe. Policymakers also deftly coordinated among key actors to present firms’ investment and purchasing announcements in ways designed to maximize their diplomatic pay-​offs. In short, China’s purchasing diplomacy amidst Europe’s financial crisis was a clear example of orchestration. Similar dynamics were evident amidst Beijing’s timely support for the euro.

Saving the Euro Chinese policymakers also responded to Europe’s financial crisis by purchasing euro-​denominated bonds and supporting the EU’s currency stabilization efforts. This initiative required close coordination between the Ministry of Finance, People’s Bank of China (PBC), and the State Administration of Foreign Exchange (SAFE), as well as China’s two leading sovereign wealth funds: China Investment Corporation (CIC) and National Social Security Fund (NSSF).36 For this policy to work effectively, these powerful institutions had to publicly support it, without open dissent or competition, and then implement it rapidly and consistently. Since China’s efforts

66 Orchestration to shore up the euro were driven, at least in part, by diplomatic motives and entailed purposeful state action using financial resources, this was economic statecraft. Beijing’s successful implementation of this complex and risky initiative exemplified orchestration in action. Early in the financial crisis, Chinese leaders announced they would purchase sovereign debt bonds issued by fragile southern European economies. In July 2009, China announced its purchase of €400 million in Spanish government bonds, winning Madrid’s public gratitude.37 In Athens the following year, Wen Jiabao declared: “China has already bought and is holding Greek bonds and will keep a positive stance toward buying bonds that Greece will issue.”38 Following their December 2010 visit to Lisbon, Finance Minister Xie Curen and PBC Governor Zhou Xiaochuan jointly announced PBC’s plans to purchase €5 billion of Portuguese government debt.39 In January 2011, Vice-​Premier Li Keqiang suggested that China would purchase €6 billion of Spanish public debt.40 In June 2011, Wen declared: “In recent years we have increased by quite a big margin our holdings of government bonds. We will consistently continue to support Europe and the euro.”41 The importance of coordination emerged on May 27, 2010, when a Financial Times report claimed that SAFE was “considering reducing its exposure to the eurozone bond markets because of the deepening crisis in Europe.” The report quoted Vice–​Foreign Minister He Yafei admitting that China was “worried about” the effect of Europe’s debt crisis and that “the euro’s fluctuation will have an impact on China’s thinking.”42 The report sparked a “coordinated public relations rescue action.”43 SAFE quickly issued a rare public denial, dismissing the “groundless” report while reiterating its support for eurozone economies and the euro. CIC President Gao Xiqing told Xinhua: “CIC will keep its investment level in Europe, no more, no less. Short-​term fluctuations won’t bring a serious effect on us.” Several days later, NSSF President Dai Xianglong described Europe’s sovereign debt crisis as “temporary,” noting his broader concern with “future turbulence in the dollar as a result of widening deficits in the US.” Through this coordinated response, Otero-​Iglesias explains, “the Chinese government stepped in and stabilized the value of the euro in a decisive moment.”44 China’s timely support inspired George Soros to declare:  “China saved the euro.”45 The Wall Street Journal praised Beijing for “demonstrating an increasingly refined approach that reassures, rather than roils, markets.”46 In October 2010 in Brussels, Wen Jiabao called for “calm, wisdom, and courage.”47 In November 2010, Xinhua declared:

Never Let a Crisis go to Waste  67 Contrary to the widespread claim that the eurozone is doomed to break up, the single currency will not fail . . . the euro has brought economic benefits and currency stability to its members. A breakup of the eurozone would be politically unacceptable.48

In its rush to act as Europe’s white knight, Beijing’s purchasing surge upset plans in Berlin and Brussels to use the crisis to force policy change among southern EU members. In an example of learning and adaptation, Chinese leaders soon began to coordinate more closely with Berlin and Brussels, supporting EU-​level initiatives to push for fiscal reforms while slowing their purchases of southern Europeans’ sovereign debt.49 After spending four hours huddled with Angela Merkel in Berlin in June 2011, Wen Jiabao emerged to stand alongside Merkel while declaring:  “The difficulties that have appeared in Europe are temporary. As long as financial reforms and adjustments continue, the difficulties can be gradually overcome.”50 At the February 2012 China–​EU summit, PBC Governor Zhou Xiaochuan reaffirmed: “The PBC firmly supports the European Central Bank’s (ECB) recent measures to address the difficulties,” adding “we believe the fiscal agreement [pushed by the ECB] will mark a big step toward closer economic and fiscal union, which will significantly boost EU member countries’ fiscal sustainability and improve the sovereign debt conditions.”51 In May 2012, Li Keqiang explained: “China will continue to explore possible and effective means to co-​operate . . . and to make a joint contribution to addressing the issue of Europe’s sovereign debt.”52 In June 2014, Li again pledged to purchase new Greek bonds but added that China “wishes that the Greek government will continue the reforms.”53 Beijing also shifted from simply purchasing the sovereign debt of southern EU members to supporting the EU’s currency backstop measures. After the European Council agreed to seek outside funding for the European Financial Stability Facility (EFSF) in October 2011, EFSF head Klaus Regling immediately headed to Beijing to solicit China’s financial contributions.54 While Chinese leaders initially responded coolly in public (due perhaps to their concern with Chinese public criticism), ultimately Beijing’s support for the EFSC and its replacement, the European Stability Mechanism (ESM), was substantial. A 2011 Standard Chartered Bank report suggested that China had purchased €3.9 billion worth of EFSF bonds.55 By 2012, China may have invested as much as €5.6 billion in the EFSF/​ESM.56 By 2014, EFSF documents showed that China had accounted for between 14 and 24 percent

68 Orchestration of purchases in three EFSF bond sales worth €13 billion.57 “They have contributed a substantial amount,” one EU official assured me, “at least a few billion euros a year.”58 As the euro stabilized, China also responded positively to EC President Jean-​Claude Juncker’s new European Fund for Strategic Investments (EFSI). As one European official admitted to me, arranging China’s participation in the EFSI was not easy. “Fundamental European principles, such as equal treatment in procurement, are difficult for China to accept. There will be no favoring of Chinese firms. We cannot compromise on these basic principles.”59 Yet in April 2016, EU and Chinese officials announced that China would soon begin its pledged contribution of between €5 and €10 billion to the EFSI. China was the first non-​EU state to announce its participation and among its largest supporters (the UK’s €8.5 billion was the largest national contribution).60 China’s policy was not only complicated to implement, but was also politically risky. Back in Beijing, China’s euro purchases were extremely controversial. Yi Xianrong, from the Chinese Academy of Social Sciences, warned in 2010 that euro bonds are “far too risky. As long as the EU has not resolved its internal contradictions, China would be better off not buying any government bonds there.” If China secured a “political bargain” it should purchase euro bonds; “but only a few.”61 In September 2011, Tsinghua University’s Li Daokui cautioned: “None of the EU members has shown the willingness to reform its economic system or come up with a decent reform plan. Buying bonds can only stall the crisis, not solve it.” 62 Yang Chao supported only “moderate” (适度) ESM support, urging instead: China should seize this rare, historic opportunity to make strategic investments into Europe infrastructure, including ports, railways, roads, natural resources, electric power, and airports, as well as high-​technology firms in the sectors of transportation, electronics, and environmental protection . . . . We should focus our major investments on Europe’s ‘real economy’ (实体经济).63

Chinese bankers were even more reluctant. CIC Chief Risk Officer and Executive Vice-​President Jesse Wang downplayed reports of CIC investments in Greece in March 2010: “Aiding Greece looks like a policy goal . . . . If the EU is unwilling to help, how can you expect others to act as a white knight and save Greece?”64 In June, Wang again undermined Beijing’s messaging,

Never Let a Crisis go to Waste  69 admitting to a banking conference in San Francisco that 2010 was shaping up as a “very challenging year” for CIC due to “declines in the US and European markets.”65 Wang’s concerns were echoed by CIC’s President Gao Xiqing the following September. “We are no white knights,” Gao told reporters during an IMF meeting in Washington. “We have to save ourselves.” Ma Weihua, chairman of China Merchants Bank, a state-​owned commercial bank, was even more blunt, telling reporters at the September 2011 World Economic Forum in Dalian: “No smart person invests in these kinds of [euro] bonds . . . . We cannot sacrifice our interests to help others.” 66 The Chinese public was even angrier. Before France’s November 2011 G-​ 20 summit, thousands of critical postings surged across China’s internet. “Better to save Wenzhou than Ouzhou (Europe),” ran one typical posting, referring to a wealthy Chinese city hit by a credit crunch. “The people’s ‘blood and sweat money’ (血汗钱) is being used to bail out fat and lazy Greeks,” ran another furious post.67 Even Xinhua urged “direct investment” into Europe “rather than buying government bonds.”68 Despite this criticism, China’s state-​ owned financial institutions—​ primarily SAFE—​made substantial purchases of European sovereign debt amidst the crisis. In 2014, Spain revealed that China held 20  percent of Spain’s foreign owned debt, primarily purchased in 2010–​2011.69 Some economists estimated Chinese euro-​bond purchases at €360–​440 billion.70 One suggested that China holds seven percent of Europe’s debt; another that euro-​based holdings represented one-​third of all China’s foreign reserves by 2012.71 Andrew Small dismisses political motivations for these massive purchases, claiming: “Chinese involvement has been that of a normal market actor rather than a savior for the euro-​zone.”72 Otero-​Iglesias disagrees, arguing persuasively that Beijing, driven by geopolitical goals, deployed financial support to bolster its European relationships.73 There were, of course, good economic reasons for Chinese leaders to help shore up the euro. Europe is China’s largest customer, one of China’s largest sources of foreign investment, and Chinese institutions already maintained considerable euro holdings. Yet Beijing’s strategy was politically and financially risky. Beijing might end up, as one analyst warned: “throwing good money after bad after horrible after totally lost” in blind support of the “endless European bailout.”74 Facing these risks, Chinese leaders acted boldly and coherently in response to Europe’s crisis: an economic statecraft strategy they hoped would yield diplomatic, as well as economic, dividends.

70 Orchestration One sign of the diplomatic payoff emerged in March 2014, at a ceremony marking Sino–​German currency cooperation. Standing beside Xi Jinping, Chancellor Merkel declared: “We’re very thankful that China made efforts during the euro crisis to consider the euro as a stable currency. China never questioned its trust in the euro, and I find that very important. We will continue to see through this cooperation in Frankfurt with the RMB.”75 Indeed, China’s successful orchestration—​stimulating involvement and coordinating across a range of actors—​soon provided a springboard for promoting RMB internationalization across Europe.

Beijing’s Three Gifts: Internationalizing the RMB Internationalization refers to a currency’s use as an international medium of exchange for denominating and settling cross-​border trade and financial transactions.76 For Beijing, the global financial crisis gave new urgency to their push for RMB internationalization. Describing China as a “hostage of the United States,” Arthur Koeber explains that by promoting RMB use abroad, “China can gradually reduce its need to put its export earnings on deposit at the ‘Bank of the United States’.”77 Europe’s financial crisis, Yang Chao argued, offered a “historic opportunity to challenge the unequal balance in global currency usage.” The “enthusiasm” in European financial centers like London and Paris should enable Beijing to break out from US efforts to “contain” (遏制) RMB internationalization.78 Although Beijing’s RMB internationalization drive focused primarily upon Asia, Europe offered invaluable legitimacy and institutional clout. Internationalizing the RMB was both a means and an end for China’s economic statecraft in Europe. Beijing sought to advance RMB internationalization without meeting the usual demands of providing greater liquidity or opening up its capital account. China also wanted the RMB included within the IMF’s SDR basket. Promoting RMB use across Europe enabled Beijing to deliver valued benefits to European governments, offering leverage that Chinese leaders used for diplomatic advantage. More broadly, RMB internationalization promoted closer trade and investment ties, thus tying European economies closer to China—​a key long-​term objective for China’s engagement strategy. As in the first two cases, Chinese leaders blended direct action with delegation and orchestration tactics while coordinating across a range of government agencies and financial institutions. In this instance, Beijing

Never Let a Crisis go to Waste  71 also encouraged competition across multiple actors, using banks’ interest in expanding their presence overseas to encourage them to act in ways aligned with leaders’ policy goals. A key part of Beijing’s nuanced strategy was encouraging competition among European financial capitals. Bilateral swap agreements (BSA), which provide RMB liquidity for trade and investments, were the first step (Table 3.1). In June 2013, the UK became the first G-​7 country to establish a BSA with China; the European Central Bank (ECB) soon established China’s third largest BSA (after Hong Kong and South Korea.)79 China also established RMB clearing banks around Europe to ensure sufficient access to RMB liquidity.80 Five of the 19 banks directly participating in the new China International Payment System are European:  HSBC, Standard Chartered, DBS, Deutsche Bank, and BNP Paribas.81 Europeans also secured some of the largest quotas within China’s Qualified Foreign Institutional Investor (QFII) Scheme, enabling overseas investors to invest in Chinese equities.82 Among the liveliest exchanges for China’s new RMB-​denominated “Dim Sum” bonds were Luxembourg, London, and Frankfurt.83 In October 2014, the UK became the first non-​ Asian country to issue an RMB-​denominated sovereign bond.84 In June 2017, the ECB announced a €500  million reserve investment in RMB-​ denominated assets, a landmark “seal of approval” from the world’s second-​ largest central bank.85 Promoting RMB internationalization in Europe demanded close coordination across China’s financial system. Similar to purchasing diplomacy, top leaders led the diplomatic effort, negotiating and announcing all final agreements. To maximize diplomatic pay-​offs, their public statements presented these agreements as exemplifying Chinese benevolence and as manifesting the benefits of economic cooperation with China. PBC led the initiative, with the Ministries of Finance and Commerce playing crucial facilitating and oversight roles, alongside the China Banking Regulatory Commission. These agencies directly negotiated with their European counterparts, issued and implemented key policy initiatives, and ensured reliable participation by China’s state-​owned commercial banks. To encourage eager implementation, this policy was designed to align with Chinese banks’ commercial interests. “Chinese banks see [RMB internationalization] as a strategic opportunity to follow their clients abroad and develop their international payments clearing business,” explains an industry analysis.86 The greater challenge was to ensure coordination among commercial banks while avoiding destructive competition. The PBC thus allowed

Table 3.1.  RMB Internationalization in Europe European BSAs with China Date

Country

Amount (local currency)

Amount (RMB)

June 22, 2013 September 9, 2013 October 9, 2013 July 21, 2014

United Kingdom Hungary European Union Switzerland

GBP 21 billion HUF 375 billion EUR 45 billion CHF 21 billion

¥200 billiona ¥10 billionb ¥350 billionc ¥150 billiond

RMB Offshore Clearing Banks in Europe Date

Country

Chinese Bank

June 18, 2014 June 19, 2014 September 15, 2014 September 16, 2014 October 2014

UK (London) Germany (Frankfurt) France (Paris) Luxembourg Hungary (Budapest)

China Construction Banke Bank of Chinaf Bank of Chinag Industrial & Commercial Bank of Chinah Bank of China

Qualified Foreign Institutional Investor Quotas Date

Country

Quota ceiling (RMB)

October 15, 2013 March 28, 2014 July 7, 2014 January 21, 2015 April 1, 2015

United Kingdom France Germany Switzerland Luxembourg

80 billion 80 billion 80 billion 50 billion 50 billion

a “UK and China in £21bn Currency Swap Deal,” BBC (June 23, 2013), http://​www.bbc.com/​news/​

business-​23020718. b “China, Hungary sign currency swap deal,” China Daily (September 10, 2013), http://​www. chinadaily.com.cn/​business/​2013-​09/​10/​content_​16956399.htm. c “Chinese, European Central Banks in Currency Swap Deal,” AFP (October 10, 2013), http://​www. valuewalk.com/​2013/​10/​chinese-​european-​central-​banks-​currency-​swap-​deal/​. d “China, Switzerland Sign Currency Swap Agreement.” Sina (July 21, 2014), http://​english.sina.com/​ china/​2014/​0721/​720344.html. e “First Renminbi Clearing Bank Outside Asia Appointed in London,” (June 18, 2014), https://​www. gov.uk/​government/​news/​chancellor-​welcomes-​london-​renminbi-​clearing-​bank. f Zha Weixin, “Bank of China Wins First Yuan Clearing Deal in Euro Area,” Bloomberg (June 19, 2014), https://​www.bloomberg.com/​news/​articles/​2014-​06-​19/​bank-​of-​china-​wins-​the-​first-​yuan-​ clearing-​deal-​in-​the-​euro-​area. g “BOC becomes RMB clearing bank in Paris,” Xinhua (September 15, 2014). h Cecily Liu, “ICBC Becomes Renminbi Clearing Bank in Luxembourg,” China Daily (September 16, 2014), http://​www.chinadaily.com.cn/​bizchina/​2014-​09/​16/​content_​18609055.htm.

Never Let a Crisis go to Waste  73 most large commercial banks to list as “mainland correspondent banks,” permitted to conduct international settlements with overseas banks. Nineteen domestic banks were also included in the first phase of China’s International Payment System. 87 Two of China’s largest banks were nominated as official clearing banks: Bank of China (Hong Kong) and ICBC (Singapore).88 Rights to serve as the national clearing bank were carefully allocated among China’s major banks to avoid competition and ensure a distribution of benefits (Table 3.2). For instance, on June 18, 2014, the PBC appointed the China Construction Bank (CCB) as the London clearing bank; the very next day, BOC was anointed for Frankfurt.89 Beijing’s success relied upon offering low-​cost benefits to key partners. China’s BSAs, Liao and McDowell explain, “are akin to public goods . . . firms may continue to invoice and settle an exchange as they always have, or they may now choose to use RMB. The choice is theirs.”90 These benefits help explain why European anxiety over RMB internationalization was limited.91 Meanwhile, by limiting access to RMB financial arrangements, Beijing increased their allure and fostered competition, thus encouraging Europe’s financial sector to lobby on behalf of Beijing’s preferences. In its own pursuit of RMB access, in 2015 Australia’s New South Wales state government commissioned a study exploring China’s “decision-​making processes leading up to the granting of these three gifts:” BSAs, RMB clearing banks, and QFII quotas.92 By encouraging competition for these “three gifts,” Beijing implemented its ambitious “program of internationalizing the renminbi without the usual prerequisite of opening the capital account and providing more renminbi liquidity.”93 London exemplifies this dynamic. During Vice-​Premier Wang Qishan’s 2011 visit, Chancellor George Osborne urged Beijing to support more RMB trading in the City.94 British banks and financial services institutions pushed the UK government to secure diplomatic accords expanding their access to RMB.95 In a remarkable vote of confidence, in October 2014 the Bank of England converted 3 billion yuan via a landmark offshore sovereign RMB bond, retaining the RMB proceeds in its foreign exchange reserves.96 The City of London even established its own, nominally private, “RMB Initiative” in April 2012 to “advise HM Treasury on maximising London’s capacity to trade, clear and settle RMB and articulate practical next steps and long-​term aims for the development of the RMB market in London.”97 The RMB Initiative was guided by an expert advisory group led by the Bank of England and composed of senior representatives from 13 London-​based

74 Orchestration Table 3.2.  RMB Initiatives in Europe City

Initiative

European Government Agencies

Chinese Banks

European Financial Institutions

Frankfurt

RMB Hub Initiativea

ABC, CCB, ICBC, BoC

London

RMB Initiativeb

Hessian Minister for Economics, Energy, Transportation and Land; Bundesbank City of London; Bank of England; HM Treasury; Financial Services Finance Ministry; Luxemburg for Finance

Deutsche Bank, HSBC, DZ Bank, Frankfurt Main Finance, Citi ANZ, Barclays, Citi, HSBC, JP Morgan, Standard Chartered

Bank of France, Trésor Français

BoC, ICBC,

National Bank of Hungary

BoC

Luxemburg Luxemburg Centre for International RMB Businessc Paris Paris Europlaced

Budapest

Budapest RMB Initiativee

ABC, BoC, CCB, ICBC ABC, BoC, CCB, ICBC, BOC

Clearstream, Luxemburg Stock Exchange, Luxemburg Fund Assoc. BPCE Natixis, BNP Paribas, Crédit Agricole, HSBC, Société Générale N/​A

Note:  ABC:  Agricultural Bank of China; CCB:  China Construction Bank; ICBC:  Industrial and Commercial Bank of China; BoC: Bank of China; BOC: Bank of Communications.   a See: https://​frankfurt-​main-​finance.com/​en/​renminbi/​. b See (in Chinese):  https://​www.cityoflondon.gov.uk/​business/​support-​promotion-​and-​advice/​ promoting-​the-​city-​internationally/​city-​china/​Pages/​renminbi-​initiative.aspx. c See: http://​www.luxembourgforfinance.com/​en/​products-​services/​renminbi-​business/​. d See: http://​www.paris-​europlace.net/​rmb/​page008.htm. e See: http://​www.rmbbudapest.hu/​rmb-​initiative.

banks, including five Chinese banks.98 London’s initiative paid off. By March 2016, the UK had emerged as the world’s largest RMB clearing center beyond greater China.99 Within the eurozone, Luxembourg followed London’s example, aggressively pursuing RMB internationalization. By 2015, Luxembourg had become the eurozone’s largest RMB center, with 296 billion RMB assets in domiciled funds, and was nominally the largest recipient of Chinese investment in the eurozone. In April 2015, Luxembourg was awarded a QFII quota of 50

Never Let a Crisis go to Waste  75 billion RMB; the following month, the duchy leapt ahead of the UK by one day to officially be the first non-​Asian member of the Asian Infrastructure Investment Bank.100 Luxembourg officials trumpeted their cause. In 2015, Pierre Gramegna, Luxembourg’s Minister of Finance, declared the “internationalization of the RMB . . . the single most important event in the world of currencies since the creation of the euro.” He extolled Luxembourg’s “position as major financial RMB offshore center” and its “leading role in the internationalization of the RMB.”101 In a telling reward for this effort, China’s three largest commercial banks (BoC, ICBC, CCB) all chose Luxembourg as their European seat. French authorities, led by the Banque de France, have long struggled in competing with London and Luxembourg as a financial center. Paris’s RMB liquidity trails Luxembourg, while France’s China trade is dwarfed by Germany. Yet Paris soon emerged as a serious competitor. By 2016, over 40 percent of bilateral payments and 20 percent of bilateral trade and services were RMB-​denominated. French corporations, including Air Liquide, Total, Renault, Veolia, and Alstom, as well as banks such as BNP Paribas, Société Générale, and Crédit Agricole are among Europe’s largest issuers of Dim Sum bonds, with RMB 10 billion issued from 2011–​2016. Parisian financial firms trumpet their potential to support Chinese investments and trade across Europe as well as in Francophone Africa.102 Germany was initially slow to pursue financial cooperation with China, though Berlin played a key role in the Frankfurt-​based ECB’s massive swap agreement signed in October 2013. In March 2014, the PBC signed a major clearing agreement with the Bundesbank, promoted as “Germany’s financial sector catching-​up to greater real economic linkages.”103 German banks eagerly sought to expand their RMB business.104 In October 2015, Deutsche Boerse signed an agreement with the Shanghai Stock Exchange and the China Financial Futures Exchange to establish the China Europe International Exchange, headquartered in Frankfurt, to trade RMB-​dominated financial products. This was the first time that authorized RMB trading had taken place outside of mainland China.105 A  major German coup, this reflected Frankfurt’s resurgence in the sharp competition for RMB business across Europe. Following the examples of its western neighbors, Hungary launched the Budapest Renminbi Initiative on March 26, 2015, seeking to establish Budapest as the lead RMB provider for Central and Eastern Europe.106 In June 2015, the PBC agreed to extend the RQFII scheme to Hungary, offering

76 Orchestration a RMB 50 billion investment quota and approving Hungary’s central bank as an RMB clearing center.107 The competition among Europe’s financial centers for RMB business was evident in their competing RMB initiatives (Table 3.2). Beijing’s RMB internationalization campaign successfully advanced a key policy objective:  fostering closer institutional linkages by integrating Europe’s economy with China. By August 2015, RMB-​denominated bonds from European banks totaled €2.2 billion—​five times more than all of 2014 and far above previous years.108 Given current trends, analysts predicted that by 2024, 40 percent of EU–​China bilateral goods trade would be RMB-​ denominated.109 The thickening institutional ties inspired Nicola Casarini to declare: “a new [EU–​China] monetary axis is emerging.”110 Beijing’s strategy of playing European capitals off against each other also helped secure European banks’ support for China’s ambitious regional and global investment initiatives. In May 2017, Deutsche Bank signed an MOU with CDB agreeing to promote RMB internationalization and to jointly fund BRI projects up to $3 billion.111 More importantly, China defied economic gravity, pursuing currency internationalization without meeting the usual demands of providing greater liquidity or opening its capital account. Eager to leap ahead of their competitors to secure RMB business, European financial capitals refrained from making such demands upon China. Beijing’s strategy also aided its efforts to have the RMB included within the IMF’s SDR basket. In November 2010, as Hu Jintao oversaw the signing of deals with leading French firms worth billions of euros, President Sarkozy expressed his desire to “tightly associate” France’s incoming G-​ 20 leadership with Beijing, claiming:  “I will be able to count on China’s backing to help push progress on . . . reform of the international monetary system, volatility of commodity prices and reform of global governance.”112 During its G-​20 presidency over the next year, Paris actively promoted RMB inclusion in SDR. At the March 2011 G-​20 conference in Nanjing, Sarkozy declared: Isn’t it the time today to reach agreement on the timetable for enlarging the basket of SDRs to include new emerging currencies, such as the [RMB]? Who could deny the major role the [RMB] plays in the international monetary system? Tribute is thus paid to the economic power and the political power of China, a major monetary power.113

Never Let a Crisis go to Waste  77 Following France’s urging, the November 2011 G-​20 Summit in Cannes concluded: “the SDR basket composition should continue to reflect the role of currencies in the global trading and financial system and be adjusted over time to reflect currencies’ changing role and characteristics.”114 After the summit, Sarkozy reiterated: “The RMB is a clear candidate [for SDR inclusion], given China’s commitment—​which I  noted with satisfaction—​to gradual convertibility.”115 Despite sustained US opposition, at the next SDR review four years later, the RMB was finally included in the SDR basket with the strong support of Christine Lagarde, IMF managing director and France’s former Finance Minister.116 In sum, China’s RMB promotion in Europe exemplifies Beijing’s orchestration approach to economic statecraft. This state-​led initiative mobilized a range of financial institutions to act in ways likely to advance both their own interests and a set of important policy goals for Beijing. Effectively coordinating among economic agencies while mobilizing state-​owned commercial banks, Beijing utilized competitive pressures among Europe’s financial capitals to maximize the value of its “three gifts,” thus advancing both its diplomatic and economic agendas. We now turn, in our final case, to explore another economic statecraft technique: Beijing’s support for SOE investments.

Piraeus Investments by COSCO (China Ocean Shipping; 中远集团) into the Greek port of Piraeus exemplify how coordination among top leaders, economic officials, financial institutions, and major SOEs helps Beijing use infrastructure investments to advance foreign policy objectives. While COSCO was apparently motivated primarily by its own commercial interests, Chinese policymakers both supported and benefited from COSCO’s actions. This case thus demonstrates how aligning commercial interests with Beijing’s foreign policy goals eases the implementation of China’s economic statecraft. COSCO’s involvement into Piraeus dates back to January 2006, when Greek Prime Minister Konstantinos Karamanlis signed an accord in Beijing establishing a bilateral “Comprehensive Strategic Partnership” centered on Chinese investment and shipping cooperation.117 While in Beijing, Karamanlis also met with COSCO Chairman Wei Jiafu, who returned the visit in July 2006 to celebrate the maiden call of the Cosco Hellas, a

78 Orchestration China-​manufactured vessel, to Piraeus.118 Wei returned to Athens as part of Hu Jintao’s November 2008 delegation. While Hu watched, Wei Jiafu signed an agreement pledging €490 million in exchange for the right to operate and develop Piraeus’ Piers II and III.119 COSCO quickly set about modernizing Piraeus’ facilities and equipment. In 2013, COSCO announced it had already completed a new rail link between the port terminal and Greece’s national railway system and would soon invest an additional €230 million to modernize Piers II and III.120 In April 2016, COSCO secured a 67 percent stake in the Piraeus Port Authority and the right to operate Pier I for €368 million; then promptly announced it would invest another €350 million over the next decade.121 Chinese leaders offered crucial support throughout this process. In March 2007, Commerce Minister Bo Xilai told Foreign Minister George Alogoskoufis: “China is ready to intensify trade and economic cooperation with Greece, especially in the shipping sector.”122 COSCO’s major deals in 2008 and 2016 were signed during diplomatic visits, as were most supporting arrangements. During Prime Minister Antonis Samaras’s May 2013 Beijing visit, Huawei and ZTE—​two of China’s largest telecommunications firms—​ promised to establish logistical centers at Piraeus and fund research and training programs throughout Greece.123 In June 2014, Prime Minister Li Keqiang visited Piraeus, describing it as the “pearl port” of the Mediterranean and announcing 2015 as “Greece–​China Maritime Cooperation Year.”124 Li brought along 150 Chinese business leaders, who signed 19 accords worth some €4.7 billion, most linked to the shipping industry.125 The following month, President Xi Jinping stopped off in Greece on his way to Brazil, where he successfully urged Athens to award the upcoming Pier I contract to COSCO.126 In 2006, COSCO Chairman Wei Jiafu had pledged in Athens to encourage other Chinese companies to invest in Greece. 127 As COSCO’s involvement in Greece deepened, major Chinese firms followed suit. In September 2016, China Machinery Engineering Corporation agreed to build a €750  million coal-​fired power plant jointly with Greece’s main electricity utility.128 Shanghai-​based Fosun Corporation, which manages €64.3 billion in global assets, purchased several Greek tourism firms.129 Backed by CDB, Fosun also partnered with Greek and Abu Dhabi firms to refurbish Athens’ former airport.130 In December 2016, China State Grid purchased a 24 percent share in the Greek power grid operator ADMIE for €320 million.131 In May 2017, Shenhua, a major SOE and the world’s largest coal producer, announced €3

Never Let a Crisis go to Waste  79 billion in energy-​related investments with one of Greece’s largest investment groups.132 COSCO’s massive scale also enables it to influence shipping and distribution patterns. COSCO secured a major coup when Hewlett-​Packard (HP) announced in March 2013 that it would relocate most of its European distribution from Rotterdam to Piraeus, enabling HP components to be shipped from China to Piraeus, via train to assembly plants in the Czech Republic, and then distributed throughout Europe:  a process managed entirely by COSCO Logistics. In February 2016, COSCO merged with its smaller rival China Shipping Group, making COSCO Group the world’s fourth-​largest container-​shipping company and terminal operator. 133 In addition to being a major customer at its own ports, in 2016 COSCO joined with CMA, CGM, Evergreen, and OOCL to form “Ocean Alliance,” creating the world’s largest shipping alliance, covering 35 percent of all global shipping.134 In June 2017, COSCO announced that Piraeus port had agreed to conduct joint project planning, staff training, and information sharing with Shanghai International Port Group, which manages the world’s largest port.135 COSCO’s Piraeus investments are also closely linked with Beijing’s infrastructure investments across southern Europe. A China-​funded 370km railway between Belgrade and Budapest is predicted to cut travel time from eight hours to under three. Beijing has also committed to upgrading Greek and Macedonian railways to connect to the Belgrade–​Budapest line. Once completed, the high-​speed rail connection will extend from Piraeus to Budapest, dramatically cutting shipping times for Chinese products into Europe.136 COSCO, along with two Chinese SOEs, was also involved in the landmark 2014–​2015 expansion of the Suez Canal.137 Following COSCO’s lead, Chinese financial institutions also became more active in Greece, most notably by funding Greek purchases of Chinese-​ built ships, many of which are then leased to Chinese firms. Like COSCO’s investments, the loans reflected close coordination between Chinese policymakers and state-​owned banks. On his October 2010 visit to Athens, Wen Jiabao announced that China would establish a $5 billion fund for Greek purchases of Chinese ships, bringing along CDB and Ex-​Im Bank representatives to sign initial loan agreements.138 CDB quickly established an export buyer credit facility to implement Wen’s pledge. Loans were issued by local CDB offices, often in conjunction with Chinese commercial banks.139 In May 2013, CDB signed a cooperation protocol with the Greek state agency implementing Greece’s privatization program, providing funding for

80 Orchestration Chinese firms to purchase newly privatized assets.140 During Li Keqiang’s June 2014 visit, CDB signed financial agreements worth €2.6 billion to fund shipbuilding initiatives and the Piraeus project.141 In July 2016, CDB signed a partnership agreement with Greece’s central bank offering joint financing for Greek infrastructure projects.142 For Chinese banks, many of these deals represented considerable risk. For instance, due to capital controls on Greek banks, in 2015 CDB found itself unable to secure repayment on the estimated €57 million it had lent to 14 Greek companies and 68 solar parks two years earlier.143 Yet, strong political encouragement pushed Chinese banks to continue to lend to Greek partners. As a senior ship-​financing executive from a major Chinese bank admitted, “it is rare for a Greek application to be turned down.”144 Chinese investments offered Athens invaluable relief amidst the financial crisis, since foreign investment into Greece from 2009 to 2014 was 38 percent lower than the previous five years.145 COSCO’s investment also dramatically improved Piraeus’ productivity. From 2007 to 2016, Piraeus’s TEU (twenty-​ foot equivalent units) throughput rose 168 percent, the second-​highest increase among European ports.146 Piraeus thus shot up the world ranking of container ports, moving from 93rd in 2010 to 39th by 2016.147 The port, which was not among Europe’s top 15 in 2007, emerged as the continent’s eighth largest by 2016.148 Ding Yifan, an influential economist at China’s Development Research Centre, praised COSCO for “making a major contribution to Europe’s economic development. By bringing in advanced management techniques, COSCO transformed Piraeus from “down and out” (潦倒) to “healthy and vibrant” (生气勃勃).”149 According to the Greek government, COSCO’s investments in Pier I alone directly created at least 700 new jobs (indirectly, 1,500 new jobs) for Greek dockworkers.150 COSCO also expanded Piraeus’s business in new directions. In mid-​ 2016, COSCO built a new pier at the cruise ship terminal in just 75 days, with company chairman Xu Lirong announcing expectations to eventually attract three million cruise passengers annually. By 2014, Chinese tourists to Greece had already reached 100,000 (double the previous year), bolstered by the new direct flights between Athens and Shanghai and Beijing.151 COSCO also announced plans to turn Piraeus into the largest car terminal in the Mediterranean and to boost the port’s ship-​repair capacity by building a new 300,000 deadweight tonnage dock. Due to its massive outlays, COSCO’s reported profits from Piraeus were initially low. Yet by the first half of 2016,

Never Let a Crisis go to Waste  81 COSCO recorded a profit of $17.9 million from its Piraeus operations, an 18.3 percent increase over 2015. 152 While COSCO’s investments into Piraeus were driven primarily by the firm’s own commercial interests, the project’s scale and success enabled Chinese policymakers to also use the initiative to advance their foreign policy goals. Specifically, the Piraeus case illustrates how Chinese strategic investments can reshape domestic politics in the target country, supporting select sectors whose firms then urge their government to adopt policies in line with Beijing’s preferences. Following the 2005 onset of the Multi-​Fibre Agreement, Greece was among the EU’s strongest voices calling for protectionist policies against Chinese textile imports, along with Italy, Spain, and Portugal—​all major recipients of Chinese economic benevolence amidst the financial crisis. In the case of Greece, the shipping sector offered Beijing an alternative base of support within the Greek polity. The Greek-​owned merchant fleet is the world’s largest, representing some 40 percent of all European tonnage. Greek ship-​owners have long played an outsized role in Greek politics. Greece’s “opening” to the Soviet Union in the late 1970s, for instance, was strongly influenced by its shipping industry seeking new customers. In the 2000s, Greek ship-​owners became some of the most important customers of Chinese shipyards; nearly half of all China’s trade with Greece was shipping-​related. Since 2009, Huliaras and Petropoulos conclude, “the highly internationalized Greek shipping industry heavily influenced Greek foreign policy towards China.”153 At crucial moments, Greece has indeed adopted policy positions aligned with Beijing’s preferences. In January 2006, their joint statement establishing a “Comprehensive Strategic Partnership” declared:  “Greece reiterates it is in favor of lifting the arms embargo against China. Greece will continue its efforts in pushing the EU to lift the embargo.”154 In July 2016, Greece (along with Croatia and Hungary) blocked an EU statement critical of China’s policies in the South China Sea.155 In June 2017, Athens blocked a proposed EU submission to the UN’s Human Rights Council criticizing recent Chinese crackdowns, marking the first time the EU failed to issue a UNHRC statement.156 Since the EU had approved yet another bailout to Athens only the week before, Greece’s obstructionism was particularly infuriating to Brussels—​though undoubtedly quite satisfying for Beijing.

82 Orchestration

Feeding Fears As chapter one shows, Chinese experts broadly downplay the risk that rapidly deepening China’s economic presence might exacerbate anxieties in target countries, undermining Beijing’s policy goals. Yet in Western Europe, this is precisely what happened. Despite China’s support amidst the financial crisis, European public attitudes toward China worsened. A  German Marshall Fund (GMF) study of nine European countries from 2011 to 2014 reported an average decline of 10.2 percentage points in people with a “favorable” opinion of China.157 A  Pew survey found a similar decline from 2005–​2013, with only Poland reporting improved attitudes toward China.158 A BBC survey returned an average decline of 11.25 percentage points in positive views of China across four countries from 2008 to 2014.159 The GMF reported an average 1.18 percentage point increase across 11 countries from 2007 to 2013 in respondents who saw China as more of an economic threat than an opportunity.160 Pew similarly found an average increase of 2.2 percentage points in respondents (2006–​2011) who thought that the growth of the Chinese economy was bad for their economy.161 Comparing these survey results with China’s economic significance for individual countries suggests that Beijing’s economic statecraft not only failed to ease Europeans’ negative threat perceptions, but may well have exacerbated their fears of China. The first three columns of Table 3.3 report the average percentage of European respondents across all survey years who view China favorably. The next two columns report the average percentage of respondents who view China as an economic threat, and who view China’s economic growth as bad for their own country. Each country’s rank within the survey group is in parenthesis; with ranks reversed for the two negative (“threat”) questions, so a higher rank indicates lower threat perceptions of China. These ranks can be compared to their EU ranks in “export significance” (based on the percentage of their exports that go to China), “investment significance” (percentage of their inbound FDI from China), and “diplomatic significance” (number of visits from Chinese leaders, 2009–​2015).162 As Chapter 1 shows, numerous Chinese experts expect that closer economic ties will improve a country’s attitudes toward China. If they are correct, we should see a high correlation between a country’s rank on the first five columns and its rank on the last three (shaded) columns (Table 3.3). The evidence offers scant support. Germany is particularly telling. More

Never Let a Crisis go to Waste  83 Table 3.3.  Comparing European Attitudes toward China with Economic Ties Country

GMF % Pew % BBC % Econ. favor favor positive threat

Econ. grow bad

Export Invest Diplo rank rank rank (# visits)

Germany France UK Italy Spain Portugal Netherlands Sweden Poland

30 (7) 39 (5) 46 (2) 32 (6) 41 (4) 4 (3) 48 (1) 31 (8) 39 (5)

51 (4) 63 (5) 38 (1) N/​A 45 (3) N/​A N/​A N/​A 44 (2)

1 4 6 8 13 15 19 3 21

35 (5) 45 (3) 53 (1) N/​A 46 (2) 43 (4) N/​A N/​A N/​A

21 (3) 28 (2) 45 (1) 28 (2) 28 (2) N/​A N/​A N/​A N/​A

43 (5) 61 (10) 37 (3) 51 (7) 52 (8) 57 (9) 25 (1) 26 (2) 50 (6)

3 4 5 1 11 23 16 9 14

1 (15) 3 (8) 2 (11) 6 (2) 6 (2) 6 (2) 5 (3) 6 (2) 6 (2)

Note: I identified the percentage of each country’s exports that went to China each year and the percentage of inward FDI into each country that came from China each year. I report here the 2009–​ 2012 average. Ranks are across all EU members. Data sources: IMF Direction of Trade Statistics; UNCTAD FDI/​TNC database; China’s Ministry of Commerce Annual FDI Reports. Surveys cited in preceding paragraph.

Germans have negative attitudes toward China than any other nationality in two questions above, as well as the next-​to-​lowest rank in two other polls, even though Germany ranks highest in export dependence on China, as well as diplomatic targeting. France also has some of the highest ranks in export, investment, and diplomatic targeting; and yet French citizens exhibited the strongest set of negative threat perceptions on both economic questions. Italians are also more critical than their economic rank would predict. Although China provided a higher percentage of Italy’s inward FDI than for any other EU member, 51 percent of Italians still describe China as an economic threat—​Europe’s third-​highest rate. Overall, countries that benefitted the most from China’s economic engagement and diplomatic attention developed more negative public sentiments—​precisely the opposite of Chinese experts’ expectations. These negative sentiments proved costly for Beijing’s two top policy goals in Europe. The first was ending the EU’s arms embargo. Following the 1989 Tiananmen Square incident, the European Council of Ministers announced an “interruption . . . of military cooperation and an embargo on trade in arms with China.” The EC (later EU) never clarified these terms and never established any oversight, coordination, or enforcement mechanisms. Beijing has

84 Orchestration consistently sought the embargo’s removal. Its first-​ever EU Policy White Paper declared “the EU should lift its ban on arms sales to China at an early date so as to remove barriers to greater bilateral cooperation on defense industry and technologies.”163 China’s second EU White Paper insisted in 2014: The EU should lift its arms embargo on China at an early date . . . China will continue to urge the EU to ease its restrictions on and facilitate high-​tech product and technology export to China, so as to release the great potential of bilateral high-​tech trade.164

The second goal was securing EU recognition as a market economy. World Trade Organization (WTO) rules governing anti-​dumping vary if the accused country is considered by the accusing state to be a market economy. Beijing insisted that Section 15(d) provision of its 2001 WTO Accession Protocol allowing members to treat China as a non-​market economy would expire after December 11, 2016, obligating all WTO members to recognize China’s market economy status (MES). Chinese leaders repeatedly urged the EU to support China’s position.165 In September 2011, Wen Jiabao pledged: “China will continue to expand investment in Europe,” while insisting “based on the WTO rules, China’s full market economy status will be recognized by 2016. If EU nations can demonstrate their sincerity several years earlier, it would reflect our friendship.”166 Chinese experts describe Beijing’s pressure on MES as a “typical example of China’s economic statecraft.”167 In July 2012, State Counselor Hua Chunbao reminded Chinese diplomats at an internal “consultation meeting” (吹风会) in Beijing that the arms embargo and China’s non-​market economy status remain “the two most important concerns for China. . . . Our position on these two issues is absolutely clear. They reflect the EU’s unequal treatment and lack of trust of China.”168 Several months later, Premier Wen Jiaobao reiterated at the EU–​China Summit: “I have to be very frank . . . the solution [to these two issues] has been elusive over the past ten years. I deeply regret this and I hope the EU side will take greater initiative to solve these issues.” 169 Yet, Beijing’s efforts fell short on both accounts. In 2010, the EU’s inaugural High Representative for Foreign Affairs and Security Policy, Catherine Ashton, signaled her interest in lifting the arms embargo. Ashton urged the EU to “be generous and more creative” in its strategic partnership with China, and called for new “strategic thinking” on China.170 On December 17, 2010, Ashton insisted to the EU Council:

Never Let a Crisis go to Waste  85 The current arms embargo is a major impediment for developing stronger EU-​China co-​operation on foreign policy and security matters. The EU should assess its practical implication and design a way forward.171

While Chinese officials urged EU officials to support Ashton’s initiative, it ultimately fell short. The embargo remains intact today. Beijing also failed to secure EU recognition of MES, despite providing economic incentives to key players. Italy yields an instructive example. China is Italy’s third most important commercial partner and the seventh largest destination for Italian exports.172 In 2015, Italy was Europe’s single largest recipient of Chinese investment, due largely to ChemChina’s €7 billion investment into Pirelli.173 From 2000–​2015, Italy was Europe’s second-​largest recipient of Chinese FDI, behind only the UK.174 In 2014, SAFE invested just over two percent in each of Italy’s ten largest companies (total: €3.5 billion) so its investment would be publicly recorded.175 During his October 2014 visit to Rome, Chinese Premier Li Keqiang presided over the signing of a dozen new commercial deals worth over €8 billion and announced major financial agreements between Italian banks and two largest China’s state-​run financial institutions. Li described these deals as “merely the appetizer” with “the main course of Sino-​Italian cooperation yet to come.”176 In exchange, Li sought Rome’s support on MES, encouraging Italy to “continue playing a constructive role in promoting China-​EU ties, which are now at a crucial stage.”177 Despite Beijing’s efforts, in October 2015 Italy became the first EU member state to openly declare its opposition to MES. Insisting that the EU should not “unilaterally disarm,” and warning that MES would “put entire industrial lines of our economy and our continent on its knees,” Deputy Economic Development Minister Carlo Calenda declared: “China is not a market economy, it doesn’t meet the conditions.”178 Sent to Brussels as Italy’s Permanent Representative in January 2016, Calenda successfully demanded that the EC conduct a new impact assessment and hold a public consultation process on MES.179 Beijing also targeted Brussels. From 2009–​2016, top leaders spent more time there than any other European capital (after London, Paris, and Berlin). China promised €5 –​ €10 billion for the EFSI, signed a €45 billion bilateral currency swap agreement with the European Central Bank, and agreed to the EC’s proposal for a EU–​China Connectivity Platform.180 Beijing augmented these carrots with a stick: slowing down talks on a bilateral investment treaty

86 Orchestration and hinting privately that MES rejection would result in retaliatory trade measures.181 On the eve of the European Parliament (EP)’s May 2016 vote on MES, Ambassador Yang Yanyi published an article insisting it is “highly necessary . . . for business people and policy makers to have a clear grasp of China’s real story and its strategic focus so as to make the right decisions.”182 As one member state diplomat in Brussels told me in May 2016, “China is lobbying hard to get MES through.”183 Yet once again, Beijing fell short. On May 21, 2016, the EP overwhelmingly passed a resolution opposing MES for China.184 The EU allowed the December 2016 deadline to pass without a deal on MES for China, sparking a legal challenge by Beijing.185 Instead, European states took an increasingly hard line toward China.186 The EU began putting in place a framework for screening inward FDI, one of several measures designed “to address economic risks from Chinese state capitalism.”187 A March 2019 EU Commission paper captured the new mood, denouncing Chinas as an “economic competitor” and “systemic rival.”188

Conclusion In both its weaknesses and strengths, China’s economic statecraft in the wake of Europe’s financial crisis exemplifies orchestration in action. Chinese leaders mobilized a range of commercial actors—​most importantly, SOEs and financial institutions—​and coordinated across multiple government agencies. Top policymakers played indispensable roles through direct diplomacy, approving the use of state financial resources, building institutional linkages, and encouraging outward investment. China’s economic statecraft relied upon encouraging commercial actors to make investment and purchasing decisions that leaders expected to yield economic, as well as diplomatic, benefits. This alignment of preferences eased Beijing’s coordination and incentivizing difficulties while limiting the need for oversight or punitive measures. Beijing’s coordination and incentivizing effectiveness was evident across the range of economic statecraft techniques and issue areas examined in this chapter. Beijing’s purchasing diplomacy featured active and direct diplomacy by Chinese leaders, who packaged and presented major investment and purchasing agreements in ways designed to maximize their diplomatic benefits. China’s support for the euro and its promotion of RMB internationalization

Never Let a Crisis go to Waste  87 similarly evidenced prominent leadership and effective coordination across China’s leading banks and financial institutions. Chinese policymakers also demonstrated attentiveness to European domestic politics in the timing and structuring of their interventions into European financial and commercial markets. COSCO’s investments into Piraeus demonstrated an impressive level of state–​enterprise coordination, while also showing how a lead SOE can mobilize an array of other actors in delivering substantial economic benefits to powerful sectors within a recipient country. Here again, Chinese leaders played a prominent role, both in supporting COSCO’s efforts and in taking credit for the benefits to Greece. I accept economists’ findings that China’s post-​crisis investment surge in Europe was, like Chinese overseas investments generally, driven primarily by market considerations.189 Whether these investments will turn out to be wise commercial decisions is a question beyond the scope of this book. However, since economic statecraft is, for me, political leaders intentionally using economic resources to advance foreign policy objectives, I am interested in identifying how Chinese policymakers sought to encourage, guide, and present enterprises’ investment and purchasing decisions for political purposes. Here the evidence is clear. Although Europe’s crisis offered a rare opportunity for Chinese investors, it also represented a considerable risk—​ evident in the sharp public criticism by Chinese economists, businesspeople, and the general public. Despite these risks, Chinese leaders acted decisively and creatively when confronted with Europe’s financial crisis, mobilizing and coordinating across a range of government agencies and commercial actors to ensure that China’s economic actions in Europe yielded diplomatic, as well as economic, benefits. China’s orchestration strategy was, in this instance, implemented effectively. Given the high level of direct involvement by Chinese leaders, the strategic importance of Western Europe, its distance from China (and hence, less province-​level involvement), and the strength of domestic governance capacity, we would expect relatively low levels of principal–​agent problems and thus high levels of implementation coherence. This was borne out across all four sub-​cases. While economic data points to moral hazard problems (namely risky investments by some SOEs), problems with “policy stretching” or enterprise malfeasance were limited. Moreover, in the one instance where Beijing appears to have been over-​exuberant, rushing to provide assistance to southern EU members while Berlin and Brussels were trying to use fiscal

88 Orchestration support for political leverage, Chinese leaders quickly and smoothly reversed course. Yet simply because Chinese leaders effectively implemented their economic statecraft in the wake of Europe’s financial crisis, this does not mean that they shaped European decision making. Quite the opposite. Beijing’s economic statecraft not only failed to advance its two top policy goals in Europe—​securing market economy status and ending Europe’s arms embargo—​but exacerbated popular distrust of China and spurred European leaders to adopt a hard line in restraining China’s economic presence on the continent. This outcome, though frustrating for Beijing, suggests that Europeans’ surging anxiety over China’s economic presence is largely overwrought. As I argue elsewhere, economic engagement with China yields far more benefits for Europeans with far fewer political costs than most popular analyses assume.190 While Europe generally represents a “hard case” for China’s efforts to use economic resources to exert political influence, Beijing’s efforts to encourage enterprises’ expansion into Western Europe were eased by the region’s strong financial and economic fundamentals, and the well-​established trading relationships between China and EU members. Encouraging investment into Central and Eastern Europe was far more difficult, demanding considerable ingenuity from Chinese policymakers. We now turn our attention eastward to examine how China’s orchestration strategy played out across the remainder of the European continent.

4 Creating a Region China’s Economic Statecraft in Central and Eastern Europe

The Mihajlo Pupi Bridge is a great achievement of China–​Serbia friendship. Chinese equipment was used in building the bridge, while employment was promoted in local regions during the construction. It will hugely facilitate the travelling of people on both sides and help boost Serbia’s economic development. It is a bridge linking the hearts of Chinese and Serbian peoples, and also a bridge for the mutually beneficial cooperation between China and Europe.1 Premier Li Keqiang in Belgrade December 18, 2014

One of Beijing’s most remarkable economic statecraft initiatives in the wake of Europe’s financial crisis was the “16+1” initiative. Chinese policymakers initiated the China–​ CEEC (Central and Eastern European Countries) Partnership in April 2012 with an Economic and Trade Forum in Warsaw. A Secretariat was soon established in Beijing, with “Guidelines for China–​ CEEC Cooperation” issued at annual summit meetings. The CEEC grouping includes five Central European countries (Poland, Hungary, the Czech Republic, Slovakia, and Slovenia); three Baltic countries (Estonia, Latvia, and Lithuania); and eight eastern and southeast European countries (Romania, Bulgaria, Serbia, Montenegro, Croatia, Macedonia, Bosnia, and Albania).2 Eleven are EU members, but only five belong to the eurozone. China’s trade with the region reflects this imbalance: five of the 16 CEE countries—​Poland, Czech Republic, Hungary, Slovakia, and Romania—​provide 80  percent of CEE–​China trade.3 Levels of prosperity and economic development vary widely from the war-​torn western Balkans to the European states of Poland

​

​

90 Orchestration and Hungary. Indeed, this diverse grouping did not exist before Beijing’s initiative. As Chinese experts explain, all 16 CEE countries share one common feature: they are all former socialist states, many of which reacted to the end of Soviet influence by becoming virulently anti-​communist, criticizing China’s policies on Taiwan, Tibet, and human rights.4 By 2012, Chinese leaders saw an opportunity to act in Eastern Europe as they did in Africa, Asia, and elsewhere: establishing a new regional grouping where Beijing could play a catalytic role by providing new investment for regional infrastructure, yielding diplomatic, economic, and strategic benefits for China. Yet given the paucity of China’s economic presence, its fragile diplomatic ties in the region, and flimsy regional coherence, the ambitious 16+1 initiative represents a robust test for Beijing’s economic statecraft. In Western Europe, with powerful strategic and economic interests at stake, top leaders assumed a direct role in implementing and guiding much of China’s economic statecraft: pushing and packaging Chinese investments to maximize diplomatic benefits, coordinating complex financial statecraft initiatives, and supporting COSCO’s investment into Piraeus. In Central and Eastern Europe, policymakers also used such “nested orchestration” techniques, but relied more heavily upon mobilization strategies designed to encourage an array of Chinese government agencies, regional authorities, and commercial actors to “go out” into the region. To facilitate this push, policymakers sought to align their foreign policy goals and economic statecraft initiatives with enterprises’ commercial interests. As Premier Li Keqiang told CEE leaders in November 2016, deploying the identical phrase used to justify China’s economic engagement of North Korea: “The 16+1 cooperation has all along been guided by the principle of government support, business initiative and market operation.”5 Across the four distinct types of economic statecraft examined in this chapter, Beijing’s orchestration approach proved largely effective, rapidly mobilizing broad participation with high implementation coherence at low cost. Despite considerable obstacles, the 16+1 “became the most sophisticated Chinese-​led regional platform,” Jakóbowski concludes.6 The second case, examining Beijing’s investment promotion efforts, demonstrates Beijing’s capacity for learning and adaptation. The third case explores Beijing’s creative response to CEEC trade deficits, including its strategic provision of export certifications and encouragement for Chinese agricultural firms to invest in CEE countries while expanding their exports to China. This

Creating a Region: Central and Eastern Europe  91 tactic neatly aligned the interests of Chinese firms and their political backers with CEE countries’ desires for more Chinese investment and exports to China. The final case assesses China’s bilateral influence attempts: targeting key CEE states by providing economic benefits. We begin with China’s ambitious effort to create an entirely new regional grouping.

Creating a Region The China–​CEEC Partnership, formally established in April 2012, is modeled upon the Forum on China-​African Cooperation (FOCAC), though Beijing hoped to avoid FOCAC’s poor coordination and uneven implementation.7 The China–​CEEC faced an additional challenge since, unlike in Africa, there was little sense of collective identity. Instead, this new regional grouping was being imposed by a distant and unfamiliar partner. Chinese leaders had initially hoped for one country to take the lead, but soon discovered that the major players—​Poland, Hungary, and the Czech Republic—​were more interested in competing among themselves.8 Instead, Beijing ended up structuring the 16+1 framework around a functional division of labor, with leading CEEC members responsible for sectorial secretariats: Hungary (tourism), Serbia (transportation and infrastructure), Poland (trade and investment), Bulgaria (agriculture), Romania (energy), and Czech Republic (local government partnerships). Each country created a “national coordinator” for the China–​CEEC initiative; these coordinators meet together twice a year. CEE countries’ embassies in Beijing also facilitate coordination, with an embassy staffer generally tasked with China–​CEEC obligations. Poland’s Agricultural Ministry, for instance, sent a staff member to its Beijing embassy to facilitate agricultural cooperation with China under the 16+1 framework.9 China’s ambitious efforts to facilitate regional cooperation yielded mixed results. By 2019, seven years after the initiative’s launch, most of the Secretariat websites remained lackluster.10 To most observers, 16+1 remains a wagon-​wheel of disparate spokes, with China’s funding, diplomatic clout, and bureaucratic energy at the center. Pavlićević claims that CEE countries “appear to be overwhelmed with the level and number of activities, initiatives and proposals advanced by Beijing.”11 From January to November 2017 alone, 47 official events were held.12 Jakóbowski, however, finds that:

92 Orchestration Contrary to popular perception, the cooperation is not limited to regular high-​level summits. The overwhelming content of relations is conducted within the complex realm of sectorial cooperation, consisting of dozens of sub-​forums, instruments and cooperation mechanisms. These platforms evolved into comprehensive dialogue mechanisms, covering economic, developmental, political and cultural issues.13

Within China, Beijing’s functional division of labor was effective in mobilizing participation across government agencies. To ensure diplomatic leadership of the initiative, the CEEC Secretariat was established within MOFA’s Department of European Affairs. The Secretariat combines 18 agencies in a grouping reflecting the diversity of Beijing’s 16+1 initiatives, as well as the importance of economic interests, most importantly: MOFA, NDRC, MOFCOM, PBC, CDB, Ex-​ Im Bank, the Party’s International Liaison Department, Administrations of Tourism and Civil Aviation, and the Ministries of Finance, Education, Culture, Science and Technology, Transportation, and Agriculture. Quarterly Secretariat meetings bring ministerial representatives together with CEE countries’ embassy staff in Beijing. The Chinese Academy of Social Sciences coordinates the China–​CEEC think-​tank network. To bolster cohesion and ensure diplomatic leadership, MOFA appointed Huo Yuzhen as Special Representative for China–​CEEC Cooperation in April 2015.14 Each agency was assigned responsibility for expanding cooperation in their functional area. This is consistent with the “nested orchestration” approach, in which line ministries that have been delegated responsibility mobilize an array of subordinate actors through political and financial “rewards.” Tourism yields an illustrative example. In May 2014, Shao Qiwei, China’s National Tourism Administration chairman, attended the first China–​CEEC High-​level Meeting on Tourism Cooperation while inaugurating the CEEC’s Tourism Coordination Centre in Budapest. Touting Chinese tourists’ “high-​ spending willingness,” Shao Qiwei called for new tourist products, routes, and publicity in hopes of increasing Chinese tourism to CEE countries by 15 percent.15 His push yielded results. Two years later, Li Keqiang noted that two-​way tourist visits now exceeded one million and called for a doubling of tourist visits within five years through relaxed visa policies, simplified entry procedures, more direct flights, and improved tourist services.16 By 2017, direct flights had been established between Shanghai, Chengdu, and Prague, and between Beijing and Warsaw.

Creating a Region: Central and Eastern Europe  93 The NDRC was tasked with promoting Special Economic Zones (SEZs) in CEE countries. The Euro-​China Economic Development Zone in Bulgaria, for instance, promised to create “an exhibition, logistics and trade center for Chinese goods, modern logistics centre for export from China to Europe, Africa, and Russia and an exhibition and trade centre for European goods targeting the Chinese market.”17 The NDRC also signed a series of bilateral deals in 2016 pledging to build “port and harbor industrial parks” across the Adriatic, Baltic, and Black Seas.18 Beijing’s most successful orchestration techniques relied upon encouraging regional authorities to expand their ties with CEE countries. The first annual local leaders’ meeting was held in Chongqing in July 2013, likely a reward for Chongqing’s proactive promotion of its rail links with Poland. Chinese regional officials enjoy considerable influence over their “local” enterprises—​which are among the world’s largest—​and so can “encourage” them to support low-​cost political initiatives. Beijing city’s delegation to the September 2016 “Capital Cities” meeting in Sofia, for instance, included some of China’s largest private firms headquartered in Beijing (ZTE and Huawei), as well as the city-​level SOEs that “own” and manage Beijing’s subway system and the massive Zhongguacun industrial park in northwestern Beijing—​ China’s Silicon Valley.19 The strategy of encouraging city-​level officials to promote investment and trade with CEE countries mirrors the “twinning” strategy used in China’s domestic development, in which prosperous coastal cities are paired with poorer cities or regions in far western China. Shenzhen, for instance, established the Shenzhen Trade and Culture Center in Latvia during the first annual “Shenzhen-​CEEC Trade and Culture Fair,” which brought in some 650 Shenzhen regional firms to meet with over 150 corporate and government representatives from CEE countries.20 On the sidelines of the fourth China–​CEEC leaders’ meeting in Suzhou in 2015, Shanghai officials formed a sister-​city relationship with Sofia, pledging to build closer relations in trade, cultural, science, and innovation.21 Economists have documented a correlation between such sister city relations and China’s FDI in Europe, suggesting that “the sister city relationship plays a positive role in attracting Chinese OFDI to Europe.”22 Ningbo was also tapped to play a lead role. In 2016, the city hosted the China–​CEEC Investment and Trade Expo, the China–​CEEC Cooperation and Development Forum, China–​CEEC Customs Development Forum, China–​CEEC Overseas Chinese Businessmen Ningbo Summit, and the

94 Orchestration China–​CEEC Dialogue on Quality Supervision, Inspection, and Quarantine of Food and Agricultural Products.23 During the Investment and Trade Expo, which attracted over 300 CEE companies, some 28 deals were reportedly signed worth an estimated $350 million. Ningbo officials pledged: “China, especially Ningbo, will step up efforts in generating more trade volume between China and CEE countries in agricultural products, food, technology, manufacturing, and emerging sectors such as cross-​border e-​commerce.”24 Ningbo officials signaled their plans to create a SEZ for CEE companies and to grant CEE imports preferential status during customs clearance.25 As in the Myanmar and North Korea cases, regional authorities showed considerable initiative in promoting economic cooperation. One of the most prominent examples has been the rail freight shipments from China to Europe. Attracted by the 2011 shipments from Chongqing to Duisburg (Germany), the Poland office of Dell Computers began to explore faster ways to import spare parts from their factories in Chengdu. They reached out to Hatrans, a Polish logistics firm, establishing a joint venture company in Chengdu.26 Seeing an opportunity to compete with Chongqing, Chengdu officials successfully copied the Yunnan example (see Chapter 6), promoting the train project as a “bridgehead” (桥头堡) to Europe in their pitch to top Chinese officials. On April 23, 2013, the Chengdu–​Europe Express Railway Service began operations. During its first year, the rail route sent 8,293 metric tons of cargo worth $156 million on 45 trains hauling 3,704 containers.27 Sensing an opportunity, city officials in Chengdu and Lodz quickly formed a cooperative entente, establishing city-​level liaison offices and exchanging delegations. Chengdu officials seeking to capitalize upon Beijing’s BRI enthusiasm put the rail project at the center of their new strategic plan, dubbed “Chengdu–​Europe Plus,” while Lodz officials promoted their city in China as “The Gateway to Europe.” Chengdu officials praise the rail link as “the fastest and most frequently used direct freight from China to Europe . . . turning Chengdu’s inland geographical disadvantage into an advantage for exporting to Europe.”28 Lodz officials echo their enthusiasm, telling me: “Sichuan province has gotten very excited about this project. We’ve hosted visits by the province’s Party Secretary and International Liaison Department. They are testing the waters, as they hope for Lodz to become a regional distribution center for their products.”29 Poland faced considerable difficulty in exporting their most competitive products (meat and automobiles) to China, since only “national-​ level” ports in China can import these products. In August 2014, Chengdu

Creating a Region: Central and Eastern Europe  95 received approval to establish a “temporary national port” so Polish meat and cars could travel via the rail link.30 Seeking to emulate their success in Poland, in May 2016, Sichuan province officials signed a memorandum of understanding (MOU) with Czech officials promising to build a logistical and transport base in the Czech Republic, which would focus on importing goods from Sichuan.31 Other CEE states and Chinese cities quickly followed suit: by 2018, the three Baltic CEE members had established their own train links with Xi’an.32 The Lodz–​Chengdu railway exemplifies China’s orchestration in action. Central-​level leaders established a broad initiative designed to encourage competition and reward activism by regional authorities. Local officials seized this opportunity to design and implement specific projects, mobilizing local enterprises and working directly with international counterparts. Their success was rewarded with high-​level political support, encouraging further innovations and inspiring similar projects by other regions. Similar examples are abundant in both the Myanmar and North Korea cases, pointing to the centrality of this strategy for China’s economic statecraft. As in Myanmar and North Korea, the CEE case also demonstrates Beijing’s capacity to recognize and address problems with its orchestration tactics.

Learning How to Invest in Eastern Europe Promoting investment is one of China’s most important economic statecraft techniques. Yet, China’s “insignificant” investment into CEE countries has been “a source of disappointment for some Central European countries,” admit Chinese experts.33 In 2014, Bulgarian President Rosen Plevneliev told Xinhua during his China visit: “We are ready to grant use of our ports on the Danube River and the Black Sea. We are ready to grant highways, tunnels and bridges, and hydropower complexes that will be built between Bulgaria and Romania by our Chinese partners.”34 The following year, Premier Boyko Borisov led a cabinet-​level delegation to the 2015 China–​CEEC Suzhou summit, hosting a forum urging Chinese investors to “Invest in Bulgaria—​ Expand in Europe.”35 Yet, Chinese officials struggled to encourage investment. While MOFCOM’s 2011 advice to companies highlighted the potential for transportation, energy infrastructure, and food production projects, Chinese investors remained cautious, often for good reason.36 A Chinese Academy

96 Orchestration of Social Sciences study warned investors of the region’s “poor economic, social, and political environment,” listing only Poland as “very good” while ranking ten CEE countries as either “not bad” or “not good” for Chinese investments.37 Chinese experts note how EU regulations “increase the difficulties for Chinese enterprises,” while in the non-​EU members of southeastern Europe, “the grey economy is rife, corruption is rampant, and laws or regulations are often out of place.”38 Interviews reveal Chinese firms’ frustration with the region’s political obstacles, perceived anti-​Chinese discriminatory policies, protectionism, and preference for Western firms.39 Jakóbowski describes Beijing’s investment promotion as “beset with difficulties” due to Chinese firms’ inexperience, unrealistic expectations on both sides, and a lack of enthusiasm or capacity in many CEE states.40 While China’s outward FDI into CEE countries rose from $400 million in 2009 to $1.7 billion in 2014, flows remained geographically concentrated, with Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Slovakia taking 95 percent of the 2014 total.41 Chinese investments into the region “largely follow conventional explanatory patterns,” with investors viewing the CEEC’s EU members primarily as a “back door” for accessing the EU’s internal market while offering lower labor costs, a skilled workforce, and modest market potential.42 While some adventurous Chinese firms persisted, their risky business practices in the region left Beijing to clean up a political mess when projects collapsed. The most prominent example was COVEC (China Overseas Engineering Group), a China Railway subsidiary. In 2009, COVEC won a Polish contract to construct two short highway segments, the first Chinese company to win a tender to build a European highway. Yet COVEC apparently “low-​balled” their bid to win the tender—​its price offer was less than half the amount allocated by the Polish government. As costs soared, the company tried to replace local workers with 400 Chinese workers, while local companies filed an EU complaint on COVEC’s predatory price undercutting. Chinese and European experts agree that COVEC vastly underestimated the project costs, EU regulatory demands, and the importance of public relations, while overestimating the value of its political connections.43 The negligence was shocking: COVEC failed to even fully translate the original Polish contract. By 2011, the deal was in disarray: COVEC suspended the contract, sparking lawsuits in China and Poland. China’s Railway Minister Liu Zhijun was dismissed for corruption, including in the COVEC case, while COVEC President Fang Yuanming was fired due to “ignorance of the European

Creating a Region: Central and Eastern Europe  97 market, conflicts within the consortium, and other examples of mismanagement that led to the company having to cancel the contract.”44 Occurring in China’s most important regional economic partner, the COVEC train wreck highlighted for Beijing the risk of relying solely upon market mechanisms to bolster China’s economic presence in the region. Beijing soon returned to its traditional approach for promoting investment into developing countries: creating a state-​backed line of subsidized credit within its policy banks to provide investment capital for transportation and energy infrastructure projects. Recipient countries apply for loans to fund large infrastructure projects, implemented primarily by Chinese firms. The recipient government receives the road or railway and takes up responsibility for loan repayment, but most funds never leave China. This “tournament” strategy encourages competition among domestic firms while helping Beijing retain oversight and facilitate coordination. It also helps Beijing direct capital toward its own policy priorities, including building the transportation infrastructure necessary for expanding China’s trade in the region. It also neatly aligns Chinese firms’ commercial interests with the strategic objectives of Beijing’s diplomats and economic planners, while still delivering valuable projects to recipient countries. It even helps China deal with its overcapacity problem. As Premier Li Keqiang promised CEE leaders in Belgrade on December 16, 2014: “China’s excessive, yet advanced, production capacity in equipment manufacturing could well be aligned with the CEE countries’ need for infrastructure development.” Li highlighted high-​speed trains, nuclear energy, telecommunications, and steel and glass production as sectors where China’s overcapacity could help fill CEE needs.45 Chinese policy banks played a crucial role in implementing this approach. In 2012, CDB opened a €1 billion credit line for projects with Hungarian partners. Budapest’s earlier petition for EU support for its V0 rail line around Budapest had been rejected following an EU feasibility study; critics suggested that the project’s real objective was to free up real estate for development.46 Yet CDB quickly agreed to use its new credit line for the project, to be completed by Chinese Railway Construction Corporation.47 CDB similarly provided a $390  million loan to Bosnia-​Herzegovina in 2013 to refurbish a coal-​fired power plant, completed by China’s Dongfang Electric Corporation.48 The largest source of Chinese state-​backed capital for regional infrastructure was the $10 billion China Export-​Import Bank special credit line,

98 Orchestration established in 2012 with considerable fanfare by Beijing. The line offered direct lending to CEE governments for infrastructure projects, promising to provide 85 percent of project capital, with initial grace periods, long maturity, and below-​market interest rates. In return, Ex-​Im Bank demanded state-​ backed guarantees for their loans and expected that Chinese firms would secure major contracts within the projects, requirements that contravene EU regulations.49 As a result, the Ex-​Im loans were only taken up by non-​ EU members. The first project financed under the new Ex-​Im credit line was the Stanari power plant in Bosnia and Herzegovina, announced in 2013 by Premier Li Keqiang in Bucharest.50 Ex-​Im funds also backed the Bar-​Boljare motorway in Montenegro—​built by two Chinese SOEs.51 In November 2013, Ex-​Im Bank offered a €580 million loan to Macedonia for Sinohydro to build two highways.52 The same year, a $608  million Ex-​Im Bank loan backed China Machinery Engineering Corporation to refurbish a Serbian power plant and nearby coal mine.53 Ex-​Im funds were also used for the Mihajlo Pupi Bridge; Li Keqiang’s remarks at its December 2014 opening ceremony begin this chapter. Yet, Li admitted to CEE leaders in December 2014 that only $3 billion of the $10 billion fund had been utilized.54 By 2017, $7 billion had been utilized, though loans went only to six of the 16 countries.55 Moreover, Ex-​Im loans proved inadequate for funding Beijing’s flagship CEEC project: a high-​speed rail between Belgrade and Budapest, a key link in the envisioned “China-​ Europe land-​sea express line” running north from Greece’s Piraeus port. Belgrade resisted Ex-​Im Bank’s demands for state guarantees due to the financial risks, and managed to compel China to accept a cheaper, and slower, rail system.56 As an EU member, Hungary refused the Ex-​Im loans, particularly after the EC began infringement proceedings against Budapest in 2016.57 As 2017 drew to a close, the Belgrade–​Budapest rail project remained stagnant, contradicting Chinese leaders’ rosy proclamations.58 Once again, Beijing responded to these setbacks creatively, creating a new investment fund backed by a state-​owned commercial bank which could make market-​based financial investments into CEE firms, dropping the restrictions on state-​backed guarantees and Chinese firm involvement. This approach obscured the involvement of the Chinese state while focusing on commercially viable projects. Unlike the earlier $10 billion credit line, the China–​CEE Investment Cooperation Fund began modestly in November 2013, with a total commitment of $435 million: $30 million from Hungary’s Export-​Import Bank and the remainder from China’s Ex-​Im Bank. The Fund

Creating a Region: Central and Eastern Europe  99 announced it was “interested in projects typically requiring $25–​75 million of equity with larger transactions also financed with partners or with bank debt.” It quickly invested in Polish wind projects and renewable energy firms, a Hungarian telecommunications company, and Budapest Metropolitan University.59 In December 2014, Ex-​Im Bank announced it would add another $1 billion to the Fund, having spent most of its funds ahead of schedule.60 Following this success, the Industrial and Commercial Bank of China (ICBC, the world’s largest bank by capitalization) established the €10 billion Sino-​CEE Fund in November 2016. Li Keqiang’s inaugural announcement signaled a partial compromise with EU restrictions, pledging that the Fund “will be bound by EU provisions on sovereign debt of its members, and will mainly finance connectivity and production capacity cooperation projects under the “16+1” framework for the purchase of Chinese equipment and products.”61 ICBC publicity downplayed these political objectives and restrictions, explaining that the Fund would invest in infrastructure and high-​tech manufacturing to “generate reasonable investment returns” while bolstering the bank’s regional expansion.62 Yet behind the scenes, the Sino-​ CEE Fund reflected close coordination between officials, SOEs, and private firms. ICBC Chairman Jiang Jianqing stepped down to head the new fund, which also incorporated unspecified contributions by China Life Insurance (a massive SOE), a private, Shanghai-​based investment group (Fosun) and Singapore’s Royal Golden Eagle fund.63 In 2017, the Sino-​CEE Fund co-​ established the Economic Research Institute of Central and Eastern Europe (ERICEE) in Shanghai. The ERICEE Council brings Jiang Jianqing together with former Chinese ambassadors to Europe, PBC advisors, and Silk Road Fund officials, alongside executives of CEFC, a private Chinese energy company deeply involved in the Czech Republic (as discussed below).64 In aggregate, Beijing’s efforts at mobilizing investors yielded considerable progress. In 2016, Pavlićević concluded: While the depth of economic engagement is uneven across the region, most of the CEE countries saw the arrival of Chinese investments over the last few years, and there is a growing portfolio of Chinese big-​ticket infrastructure and developmental projects, equity investments, and acquisitions in the region. Trade is on the way up. Numerous initiatives in research, education, business-​to-​business, and other domains are operational or underway. Altogether, the number of regular and institutionalized mechanisms under

100 Orchestration the initiative—​a prerequisite for long-​term and sustainable development of the platform—​is growing by the year, ensuring solid foundations for the future.65

China’s orchestration of infrastructure funding into CEE countries exhibited a high level of coordination among key domestic actors. Policy and commercial banks provided financial backing for infrastructure projects designed to advance the commercial interests of Chinese firms and financial institutions while also implementing Beijing’s strategic and diplomatic agenda. This case also demonstrates Beijing’s capacity to learn from and respond to problems. Encouraging commercial actors to “go out” into the region with limited oversight emboldened enterprise malfeasance in the case of COVEC, while relying entirely upon a state-​dominated investment fund proved ill-​ suited to the CEE region. However, Beijing responded to these problems by revamping its approach, encouraging Chinese financial institutions to create funds (“tournament prizes”) awarded to individual firms for projects with local support. Similar creativity in using interest alignment to mobilize participation was also evident in China’s trade promotion efforts.

A Creative Response to Trade Deficits Around the world, a major challenge facing China’s diplomacy is the frustration generated by China’s pervasive trade surpluses. This issue is particularly poignant in the CEE region. All 16 countries run consistent trade deficits with China; many raised the issue early and often through the 16+1 framework. Chinese policymakers used economic statecraft to help blunt these frustrations, combining political rhetoric alongside bilateral and regional cooperation with an innovative use of quarantine agreements and targeted investments by Chinese firms, a tactic that aligned interests among key domestic actors to encourage implementation. Political leaders’ public statements are, by themselves, an important diplomatic action. In this case, Chinese leaders repeatedly used their speeches to acknowledge and pledge responses to CEE trade deficit concerns. Li Keqiang’s Rega speech at the 2016 China–​CEEC leaders’ conference on “Forging a Reliable Partnership for Win-​win Cooperation” insisted:

Creating a Region: Central and Eastern Europe  101 China does not pursue trade surpluses with CEE countries. We are willing to import more high-​quality agricultural products and marketable industrial products from you, and we welcome the participation of CEEC businesses in various exhibitions in China to promote their products and brands.66

Similar pledges appeared in every “Guidelines” document emerging from the annual China–​CEEC summits; indeed, agriculture is the most prominent sector within most summit documents. The 2015 Suzhou “Medium Term Agenda for Cooperation,” for instance, pledged “a joint effort to step up quality inspection and quarantine cooperation . . . in order to promote fast growth and safe development of trade of agro-​products and food between China and CEECs.” It added Beijing’s promise: “The Chinese side welcomes the import of CEEC agro-​products and food that meet the relevant inspection and quarantine laws and regulations of China; and is committed to accelerating the examination of the relevant applications from CEECs.”67 Beijing also used the China–​CEEC framework to establish a set of coordinating mechanisms on agricultural trade, including the Sofia-​based China–​ CEEC Association on Promoting Agricultural Cooperation and the annual China–​CEEC Agrotrade and Economic Cooperation Forum. Parallel efforts on coordinating logistics and customs procedures, business-​to-​business cooperation, and trade promotion were also created to facilitate agricultural trade. China’s Ministry of Agriculture held regular bilateral meetings with counterparts from Poland, Hungary, Romania, and Estonia. In 2014–​2015 alone, Chinese agricultural and food safety officials visited ten CEE countries.68 These visits generally yielded agricultural cooperation agreements, such as the broad-​ranging Polish accord during a 2015 visit by China’s Vice-​ Minister of Agriculture.69 Bilateral agricultural cooperation went farthest with Bulgaria, the coordinating country for China–​CEEC agricultural cooperation. The China–​CEEC Association for the Promotion of Agricultural Cooperation was established in Sofia in June 2015, followed by a China–​ CEEC agricultural demonstration zone in 2017.70 China’s CEEC economic agreements were structured to promote their agricultural exports and mitigate trade deficits. For instance, Hungary’s financial cooperation with Chinese banks includes a jointly established credit line of $200 million for Hungarian exporters and a currency swap agreement that reduces currency risks for Hungarian traders.71 China also used trade fairs to promote CEEC’s agriculture, including the annual China–​CEEC Investment

102 Orchestration and Trade Expo, providing free exhibition space in Beijing’s National Agriculture Exhibition Center and highlighting CEE products at China’s annual International Agricultural Trade Fair.72 Beijing’s most important measure for expanding CEE agricultural exports was the approvals issued by China’s quarantine authorities (AQSIQ). To export food and agricultural products to China, countries must first sign a bilateral accord with Chinese authorities for the specific sector (dairy, meat, etc.) before applying for export certification.73 Given China’s domestic protectionist pressures against expanding agricultural imports, the complications of issuing approvals, and the need for close coordination with China’s diplomats, local officials, and agricultural and trade officials, these bilateral accords required considerable effort by Chinese officials at home. Yet Chinese policymakers repeatedly promised to expand AQSIQ approvals for CEE countries. The 2015 Suzhou meeting, for instance, announced: The participants welcome the signing or the work leading to the signing of the relevant protocols on quarantine of animal and animal-​originated products to be exported to China between China and Serbia, Macedonia, Slovenia, Lithuania, Poland and Estonia respectively. The participants support China and more CEECs in expanding trade of agro-​products and food.74

Bulgaria was among the most successful:  by 2016, Sofia had secured 28 approvals for exporting food and agricultural products to China, receiving the lucrative dairy permits in September 2016.75 Bulgaria’s export structure is dominated by cereals, particularly corn sold as animal feed. Bulgarian cereal exports to China soared from only $2.5 million in 2013 to nearly $49 million in 2014.76 From 2012 to 2015, Bulgaria’s corn exports grew 50 times. During the same period, bilateral trade in agricultural and food products doubled.77 Poland is China’s leading regional partner: by 2015, bilateral trade passed $17 billion. Nearly one-​third of Polish exports to China are copper products, followed by electrical machinery, machine parts, rubber, and furniture. Pork is the only agricultural product within the top ten Polish exports to China.78 Yet, given agriculture’s political significance, both sides agreed to focus on expanding agricultural exports. They created a bilateral agricultural cooperation working group and established the China–​Poland Agricultural Science and Technology Cooperation Center.79 Warsaw also placed an agriculture official within its Beijing embassy. On Xi Jinping’s 2016 visit to Poland, he

Creating a Region: Central and Eastern Europe  103 was careful to be photographed eating a Polish apple, which he emphasized were being exported via rail to China.80 By 2015, Poland had gained access to the Chinese markets for its dairy and meat products (71 and 17 companies, respectively), fish products (14 companies), and even into the lucrative, though strictly regulated, powdered milk market. By 2015 Poland’s foodstuff exports to China reached $219 million, representing 55 percent of all CEE agricultural exports to China.81 Even though Poland’s exports to China doubled between 2007 and 2013, its trade deficit with China grew 27 percent between 2011 and 2014, as Polish imports from China soared amidst lingering EU sanctions on Russia.82 While government efforts to reshape established trading patterns are never easy, Beijing’s efforts had some effect. CEE foodstuffs exports to China rose from $137 million in 2011 to $400 million by 2014.83 Overall, agricultural product trade between China and CEEC surged to $1.13 billion in 2015, 2.5 times larger than 2005.84 The Czech Republic, Hungary, and Poland—​the CEE countries with the highest trade deficits with China and the only ones with over six percent of their imports coming from China—​experienced a spectacular boom in China exports.85 China’s overall trade with CEEC from 2009 to 2014 grew faster than its overall Europe trade, with CEEC exports to China rising 173 percent, nearly double the pace of all European exports to China.86 Yet, the trade imbalance proved intractable. From 2010 to 2015, every CEE country saw its trade deficit with China expand, with the exception of Hungary and the Czech Republic.87 By 2014, China still took only 1.3 percent of all exports from the 16 CEE countries, though China provided 7.8 percent of all CEEC imports.88 Moreover, the agricultural sector’s share of CEE exports to China remained modest (3.7 percent in 2015). Therefore, despite Beijing’s efforts, only six CEE countries saw their China trade deficits shrink from 2011–​2014: Hungary, Latvia, the Czech Republic, Romania, Bulgaria, and Croatia (Table 4.1). 89 A more effective economic statecraft tool was Beijing’s selective provision of agricultural import approvals as a reward for policy alignment. The Baltic states illustrate China’s capacity to increase or decrease economic benefits to maximize their diplomatic utility. After Estonia’s president and acting prime minister both met the Dalai Lama in 2011, Beijing froze diplomatic ties and halted ongoing talks on Estonian dairy exports. As Foreign Trade Minister Anne Sulling explained: “China’s market is currently locked for us. There is no point for us to develop agreements at business level, since our products are

104 Orchestration Table 4.1.  Select CEEC Foodstuffs Exports to China, 2011–​2014 (million USD) Export of foodstuffs

Total exports

Trade balance

State

2011

2014

2011

2014

2011

2014

Poland Hungary Czech Republic Slovakia Romania Bulgaria Estonia Slovenia

61 15 26

219 36 40

1,861 1,688 1,668

2,251 2,156 2,033

–​16,255 –​4,388 –​17,237

–​20,742 –​3,205 –​15,219

4 4 3 8 3

1 13 59 13 4

2,075 544 407 304 127

1,825 759 709 204 186

–​2,568 –​2,981 –​538 –​1,091 –​1,474

–​4,523 –​2,390 –​439 –​1,296 –​1,539

Source: Jakóbowski, “A Partial Success.”

not allowed there. Things have not progressed the best for us in the Chinese market after Estonian officials received the Dalai Lama.”90 Ties remained frozen until August 2014 when Russia, in reciprocity for EU sanctions, sanctioned Estonian dairy products, sparking a sharp decline in Estonia’s milk exports. Tallinn quickly reevaluated its stance on Tibet. On September 25, 2014, Estonia’s ambassador emerged from a Beijing meeting to pledge that Estonia “does not support any separatist activities or powers which aspire for the so-​called Tibetan independence and undermine territorial integrity of China.”91 Mollified, Beijing allowed diplomatic ties to resume, including agricultural talks. In 2015, the two sides signed an MOU on food and veterinary monitoring; in May 2016, Estonia received its long-​awaited dairy export approval.92 Lithuania followed a similar course. After its president met the Dalai Lama in 2013, diplomatic ties were put on hold until December 2014, when Lithuania finally promised not to “support Tibetan separatist forces or activities that advocate Tibetan independence.”93 Diplomatic relations soon resumed, and in August 2016, 16 Lithuanian firms received approval to export dairy products to China.94 A primary reason for Beijing’s success was competitive pressures among these similarly structured economies. Their Baltic neighbor Latvia, whose president declined to meet the Dalai Lama despite his multiple visits, had received its dairy approvals from China two years earlier, in August 2014.95 As

Creating a Region: Central and Eastern Europe  105 the Russian market was closed off and their politically powerful dairy industries were demanding support, Latvia’s two neighbors had little choice but to forgo their dalliances with the Dalai Lama. Beijing’s targeted strategy proved quiet but effective. Beijing soon went a step further, linking AQSIQ approvals to Chinese investment. In 2013, for instance, Shuanghui International, China’s largest meat producer, purchased US firm Smithfield Foods, the world’s largest pork producer.96 Shuanghui thus assumed ownership of Smithfield Romania SA. In March 2015, Smithfield became the first Romanian company approved to export frozen pork to China.97 Similar examples of this investment–​export linkage began to emerge across the region. Czech beer exports to China, for instance, rose sharply in 2015 after China’s CEFC group purchased 80 percent of the Czech Lobkowicz brewery.98 This tactic exemplifies Beijing’s use of interest alignment to encourage eager implementation of its economic statecraft. Chinese firms gain overseas investment opportunities while expanding their exports back to China. CEE countries secure inward investment and expanded exports to China, their two most important political requests. Expanding exports also help justify China’s infrastructure expenditures, while domestic political opposition to opening China’s agricultural market is eased by the fact that these are Chinese companies’ exports. Since such firms are familiar with the Chinese market, market success is more likely, thus encouraging subsequent investments. Given this impressive alignment of political and commercial interests, Chinese banks’ eagerness to expand their agricultural investments overseas is unsurprising. For instance, the Agriculture Bank of China, China’s third policy bank, pledged in 2015 it would “support the government’s foreign investment strategy in agriculture, energy, and transportation” through specialized funds, targeted export insurance, and risk management support.99 Having covered regional cooperation, as well as trade and investment promotion, we now turn to the sharp edge of China’s economic statecraft: seeking to influence policymaking in targeted states.

Exerting Influence China’s economic expansion across the CEE region offered Beijing considerable political sway in the region, particularly within poorer, non-​EU members like Serbia.100 Yet what Beijing really needed was to influence

106 Orchestration EU members. Within the EU’s consensus-​based policymaking structure, even its smallest and poorest members can block EU statements criticizing China’s human rights or its South China Sea policies. The preceding chapter showed how Chinese investment into Greece encouraged Athens to adopt a supportive policy stance within the EU. Beijing’s reward and encouragement strategy, implemented by mobilizing and coordinating among private and state-​owned firms and government officials, was even more prominent within the CEEC’s EU members, particularly Hungary and the Czech Republic.

Hungary: Beijing’s “Bridgehead” into Europe Since the USSR’s collapse, Hungary has emerged as one of China’s closest partners in the CEE region, partly since it has one of the region’s largest ethnic Chinese communities (30,000).101 Unlike most of the former socialist block, including Poland and the Czech Republic, Hungary largely avoided adopting a critical stance on China’s human rights policies, relations with Taiwan, or policies in Tibet.102 This pro-​Beijing stance increased dramatically in 2011, when President Viktor Orbán announced Hungary’s “Opening to the East” policy, centered upon engaging China. As Minister of Foreign Affairs and Trade Péter Szijjártó explained in 2014:  Beijing “really appreciates that Hungary acts as a flagship” in the region.103 In 2015, Foreign Minister Wang Yi praised Hungary, noting: “we welcome more European countries to ‘look east’ . . . History will prove that this is a wise and correct strategic choice.”104 Both foreign policy and economic agencies were mobilized to support this influence attempt. Beijing’s attentiveness to Budapest is remarkable. Vice-​ministers of both MOFCOM and MOFA attend regular meetings of the China–​Hungary Economic Joint Committee.105 A number of other working-​ level processes were established.106 In May 2017, the two sides established a “comprehensive strategic partnership.” China, Hsiao and Czekaj suggest, was “trying to use Hungary as an example to its neighbors that if they toe China’s line, they will also reap the rewards of China’s generosity.”107 Chinese leaders successfully mobilized diverse domestic actors to deliver an array of economic rewards to Hungary. In 2014, Szijjártó declared: “We are the first European country to receive permission to deliver beef to China, and we have the most permissions for food export in the entire Central Europe: goose, duck, horse, beef and now the dairy products.”108 By 2015,

Creating a Region: Central and Eastern Europe  107 eight Hungarian producers held meat export certificates.109 Tourism also boomed; reflecting a successful mobilization strategy. In 2012, Air China established a direct route from Beijing to Budapest.110 In May 2014, the China–​CEEC Regional Tourism Center was opened in Budapest. By 2014, the number of inbound Chinese tourists had doubled over the previous five years, reaching 90,000 annually as China became Hungary’s largest source of Asian tourists.111 With policymakers’ encouragement, Chinese financial institutions rapidly expanded financial cooperation. In June 2011, Premier Wen Jiabao promised in Budapest to purchase “a certain amount” of Hungary’s national bonds. In 2013, Hungary was the first CEE country to sign a bilateral swap agreement with the PBC, for 10 billion yuan (375 billion forints).112 The Bank of China opened an RMB clearing center in Budapest in October 2014; in April 2015, Hungary was the first Eastern European country permitted to issue an RMB-​denominated sovereign bond. The National Bank of Hungary, which launched the Budapest Renminbi Initiative in 2015, was among Europe’s first central banks to invest part of its foreign exchange reserves in Chinese government bonds.113 In 2011, CDB pledged to provide €1 billion for development projects in Hungary. An agreement on specific projects was signed during Li Keqiang’s May 2012 visit, with funds disbursed through the Hungarian Development Bank. 114 In 2013, China’s Ex-​Im Bank established a €200 million credit line to fund investments into Hungary or Hungarian exports to China, then expanded it to €300 million the next year.115 Investment by both private firms and SOEs soon boomed. In 2010, the first overseas office of Chinese Investment Promotion Agency opened in Budapest.116 Wen Jiabao’s June 2011 visit yielded $3.6 billion of promised investments into Hungarian manufacturing and infrastructure, including China’s Xanga Investment Group’s purchase of the operating rights for Debrecen Airport. On Li Keqiang’s May 2012 visit, Huawei announced that its new European Logistics Center—​its second-​largest worldwide—​would be in Hungary. ZTE signed a similar agreement, promising to create a €10 million European network management center based in Hungary.117 The largest investment came from Wanhua group, a publicly listed Shandong-​based SOE that is the world’s largest manufacturer of polyurethane, a widely-​used plastic. Backed by the Bank of China, in February 2011 Wanhua completed its €1.24 billion takeover of BorsodChem—​a leading Hungarian chemical firm.118 Wanhua’s massive investment was the largest Chinese investment into the CEE region to date, equivalent to half

108 Orchestration of all Chinese FDI stock in Hungary.119 Wanhua then funded Chinese language teaching programs and helped establish a Confucius Institute at the University of Miskolc.120 Wanhua later received additional support via a complex credit agreement between CDB and the Hungarian Development Bank (MFB), announced during a May 2017 BRI forum in Beijing. CDB promised to provide €79  million to MFB, which would in turn lend the funds to BorsodChem (now entirely owned by Wanhua) to fund regional expansion.121 By 2017, over 5,000 Chinese companies were operating in Hungary. Hungary had become the largest recipient of Chinese investment in the CEE region, soaring from a mere $650,000 in 2005 to over $4 billion in FDI stock by 2017.122 Although China represents a relatively small share of total FDI stock in Hungary, timely Chinese investment amidst the financial crisis saved local jobs and companies, helping Hungary weather the crisis. Moreover, Hungarian economists add, firms such as Huawei, Lenovo, ZTE, and Bank of China have turned their Hungarian operations into their European regional hubs, meeting Budapest’s hopes to emerge as the center for China’s regional engagement.123 Trade also soared: bilateral trade rose six-​fold between 2003 and 2013. By 2015 Hungary’s exports to China were the highest among all Central European states, while China had emerged as Hungary’s top non-​EU trading partner.124 This dramatic surge in economic cooperation reflects the success of China’s orchestration efforts. What did Beijing receive in exchange? First off, Budapest’s support greatly bolstered China’s regional credibility. Hungary’s initial contribution of $30 million to China’s $500 million Central European Fund, for instance, offered legitimacy far more valuable than the funds alone.125 By the end of 2013, China and Hungary had established 24 pairings of “friendship cities.” Hungary hosts four Confucius Institutes and two Confucius Classrooms, more than any other CEE country except Poland.126 Hungary eagerly joined the AIIB, was the first European country to sign a bilateral MOU with China on the BRI, and the first to establish a bilateral BRI working group, even as other EU members kept a wary distance from the BRI.127 Hungary was also an early advocate for including the RMB within the IMF’s special drawing basket, which Beijing gratefully acknowledged.128 As a NATO member, Hungary’s military cooperation with China is also valuable for Beijing. Most importantly, Budapest strongly supported Chinese preferences within the EU. For instance, while in Ningbo in January 2016 overseeing the

Creating a Region: Central and Eastern Europe  109 signing of five contracts worth an estimated $10 million, Hungary’s foreign minister announced that Budapest would urge the EU to recognize China market economy status in the WTO.129 A May 2017 joint Beijing–​Budapest statement urged the EU to “oppose protectionism in trade and investment, and sign the China–​EU investment treaty at an early date.”130 In his 2016 speech at the China–​CEEC Riga Summit, Orbán urged the EU to “open up towards China, the world’s most successful economy.”131 In July 2016, Hungary joined with Greece and Croatia in successfully opposing a draft EU statement criticizing China’s South China Sea policies following a UN tribunal ruling against Beijing.132 While Hungary has been a useful partner for Beijing in the region, it is also an unreliable one. Chinese experts worried about a policy reversal if Orbán lost office.133 Song Tao, China’s Special Representative to CEE Countries, reportedly stated: “it is always preferable for China to have a [regional] partner who is predictable and stable.”134 Given Orbán’s anti-​communist sentiments during his first premiership (1998–​2002), including his 2000 reception of the Dalai Lama, his embrace might feel fickle to Beijing.135 Orbán’s battles with Brussels are also unhelpful from China’s perspective. By February 2017, the EC was investigating Hungary for contravening EU procurement law in contacts issued to Chinese firms for the Belgrade–​Budapest high-​speed rail project.136 Given Hungary’s vulnerabilities, Beijing concurrently mobilized domestic actors to engage the CEE’s other EU members, most notably the Czech Republic.

Czech Republic: A Welcome New Partner Unlike Hungary, the Czech Republic was traditionally one of China’s strongest opponents in the region. As president (1993–​2003), Václav Havel welcomed the Dalai Lama, criticized China’s human rights policies, and even used his UN’s 50th anniversary speech to plead for Taiwan’s return to the UN, infuriating Beijing. In 2010, Havel initiated the proposal for Chinese dissident Liu Xiaobo to receive the Nobel Peace Prize.137 Beijing began its courtship of Prague in 2009. While celebrating 60 years of diplomatic ties, Wen Jiabao promised to expand tourism, investment, and trade—​lucrative offers amidst Europe’s financial crisis.138 Wen’s initiative bore fruit in 2013, with the election of Miloš Zeman, a staunch EU critic. During his 2014 Beijing visit, Zeman announced he had come to “learn how

110 Orchestration to increase economic growth and how to stabilize society,” not to “teach market economy or human rights.” The following year, Zeman was the only Western leader to attend Beijing’s military parade celebrating the end of World War II. In advance of Xi Jinping’s March 2016 visit to Prague, Zeman hinted that previous Czech criticism of China was driven by US and EU pressure, declaring: “Now we are again an independent country and we formulate our foreign policy based on our own interests.”139 China’s economic embrace of the Czech Republic was less dramatic than in Hungary. From 2000 to 2015, China’s accumulated Czech investment was only €207  million, far behind its investments in Hungary (€1,975), Romania (€741) Poland (€462), and Austria (€506).140 Although China is the second-​largest source of Czech imports, China is only its 18th largest export market.141 However, from 2007 to 2013, Czech exports to China rose 214 percent, enabling an 11 percent drop in its trade deficit with China from 2011 to 2014.142 Czech businesses also benefited. PFF Financial Group, headed by a close associate of former president Václav Klaus, joined Zeman’s October 2014 delegation to China, where PFF secured a rare license to provide consumer finance within China.143 Prague also hosted the annual China Investment Forum in 2014, a prominent China–​CEEC event bringing Chinese investors into CEE countries. In 2016, the Czech National Bank signed the EU’s first MOU with the China Banking Regulatory Commission, signaling the potential for closer financial cooperation. The most controversial business/​politics overlap emerged in April 2015, when Chinese media quietly reported that Ye Jianming, Chairman of CEFC China Energy, had been appointed an economic advisor to President Zeman with the title of “Czech-​China Economic Relations and Investment Advisor.”144 A private firm, CEFC ranked 229 on the Global Fortune 500 list, with $42 billion in revenue in 2015. Despite his low-​key profile, Ye Jianming has attracted media attention for his unique management style and his control over the only private major energy firm in China.145 In October 2015, just months after his controversial appointment, Ye suddenly went “shopping in Prague like in a supermarket.”146 Within a week, CEFC Energy became China’s top Czech investor, buying a leading soccer club (Slavia Prague), a Czech publishing house, several Renaissance-​era historic buildings, one of the country’s oldest breweries, and a controlling share of Prague’s J&T Finance Group, making CEFC the first private Chinese company to own a European bank. When the dust had settled, CEFC’s spending spree totaled $1.5 billion. The deals sparked anxiety among

Creating a Region: Central and Eastern Europe  111 Czech society and officials, particularly following Ye Jianming’s September 2016 admission to Forbes that “we [CEFC] have to look at geopolitics. If one day the Czech Republic goes against China, we need to pull back our investments to rethink our strategies there. . . . We closely follow the national [Chinese] strategies and we’ll map out our corporate strategy according to the national ones.”147 Ye’s investments were indeed closely aligned with Beijing’s policy thrust. In March 2017, Xi Jinping made the first visit to Prague by a Chinese president since the establishment of diplomatic relations. It was Xi’s first CEE visit as head of state and his first European visit of the year, during which the two sides established a “strategic partnership.”148 Xi’s delegation signed 30 commercial deals worth a reported potential $9.8 billion.149 Xi boldly promised to provide $10 billion in investments over the next five years.150 In exchange, Beijing expected Prague to support China’s interests within the EU. While hosting Xi at his country residence in March 2016, Zeman reportedly reassured Xi that “the Czech Republic is a country that can be trusted by China in the EU and is willing to fully utilize its influence to help further strengthen China’s relations with the EU and the CEE region.”151 Given its history of human rights support and criticism of China’s Tibet policy, Beijing demanded proof of Prague’s change of heart. The first step was their joint statement on Tibet released in April 2014: The Czech side respects the sovereignty and territorial integrity of the People’s Republic of China and it is fully aware that the question of Tibet is important and sensitive. The Czech Republic has also confirmed again that it follows the policy of One China and that Tibet is an inseparable part of the Chinese territory. The Czech Republic does not support the independence of Tibet in any form.152

Two years later, Beijing added an additional demand to this boilerplate formulation, insisting that the Beijing–​Prague sister-​city agreement include an unusual pledge that Prague would uphold the “one China policy” and referring to Taiwan as an “inseparable part of China.” Despite sharp criticism, Prague city officials agreed, worried that refusal would jeopardize Chinese investment.153 Prague officials also restrained anti-​China protesters during Xi’s 2016 visit and refused to copy Paris’s example in hanging the Tibetan flag from their City Hall, thus sparking further criticism of Zeman’s embrace of Beijing.154

112 Orchestration Yet, Chinese leaders remained concerned about the fragility of Prague’s support. Before Xi’s 2016 visit, China’s EU Ambassador Yang Yi called for “consolidating bilateral political mutual trust.”155 Zeman’s efforts to embrace Beijing while denouncing Brussels were rebuffed by Xi Jinping, who instead emphasized the importance of China’s EU ties. On the Czech side, political controversies over Chinese influence rose in concert with broadening dissatisfaction with Chinese investment levels. The 2016 slight fall in Chinese capital holdings of Czech companies was “hardly a sign of a Chinese investment surge,” dryly noted a local economist.156 As of mid-​2017, the European Central Bank had still not approved CEFC’s J&T purchase.157 Czech media also reported that Chinese investors into the proposed new Dukovany nuclear reactor were delaying their investment until assured that Chinese firms would be guaranteed contracts without a public tender.158 Economist Lukas Kovanda warned that Chinese investment might provide only “unfulfilled promises and the purchase of attractive trophies,” particularly given China’s internal crackdowns on companies investing in areas outside of their core competencies.159 Finance Minister Andrej Babiš warned: The investments so far by investment groups such as CEFC have been purchases of property or in the portfolio of private owners or shareholders. I don’t yet see any direct Chinese investment that would have a direct beneficial effect on the Czech budget. I spoke about this with the Czech president; certainly, we would like to see them construct some factory and employ our people.160

The fragilities of Prague’s embrace soon became clear. Following the 2018 election of Zdeněk Hřib as Mayor, on October 4, 2019, Prague city officials terminated their sister city relationship with Beijing after Beijing refused to renegotiate the Tibet clause.161 In another setback, Ye Jianming was detained in China in early 2018, apparently on corruption charges, following the arrest by US officials of a CEFC executive for bribing African officials. Garlick describes this as a classic principal–​agent problem as “a commercial actor apparently entrusted with representing China’s interests overseas acted in ways that the state did not expect and manifestly failed to fulfil the goals of China’s economic diplomacy.”162 Chinese leaders once again moved swiftly to contain the damage, facilitating a quiet transfer of CEFC assets to CITIC Group, a major SOE conglomerate including financial services, resources and energy, manufacturing, engineering, and real estate. CITIC quickly signed

Creating a Region: Central and Eastern Europe  113 an accord with President Zeman in Beijing formalizing its assumption of most CEFC assets in the Czech Republic.163 China’s position in the Czech Republic, though shaken, remained intact.

Conclusion Across the four case studies in this chapter, covering regional diplomacy, investment promotion, trade deficits, and targeted influence attempts, China’s orchestration strategy was clearly evident. Beijing “nested” its orchestration tactics within hierarchical delegation of authority in ways designed to balance control with competence, helping mitigate the “governor’s dilemma.” Encouraging competition among diverse implementing agents facilitated rapid mobilization of Chinese firms into the region, despite the limited attractiveness of the unfamiliar CEE environment. Designing initiatives that aligned commercial actors’ interests with policy objectives, such as encouraging investment into CEE export-​oriented sectors, also facilitated eager implementation at modest cost. As expected, Beijing’s implementation coherence was lower than in Western Europe, due largely to the region’s weaker governance capacity and less direct involvement by top Chinese leaders. However, Chinese leaders responded quickly to instances of enterprise malfeasance, such as by COVEC and CEFC, demonstrating their capacity to identify and address such problems effectively. While Beijing’s economic statecraft was implemented largely effectively across the region, the underlying weaknesses of China’s approach—​ discussed in Chapter  2—​were also evident. As Chapter  1 shows, Chinese experts express limited concern with two likely risks of their orchestration approach, namely:  (a) deepening China’s economic presence may exacerbate anxieties in target countries; and (b) allowing Chinese firms to pursue their commercial interests abroad might undermine Beijing’s diplomatic priorities. The CEE case questions their confidence. In addition to the anxiety that many CEE countries, including the Czech Republic, expressed, China’s deepening presence sparked a sharp surge in anxiety from Western Europe. From its earliest days, Western European experts viewed China’s CEE initiative as “disconcerting” and “alarming.”164 European journalists and pundits warned against the “spread of China’s influence westward.”165 A German diplomat in Brussels told me angrily: “16+1 is a direct attack on European sovereignty . . . Beijing has a “One China” policy; well, we should have a ”One

114 Orchestration EU” policy, and insist that China respect this.”166 In response, the EU soon expanded its financial support for new regional infrastructure linking CEE countries to Western Europe.167 Furthermore, to attract Chinese investors into the region, Chinese policymakers had to ensure that they would gain easier exports back to China. Invariably, CEE firms will lose out to these Chinese competitors, eroding the diplomatic benefits of this tactic for Beijing. While China’s economic statecraft successfully encouraged some peripheral EU members to curry favor with Beijing by blocking several EU statements critical of China, this impact appears both modest and fleeting. Frustration with the underlying imbalances of the economic relationship remained, while CEE countries will likely continue to play China off against Brussels to maximize their own benefits. These ongoing machinations suggest that, as in Western Europe, alarmist fears that China’s economic statecraft would dramatically reduce the political autonomy of CEE countries appear overstated. Instead, Europeans across the continent remained both willing and able to resist China’s political influence, even as they sought to benefit from Beijing’s economic generosity. We now continue on our journey eastward, as we turn to assess Beijing’s economic statecraft much closer to home.

5 Engaging North Korea If we support North Korea’s desire to break out of its economic bottleneck, expand its interactions with the international community, participate in North Korea’s ongoing economic improvement, and support Pyongyang’s recent economic policies, this will enhance North Korea’s sense of security while increasing its cost of conducting nuclear tests, which may provide an opportunity to resolve the nuclear impasse on the Korean peninsula.1 Ming He

This 2015 article in a leading Ministry of Foreign Affairs journal reflects China’s strategic culture of economic statecraft, as introduced in Chapter 1, particularly in its faith that economic engagement with North Korea would yield multiple diplomatic and strategic benefits. Drawing on China’s own experience, the logic is clear: a growing market-​based economy would bolster prosperity, enhance regime security, and offer a pathway out of the nuclear impasse. China, of course, would also benefit. Reform and openness should reduce North Korean dependence on Chinese assistance, offer economic opportunities for China’s border regions, improve border security, and expand access to the Democratic People’s Republic of Korea’s (DPRK) strategic natural resources. To implement this approach, Beijing turned to orchestration, a strategy evident across this chapter’s three cases. First, central-​level officials delegated authority to economic-​minded government agencies and financial institutions. They established supportive policies and financial resources that successfully enticed Chinese enterprises to “go out” into the uncertain economic environment of the world’s last Stalinist state. As in the CEE countries, regional officials seized this opportunity, eagerly promoting cross-​ border trade and investment ties in the expectation that local economies—​ and their personal political futures—​would benefit. China’s foreign aid, our

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116 Orchestration second case, operated along similar lines, mobilizing an array of enterprises and regional officials to implement central-​level policy at modest cost. Finally, Beijing’s sanctions aimed at Pyongyang’s nuclear weapons program demonstrates China’s capacity to restrain commercial ties—​although sanctions failed to deter Pyongyang’s efforts. As expected, Beijing’s implementation coherence was lower than across Europe. Emboldened by political and financial support, and attracted by the DPRK’s mineral resources, Chinese firms manipulated North Korea’s endemic corruption to their own ends, creating political quagmires for Chinese officials. Regional authorities engaged in ambitious “policy stretching,” spending lavishly on initiatives benefiting local economic interests. Yet, as the subsequent chapter shows, such problems were far more limited than in Myanmar, thanks to the modest level of Chinese economic interests and North Korea’s restrictive domestic environment.

Chinese Sunshine Chinese leaders’ push to expand economic ties with North Korea emerged out of three policies of the late 1990s:  the “Go Out” (走出去) initiative, which encouraged SOEs to expand their overseas investments; the push to “Revitalize China’s Northeast” (振兴东北); and a renewed pursuit of “amicable, tranquil and prosperous” ties with China’s land neighbors (睦邻安邻富邻).2 Beijing’s new guiding framework was announced in 2005 in Pyongyang by Vice-​Premier Wu Yi: “government guidance with companies in the lead; [pursuit of] market-​based operations and mutual benefit” (政府引导; 企业为主; 市场运作; 互利共赢).3 China’s initiative was designed to meet the interests of key implementing actors—​primarily officials and enterprises from China’s border regions—​in ways that Beijing expected would also advance its own foreign policy goals. Top leaders delegated authority to line ministries and financial institutions, which in turn offered policy support, built infrastructure, and provided investment capital to encourage enterprises and officials to “go out” to North Korea. Beijing benefited from their entrepreneurial energy while minimizing political sensitivity for Pyongyang. The resulting local-​level interactions facilitated cross-​border networking, encouraging market-​oriented behavior and economic openness in North Korea, reflecting dynamics that Li Mingjiang dubs “local liberalism.”4

Engaging North Korea  117 Most importantly, these local “agents” pressured North Korea to liberalize its economy. As a North Korea expert in Beijing told me in 2012: “The Chinese government is unwilling to simply foot the bill for these major projects. There must be company interest. North Korea has to provide the right conditions for companies to be willing to invest.”5 One Chinese businessman bluntly told his hosts in Pyongyang: “for your efforts to succeed in attracting investment, North Korea must assure the consistency of its policies, increase transparency, and improve the “soft” environment for foreign investors.”6 By 2016, Kevin Gray concluded: China’s engagement strategy looks likely to succeed where South Korea’s 1990s-​era “sunshine policy” failed. Where this was limited to enclave-​style investments that failed to have a broader impact on North Korea’s economy and society, China has taken a more grassroots-​oriented approach. This has helped a broader recovery of the economy.7

Beijing’s initiative began with diplomacy. In the 1980s, Chinese leaders made just nine visits to North Korea, with ten DPRK return trips. During the 1990s, nine Chinese leader visits were matched by only seven DPRK leader visits to China. In contrast, in the 2000s, there were 33 Chinese leader visits to the DPRK, with 27 DPRK return visits. The intensity picked up in 2009: over the next two years, there were 20 Chinese leaders’ visits to the DPRK and 27 North Korean leader visits to China.8 As in Europe, leaders’ visits were used to reach diplomatic accords while encouraging inter-​ministerial coordination.9 For instance, Premier Wen Jiabao’s landmark visit to Pyongyang in October 2009 (the first by a Chinese premier in 18 years) included all key players in China’s DPRK policy. They signed numerous accords, agreed to establish two new joint economic development zones, and China promised to build a $150  million bridge in Dandong across the Yalu River.10 Wen also used the visit to distinguish between Beijing’s support for economic engagement and its opposition to Pyongyang’s pursuit of nuclear weapons, trumpeted by Foreign Minister Yang Jiechi as Wen’s “two great accomplishments.”11 The most active government agency promoting Chinese investment into North Korea was MOFCOM. Its 2011 investment report lauded the DPRK’s “extremely abundant” mining resources as “among the largest in the world” while reassuring Chinese firms that requirements to hire 80 percent North Korean workers on projects “might be negotiated downward through

118 Orchestration discussion with the DPRK Trade Ministry.”12 In August 2012, MOFCOM Vice-​Minister Chen Jian promised to “support Chinese enterprises . . . to advance the establishment of enhanced bilateral trade and investment structures [in the DPRK].”13 A month later, the China Overseas Investment Federation (COIF) announced a new RMB 3 billion ($470 million) investment fund for North Korea, with a billion yuan immediately available for mining, real estate, and other infrastructure projects.14 “Composed of influential financial institutions from across the Chinese political spectrum,” COIF’s oversight body’s task is “to actively promote China’s strategy to invest overseas, to operate as a bridge between the Chinese government and overseas industries, and provide good services to Chinese enterprises for their overseas development.”15 After the DPRK Investment Office promised to “protect the interests of Chinese investors,” MOFCOM arranged for DPRK officials to hold investment forums across China.16 Diplomats added crucial support. In the late 1990s, embassy officials discouraged Chinese companies from investing. A former staffer told me, “They kept getting cheated, and then they would come to the embassy to complain and seek the embassy’s help. This was a problem we didn’t need.”17 Yet by 2011, the embassy was regularly hosting social events linking local Chinese firms with DPRK officials and visiting Chinese officials.18 China’s consul in Chongjin began traveling regularly to Rason port for “exchanges and communication on the problem of protecting the legal rights of Chinese citizens and organizations in North Korea.”19 In February 2012, Ambassador Liu Hongcai established the China Chamber of Commerce in Pyongyang (Sinocham). Sinocham promised to deliver members’ “suggestions, opinions, and demands” to the Chinese and DPRK governments, transmit government “guidance” to their members, and “analyze and resolve trade and investment problems in North Korea.”20 Border-​ region authorities were particularly successful in mobilizing enterprises and building ties. Liaoning’s Dandong city has long been the most vibrant channel for flows in and out of North Korea. As Dandong Party Secretary Dai Yulin proudly explained in 2012:  “The first-​ever cell phone taken into North Korea was by the chief representative of a Dandong trading company. Now the number of cell phones going from Dandong into North Korea is in the millions.”21 By 2012, some 500 Dandong firms were involved in North Korea trade.22 Borrowing a term from Yunnan province, Dandong officials proclaimed their city was a “bridgehead” (桥头堡) for engaging

Engaging North Korea  119 North Korea.23 On January 11, 2009, North Korea established a consulate in Dandong—​the city’s first foreign consulate.24 Following an October 2012 city-​level agreement to “promote labour exchanges on the basis of mutual need,” Dandong experienced a “large scale labor influx” into its textile factories, food processing, and software companies.25 In 2012, a DPRK official told me some 3,000 North Korean citizens lived full-​time in Dandong, with several thousand more coming regularly for short visits.26 Officials in Jilin province were equally proactive, signing bilateral accords with their DRPK counterparts promoting the joint development zone in Rason.27 After Jilin’s National Grid Company began providing electricity to Rason, eight national-​level SOEs announced investment plans in the zone.28 As a result, “Rason is undergoing changes that are manifestly different from anything previously observed,” noted a 2012 visitor.29 Some 4,000 to 10,000 Chinese citizens were in Rason at any given time, with some 170,000 people passing through Quanhe customs station annually.30 Chinese consumer goods dominated the lively Rason market, with most sales made in RMB.31 In January 2013, four Jilin-​based firms began manufacturing clothing in Rason for sale in China, with all import/​export duties waived.32 Emma Campbell visited Rason in 2014, noting: The Chinese presence can be seen in the number of Chinese-​registered trucks and cars; in factories equipped with new Chinese equipment; in a new Chinese foreign exchange bank; in minibuses full of Chinese tourists; and in the number of Chinese business people involved in seafood processing, garment manufacturing, fishing, construction and shoe manufacturing.33

Chinese officials’ innovative initiatives attracted enterprises. For instance, in 2010 Jilin created a new project whereby Chinese trucks could drive from Jilin’s Hunchun city to Rason port and load products onto Chinese ships for transport to southern Chinese ports—​all without attracting export or import duties.34 Dalian’s Chuangli Group, a private firm, quickly announced its plans to invest $3.8 million in renovations in exchange for a 10-​year lease on Rason’s Pier 1.35 On January 6, 2011, the first shipment of an eventual 100,000 tons of coal was shipped to Ningbo (near Shanghai).36 Reflecting the project’s success, the State Council approved a new “international cooperation experimental zone” in Hunchun (Jilin province), including an industrial park and border trade zone.37 Jilin’s Tumen city then struck a similar agreement,

120 Orchestration agreeing to loan $10 million to build a 179km railway to the DPRK’s Qinglu port in exchange for a 15-​year lease on two DPRK piers.38 This example encapsulates China’s orchestration strategy. Central authorities put funding and diplomatic leverage behind a local initiative, while Chinese enterprises seized upon the new trade and investment opportunities. Heartened by the success, the central government then provided additional resources and autonomy, spurring further innovations. Beijing’s orchestration was successful despite North Korea’s commercial unattractiveness because policymakers addressed enterprises’ needs. For instance, smaller Chinese firms generally face great difficulty in accessing investment capital. Yet, as Jilin-​based businessman Li Chengnan explained: “After 2005, investing in mining in North Korea was like swimming with the tide. Once you received approval documents, the money would just flow in your door.” In 2006, he secured 20 million yuan from commercial banks in China’s Zhejiang/​Jiangsu region to invest in two DRPK gold mines.39 By 2012, Chinese banks had funded new highways and railways linked to North Korea’s largest iron ore and copper mines. In 2009, China’s State Grid Corporation began a $25  million project refurbishing the Yalu River’s Shuifeng dam; by 2011 electricity was being provided to nearby Chinese mining projects in North Korea.40 A major challenge in studying economic statecraft is isolating the impact of government policy upon enterprise decisions. In this case, reviewing major investments into the DPRK’s mineral sector suggests that while enterprises acted primarily upon market signals, at critical points they turned to local or national officials for political support and to state banks for investment capital. For instance, China Minmetals Corporation (CMC), a national SOE and the world’s sixth-​largest mining company, secured access to North Korea’s largest anthracite coal mine during Wu Yi’s October 2005 trip to Pyongyang. Thanks to such high-​level support, a CMC executive explained:  “our investment in North Korea has been very smooth—​similar to our overseas investments elsewhere.”41 In 2005, China Tonghua Iron and Steel Group—​a provincial SOE—​ announced plans to invest seven billion RMB ($940 million) in the DPRK’s Musan mine (Asia’s largest open-​cut iron ore mine), with two billion RMB dedicated to infrastructure linking Musan to Tonghua’s Jilin base. Supported by Jilin officials, Tonghua brought in a local Yanbian firm and the national-​ level SOE Sinosteel as minority partners, securing a RMB 2.4 billion ($324 million) loan from China Development Bank.42 In November 2007,

Engaging North Korea  121 Zhejiang-​based Wanxiang Group, a private firm, announced that it would invest $31 million in North Korea’s largest copper mine, Hyesan. After the project was abruptly halted in 2009, Premier Wen Jiabao raised the issue with Pyongyang during his visit, receiving assurances that the situation was being addressed. The dispute was soon resolved and operations resumed.43 In 2012, having survived this “arduous process,” Wanxiang CEO Lu Guanqiu enthused: “North Korea today is like China 30 years ago. Based on our experience, we believe that North Korea will be even more open and free in the future.”44 As Freeman and Thompson point out, China’s efforts to expand business ties “is tempered by limited interest by Chinese companies in taking on the risk involved in doing business in North Korea’s business-​unfriendly environment.”45 And yet, China’s trade and investment with North Korea grew rapidly after 2005 (see Table 5.1). Since most of China’s trade with North Table 5.1.  China’s Trade and Investment in North Korea: 2000–​2015  (in million USD)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Bilateral Trade

China Trade Surplus

Share of All DPRK Trade (%)

China FDI Flows

China FDI Stock

488 740 738 1,023 1,385 1,580 1,700 1,976 2,793 2,680 3,472 5,642 6,036 6,558 6,388 5,511

414 406 197 232 214 582 765 809 1,272 1,094 1,083 688 1,029 703 652 375

25 33 33 43 49 53 57 67 73 79 83 89 89 89 84 88

N/​A N/​A N/​A 1 14 7 11 18 41 6 12 56 109 86 52 41

N/​A N/​A N/​A 1 22 31 46 67 119 262 240 313 422 586 612 625

Sources: National Bureau of Statistics of China, ROK Ministry of Unification, 2015 Statistical Bulletin of China’s Outward Foreign Direct Investment.

122 Orchestration Korea is conducted by private enterprises, this means that Beijing successfully encouraged private firms—​not just SOEs—​to expand their trade with North Korea.46 The timing of new investments also correlates with government policy. Of the 180 Chinese investments in the DPRK for which the Open Source Center identified the start date, 148 (82 percent) were established after 2004. The largest number began in 2006 (45 firms), with 30 more in 2007, and 53 additional starts from 2008 through 2011.47 In 2012, MOFCOM’s database indicated that 42 percent of the 110 Chinese companies registered as investors in North Korea arrived after 2008, with a strong rise in manufacturing and mining investments following Wu Yi’s 2005 visit.48 Simply put, Beijing’s orchestration worked. Yet, political support created moral hazard problems, as firms pursued risky investments. A  2008 PBC report estimated that Dandong companies alone lost some $20  million investing in North Korea.49 Local governments also manipulated Beijing’s support, redirecting resources toward local development initiatives. Dandong’s “policy stretching” was particularly ambitious. Seizing an “important responsibility and exciting opportunity” to develop a special special economic zone (SEZ) on two North Korean islands in the Yalu River, Party Secretary Dai Yulin explored “how to use this opportunity to develop Dandong.” He quickly spearheaded plans to construct an entire new city on Dandong’s outskirts, justified as a “supporting zone” for the island SEZ. While the island SEZ stagnated, apartments for 400,000 residents were constructed and Dandong’s city government moved into the new zone.50 By January 2017, Dandong’s “new city” was well established, though the SEZ remained moribund.51 Enterprise malfeasance posed the most serious challenge. By May 2010, Ambassador Li Guangcai was already urging Chinese firms to “respect North Korea’s national conditions, abide by its laws, and conduct business in ways promote friendship and understanding between the two countries.”52 In March 2011, the embassy warned against illegally bringing Chinese workers into the DPRK.53 MOFCOM’s 2011 report on North Korea criticized “blind” Chinese investment while reminding firms “the most common security problems arise when foreigners disobey the DPRK’s national security regulations.”54 Commercial disputes also undermined diplomatic relations and fed anti-​DPRK sentiments. In May 2012, for instance, 28 Chinese fishermen accused of fishing in DPRK waters were taken hostage by North Korean soldiers demanding a 1.2  million yuan “fine.”55 While Chinese

Engaging North Korea  123 diplomats eventually secured their release, Chinese netizens denounced the “lawless behavior” by this “false brother country.”56 A sensational commercial dispute erupted in 2011 over a $34  million investment into a DPRK iron ore mine by Xiyang Group, one of northeast China’s largest private firms. Facing North Korean intransigence, Vice-​CEO Li Xisheng risked a rare public criticism, denouncing Beijing’s encouragement of investment as “a mistake.” Li added: “We are hardly the only Chinese enterprise to be cheated in this way by North Korea; however, the Chinese government does not actively protect the interests of our type of [private] enterprise.”57 Yet, as one Chinese expert told me privately: “Xiyang was greedy. They used their advantage to push for too much and now they’re suffering for that. In this situation, neither side is perfect—​both have faults.”58 China’s orchestration approach presumes that encouraging enterprises to pursue their commercial interests will also advance Beijing’s diplomatic relations. However, Chinese leaders’ rhetorical defense of “market-​ based operations” meant that Chinese firms—​which enjoy commercial advantages over their isolated and less experienced DPRK comrades—​ could and did exploit these advantages for their own benefit. As Aden explains, “a de facto barter arrangement has emerged whereby Chinese oil, machinery, manufactured goods, and food are exchanged for North Korean coal, electricity, minerals, and other natural resources.”59 Pricing data suggests that this barter arrangement favored China. Chinese prices for exporting rice, wheat, and corn to the DPRK were consistently higher than comparable international benchmarks.60 After 2009, Chinese prices for oil exports to the DPRK exceeded world benchmarks by 20–​30  percent.61 The DPRK apparently receives lower prices for its iron ore exports to China than its competitors.62 The DPRK also sells its electricity to China at highly discounted prices.63 Simply put, China charges its North Korean comrades a premium price for China’s food and oil exports, while North Korea sells its electricity, anthracite coal, and iron ore to China at “friendship prices.” Aden rightly describes this as an “unbalanced and asymmetrical relationship.”64 Despite these shortcomings, Beijing’s orchestration succeeded in stimulating a dramatic surge in investment and trade with North Korea at modest costs. We turn now to evaluate Beijing’s effectiveness in another economic statecraft technique: providing foreign aid.

124 Orchestration

Orchestrating Aid Aiding North Korea has been a central element of China’s DPRK policy since the 1950s. Throughout the Cold War, China’s aid to the DPRK rested upon three pillars: managed barter trade, concessionary loans, and training. Since the two countries ran planned economies, their trade agreements were in reality pledges to exchange a fixed amount of select goods over a given period. These barter exchanges were largely in the DPRK’s favor, representing a de facto transfer from China. China also provided concessionary loans with low or no interest and generous repayment terms. If the DPRK was unable to meet the repayment schedule, the loans were either extended or forgiven. China continued to send its technical experts to Korea and train DPRK students and experts, largely at Beijing’s expense.65 As the Cold War came to an end and Beijing normalized diplomatic ties with South Korea in 1992, China decided to shift its trade with Pyongyang onto a market basis. In 1994, Chinese food exports to North Korea fell from 740,000 tons to 305,000 tons, reaching their lowest point the following year. Given the precarious nature of the DPRK’s food situation, this decline was calamitous. Haggard and Noland estimate that between 600,000 to one million people perished from 1995–​1999. “If there was a single proximate external trigger to the North Korean famine,” they argue, “China’s trade behavior during these crucial years is a plausible candidate.”66 As the depths of the famine began to emerge, also China quickly emerged as the largest source of emergency assistance. In addition to its reported food aid (at levels equivalent to US and South Korean aid), China provided unreported bilateral assistance, tolerated “illegal” shipments from its ethnic Korean population, and accepted the presence of up to 300,000 DPRK refugees in northeast China.67 After 2005, the aid program became more closely integrated into China’s new engagement strategy. Chinese aid to North Korea closely reflects a “nested orchestration” approach, with top leaders delegating authority to a line ministry: MOFCOM. Aid packages to North Korea largely originate from DPRK requests in diplomatic meetings, which should be sent to MOFCOM’s Department of Foreign Aid (DFA). The DFA is responsible for preparing annual reports on possible aid packages, decided upon by an inter-​ ministerial aid coordinating committee chaired by MOFCOM, along with MOFA and Ministry of Finance (MOF) members.68 As one MOFCOM expert told me:

Engaging North Korea  125 Top leaders make the final decisions about aid to the DPRK. They pay careful attention to aid, since it affects bilateral relations. On diplomatic visits, there is almost always some agreement on aid programs. However, it is up to the lower levels to actually implement these agreements.69

Beijing almost certainly does not provide large-​scale cash transfers to the DPRK.70 While some Chinese exports may receive subsidies by China’s Export-​Import Bank, such funds are best understood as “other financial flows” rather than foreign aid.71 Instead, China’s aid to the DPRK largely consists of energy assistance, infrastructure projects, food aid, training programs, and emergency relief. To mitigate the “governor’s dilemma”—​the trade-​off between control and competence explained in the introduction chapter—​policymakers rely upon a range of orchestration tactics. China’s aid program is structured to encourage enterprise participation while facilitating oversight by MOFCOM. The DFA holds a competitive bidding process among Chinese enterprises to award contracts for aid projects. Chinese firms deliver the goods or build the roads and are reimbursed. For instance, following Beijing’s August 2006 pledge to provide 10,000 tons of diesel fuel, DFA invited bids from Chinese firms. Sinochem won the tender, delivered the oil to Pyongyang, and was reimbursed by DFA.72 As a Chinese company representative who participated in several construction projects in North Korea explains, “Usually, the funding is approved by MOFCOM; then Chinese companies like ours are responsible for implementing the aid projects.”73 Other government agencies have also been mobilized to deliver aid funds. For disaster relief, China’s Red Cross generally takes the lead. Economics training programs are particularly important. According to MOFCOM, China trained over 300 DPRK managers for future joint economic development zones.74 For instance, 20 officials and experts took part in a two-​month training program in Tianjin focused upon finance, economics, administration, and taxation.75 Jilin University alone hosted 27 training programs for DPRK experts, all funded under China’s aid budget.76 As UN officials based in Pyongyang told me, “no other country makes efforts the way China does” to connect North Koreans to the outside world.77 Participation in the aid program has broadened over time. “North Korean officials have realized that the province governments in Jilin and Liaoning have the capacity to provide them with financial support, and that these province officials are their natural allies in China’s political system,” a MOFCOM

126 Orchestration expert told me in 2012. “So, more and more, North Korean officials just go to the provinces when they seek Chinese aid.”78 In March 2011, for example, DPRK consulates and embassies were tasked with obtaining aid from their local counterparts; the Shenyang consulate alone was expected to identify 5,000 mt. in grain donations.79 Province officials directly oversee the local MOFCOM office (商务厅), allowing them to utilize local MOFCOM officials and resources to advance their province’s relations with the DPRK. Liaoning’s trade representative in Pyongyang, for instance, helps deliver aid supplies.80 Central authorities also rely on local officials to implement programs. As a MOFCOM official explained to me, “Since border provinces are more familiar with the DPRK situation, they can identify people and programs easier, and directly implement training programs.”81 Chinese firms’ involvement in North Korea also generates pressure to demonstrate their goodwill. CMC, for instance, donated fertilizer to its North Korean partners.82 A  Shenyang company selling military logistical equipment donated flood relief materials to the DPRK, garnering Beijing’s praise for its “corporate social responsibility.”83 In response to 2010 food shortages, Chinese mining companies brought in additional food for their 20,000 local workers.84 A national-​level SOE explained that on the 60th anniversary of the Korean Workers Party (October 2005), they were asked to deliver 10,000 tons of diesel fuel from Sinochem to North Korea, garnering them a letter of appreciation from Kim Jong-​il.85 Yet, relying on Chinese firms also exacerbated problems with implementation coherence. Chinese firms’ efforts to secure access to valuable resources in the DPRK encouraged “gift-​giving,” such as one mining company’s presentation of a gold-​edged, peach-​shaped birthday cake to Kim Jong-​il in 2009.86 One Chinese CEO openly denounced his DPRK partners’ “corrupt lifestyle,” claiming that his firm was pressured to provide $800,000 for presents, food, liquor, and prostitutes during their China visits.87 Expansion of the aid program brought new challenges. As one MOFCOM expert told me in 2012: Coordination is very difficult these days for China’s aid program [in the DPRK], with so many different actors involved, each of them pursuing their own interests. They all have their own information and priorities. This is a very difficult environment for MOFCOM. Even though we are officially

Engaging North Korea  127 in charge of the aid program, it is very difficult to even remain aware of all the different aid-​related activities going on.88

Another expert explained, “in Laos, a Chinese firm might send 20 or 30 people to work on an aid project, even if most of the basic work is done by local people. But in North Korea, they can only send a few Chinese experts to help with some technical issues. We must be very cautious (警惕) in dealing with North Korea. They don’t like lots of Chinese workers coming into their country.”89 Corruption poses another challenge. As one Chinese company representative explained: In this particular aid project, too many of the construction materials intended for the factory were being stolen and diverted to another project. It reached the point that all project materials in our storehouse had been taken away by DPRK ‘leaders,’ and so our factory project could not be completed. Our company was trapped trying to argue with the North Korean side, while explaining the situation to MOFCOM. Unbeknownst to us, MOFCOM had already prepared for this possibility. They quickly agreed to add another 70 million RMB in funds to finish the project, thus bringing the total project cost to 210 million RMB.90

As in Western Europe, Beijing’s benevolence sparked criticism at home. By 2009, Chinese scholars critical of China’s support for the DPRK became more vocal.91 Surveys revealed negative public opinion of North Korea.92 Following the February 12, 2013 nuclear test, even the nationalist newspaper Global Times urged Beijing to “punish” Pyongyang through a “reduction in China’s assistance to North Korea.”93 By 2012, Chinese netizens were asking:  “What have we received for all of our foreign aid to North Korea?”94 Others insisted, “It’s time to say goodbye to North Korea.” One wondered: “Why are we, who are still officially in the ‘early stages of development,’ aiding this so-​called ‘strong and prosperous nation’? Are they crazy, or we crazy?”95 In 2012, Wang Jinsi, a prominent nationalist activist, vented his frustration online: We may not know how much aid China actually provides to North Korea, but we know the current reality: China’s farmers in the Northeast struggle to produce on behalf of North Korea. Their products, purchased at a low price, are used to feed the North Korean army and government, filling their

128 Orchestration bellies so they can wholeheartedly pursue their missile program while the North Korean people remain ‘sallow and emaciated’ (面黄肌瘦).96

In sum, the aid program operated similarly to China’s overall economic engagement strategy, relying upon orchestration tactics encouraging enterprises and local authorities to implement central-​level policy at modest cost. While problems with coordination and malfeasance emerged, these remained far less severe than in Myanmar. We now turn, in our final case, to assess Beijing’s effectiveness in implementing a policy initiative that ran counter to local commercial interests.

Sanctioning Pyongyang In most cases examined so far, the interests of enterprises and regional authorities were either aligned with, or at least not opposed to, Beijing’s policy initiatives. As Beijing imposed sanctions aimed at curbing North Korea’s nuclear weapons program, policymakers found themselves constraining the same commercial actors and reginal authorities they had been encouraging over the past decade. How did they implement this policy, and how effective were their efforts? Although Beijing has consistently resisted US pressure to “bring the North Korean economy to its knees,” China responded to each round of North Korean nuclear provocations with enhanced sanctions.97 After the October 9, 2006 nuclear test, China joined other members of the UN Security Council in passing Resolution 1718, voting for the first time to impose limited trade and travel sanctions on North Korea.98 In 2009, following the DPRK’s second nuclear test, Beijing signed up to further UN sanctions, tightened its border controls, and instituted a travel ban and asset freeze.99 Following the February 2013 nuclear test, Chinese banks closed DPRK accounts and suspended their trading rights. Customs officials tightened border controls and tourism was officially discouraged.100 The 2013 sanctions were announced through joint documents issued by multiple agencies, with rapid implementation.101 After the National Tourism Administration formally discouraged tourism, local private Chinese tourist agencies quickly cancelled their tours to North Korea.102 Following new banking restrictions, in 2013 major Chinese banks closed all DPRK accounts while Dandong officials closed DPRK bank representative offices.103

Engaging North Korea  129 Despite these measures, many Chinese officials and experts remained deeply skeptical of sanctions. “The country which endured the ‘arduous march’ of the 1990s will be able to rely upon internal adjustment measures to survive,” insisted two experts in 2016. “Sanctions will not lead to the collapse of the North Korean economy and will not compel Pyongyang to give up the strategy of ‘economic development and nuclear weapons’.”104 Experts from northeast China were particularly critical. Dalian academics insisted their city should continue to be a “bridgehead” (桥头堡) for engaging North Korea.105 Shenyang-​based experts urged Beijing to continue supporting cross-​border transportation infrastructure, resource extraction, tourism, and agriculture to sustain DPRK economic reforms and growth.106 “North Korea is an essential link for realizing China’s BRI plan in Northeast Asia,” ran another argument.107 Yanbian officials continued to promote bilateral trade.108 One Yanbian scholar even proposed a “two-​track approach:” The national level can put pressure on North Korea and even reduce interactions, but the local level should not follow the same track. While the national government represents China to the world as a ‘responsible great power,’ the local level is not the same . . . we should maintain our personal, scholarly, and economic interactions.109

To mitigate tensions with these local economic interests, Chinese officials strived to insulate “normal” economic interactions from UN sanctions. For instance, Beijing’s August 2009 implementation report to the UN insisted: The implementation of the resolution should not influence the national development of the Democratic People’s Republic of Korea, its normal external contacts or the normal lives of its people, nor should it harm the normal relations of the Democratic People’s Republic of Korea with other countries.110

As sanctions tightened, Chinese diplomats defended this distinction within UN Security Council resolutions. In 2016, UNSCR 2270 prohibited the DPRK from selling or supplying coal, iron, or iron ore except for “transactions that are determined to be exclusively for livelihood purposes and unrelated to generating revenue for the DPRK’s nuclear or ballistic missile programs or other activities.”111 Although a subsequent resolution (UNSCR 2321) removed this livelihood exception for coal, Liu Jeiyi, China’s

130 Orchestration UN ambassador, emphasized that the new resolution still had “no intention of having a negative effect upon humanitarian issues, people’s livelihoods, or normal economic, trading and productive activities,” and urged all UN members to “thoroughly and completely implement this aspect of the resolution.”112 Beijing implemented this two-​track policy through administrative directives targeting dual-​use items while reiterating livelihood exceptions. The first public directive to Chinese firms, issued in April 2103 by the Transportation Ministry, vaguely ordered “relevant agencies to take measures to strictly enforce” UN sanctions.113 Several months later, MOFCOM issued, for the first time, a 236-​page list of potential dual-​use items proscribed from trading with North Korea.114 Following the January 2016 nuclear test, on April 5, 2016, MOFCOM and the Customs Administration issued a detailed list of all embargoed minerals. However, the document also highlighted UN-​ approved exemptions for livelihood items, as well as the permission for China’s “domestic” coal shipments via the DPRK’s Rason port. Furthermore, the document put compliance responsibility upon firms by requiring they declare that all their trades complied with UN sanctions.115 On January 25, 2017, MOFCOM, along with other agencies, issued yet another list of potential dual-​use items forbidden for export to North Korea.116 While signaling Beijing’s willingness to implement UN sanctions, these detailed lists also implied tolerance for all other trade with North Korea. Beijing’s two-​track approach reflected its efforts to design a sanctions policy that would not derail its long-​term economic engagement strategy. Yet as sanctions tightened into 2017, local resistance grew even stronger, with open protests in China’s border region.117 How did Beijing implement its enhanced sanctions and how effective were these efforts?

Killing a Chicken to Scare the Monkeys One of Beijing’s most effective enforcement techniques was the classical strategy of “killing a chicken to scare the monkeys” (杀鸡给猴看). The sacrificial “chicken,” in this case, was Ma Xiaohong, founder of Dandong’s Hongxiang company. Hongxiang began by trading Chinese heavy fuel oil for North Korean scrap metal. After the trade was banned in 1997, Ma secured valuable rights to a DPRK copper mine.118 Hongxiang’s sub-​companies were soon involved in DPRK-​related shipping, logistics, real estate, hotels,

Engaging North Korea  131 restaurants, tourism, and consulting. Ma became “a local legend . . . straightforward, persuasive, and forceful.” In 2011, Ma was praised as one of “Dandong’s 20 most outstanding women” and included in a 2012 national list of “Outstanding Female Entrepreneurs.” In 2013, “Dandong’s wealthiest woman” was made a delegate to the provincial People’s Congress.119 In August 2016, visiting US officials warned Beijing that Hongxiang was being investigated for sanctions violations, backed by a conveniently timed simultaneous US–​South Korean think-​tank report.120 The following month, Ma was caught up in a vote-​buying scandal among Liaoning province’s NPC delegates.121 On September 15, Liaoning officers announced “conclusive evidence” that Hongxiang and its leaders had engaged in “serious economic crimes.”122 Following US indictments, Chinese officials described their own inquiries into Hongxiang as a “joint US–​China investigation.”123 Ma’s subsequent testimony reportedly led to “dozens of Dandong cadres” being investigated for sanctions violations.124 “The effect has been to scare Chinese companies away from doing any business with North Korea,” a Dandong scholar told me. “Who would do business with North Korea now?”125 Another explained:  “Hongxiang was doing a lot of trading on behalf of South Korean firms, so Dandong companies who did this business are backing away. This was a sign to these firms to watch out.”126 As one border trader noted, “If they can get her, none of us are safe.”127 A South Korean businessman declared: “I personally think that the Hongxiang case has had a bigger impact than sanctions.”128 Despite Beijing’s efforts, North Korea continued its testing program throughout 2017, with three missile tests in July and November and its sixth nuclear test on September 3, 2017. In response, Beijing signed up to four new UNSC resolutions while intensifying bilateral economic pressure. Air China suspended all flights to Pyongyang. Beijing also halted all DPRK textile imports, prohibited a range of energy exports, and ordered all North Korean companies in China to close by January 2018. Over 2017, China’s coal imports from North Korea fell 66 percent from 2016.129 In 2018, total Chinese imports fell by 88 percent.130 When I visited Dandong in January 2017, a seasoned North Korean businessman told me: The new sanctions are really making a difference. Previously, Chinese customs officials would just make a show of checking the products, but now they really go through everything closely. The tougher border checks

132 Orchestration increase the uncertainty and the costs of doing business with North Korea. It is really hurting our trade.131

On my December 2017 visit to Dandong, traders told me that all Chinese–​ North Korean joint ventures and North Korean businesses were being closed. As a local retailer ruefully observed:  “The North Koreans have disappeared.”132 Beijing’s economic pressure was designed to augment its diplomatic efforts, namely its “freeze for freeze” proposal, announced by Foreign Minister Wang Yi in March 2017: China proposes that, as a first step, the DPRK suspend its missile and nuclear activities in exchange for a halt of the large-​scale US–​ROK exercises. This suspension-​for-​suspension can help us break out of the security dilemma and bring the parties back to the negotiating table. Then we can follow the dual-​track approach of denuclearizing the peninsula on the one hand and establishing a peace mechanism on the other.133

In January 2018, the International Crisis Group declared China’s “freeze for freeze” to be “the most viable and realistic, if unsatisfactory, option for parallel de-​escalation.”134 President Trump’s offer to meet directly with Kim Jong-​un gave Beijing an opening. Xi Jinping quickly invited Kim to conduct his long-​awaited first visit to Beijing—​in March 2018—​where Xi endorsed Kim’s plans to meet President Trump in Singapore in June, while Kim pledged to closely coordinate with China. Kim then met twice with South Korean President Moon Jae-​in at the truce village of Panmunjom. Xi then invited Kim to Dalian on May 7, where Xi praised the recent DPRK statement announcing “the suspension of nuclear tests and intercontinental ballistic missile tests and the abandonment of the northern nuclear testing ground.”135 The following month in Singapore, Trump fulfilled his side of the bargain, promising: “We will be stopping the war games” temporarily and describing US–​ROK military exercises as “very provocative.”136 Beijing quickly declared: “the China-​ proposed ‘suspension for suspension’ initiative has been materialized and now the situation is also moving forward in the direction of Beijing’s ‘dual-​ track’ approach.”137 After Singapore, Kim returned to Beijing, where Xi praised Kim’s “major decision to shift the focus to economic construction.”138 To encourage this shift, Xi loosened the purse strings. By June 2018, Chinese flights to Pyongyang and group tours had resumed. Customs

Engaging North Korea  133 inspections on cross-​border trade eased slightly, and Beijing issued an aid shipment of fertilizer in time for the spring planting season.139 Over the next year, direct flights to five Chinese cities were restored. From May to October 2018, China provided some $1 million worth of rice and $55 million worth of fertilizer. From January through June 2019, bilateral trade rose 15 percent (year-​on-​year), generating a $1.04 billion DPRK trade deficit. 140 By the end of 2018, a US government report concluded, “China appears to have eased off sanctions enforcement . . . . North Korean workers have returned to jobs in northeast China, economic activity and tourism have picked up in border towns, flights in both directions have resumed, and the two countries have conducted high-​profile official exchanges to discuss economic development.”141 Tourist growth was particularly striking. Over 2018, a record 80,000 Chinese tourists visited North Korea, according to Chinese media.142 The surge forced North Korean officials to limit Chinese tourists to 1,000 a day; tour agencies in Dandong reported long waits to join tours.143 In November 2018, Kim Jong-​un traveled to Shinuju, opposite Dandong, to promise greater openness and call for expanding cross-​border ties. 144 A cross-​border bridge from Ji’an city completed in 2006 finally opened in April 2019.145 Liaoning province officials began urging central officials to declare the province capital of Shenyang a free trade port to boost trade.146 Cultural diplomacy also resumed, including an October 2018 visit by former NBA star Yao Ming.147 Beijing’s re-​engagement strategy culminated with Xi Jinping’s June 2019 visit to Pyongyang, the first by China’s top leader since 2005. Xi promised “to address [Pyongyang’s] legitimate security and development concerns.”148 He also reportedly pledged to fund road construction in North Korea linked to the completed, but still un-​opened, $150 million bridge from Dandong.149 After his visit, Xi began urging the United States to “show flexibility” toward North Korea, calling for the “timely” easing of sanctions. 150 By mid-​2019, China’s North Korea strategy had thus come full circle, resuming the strategy of economic engagement begun a decade earlier.

Spurring Reform China’s economic statecraft—​first engagement and then sanctions—​failed to dissuade Pyongyang from pursuing nuclear weapons. Yet, as Delury notes, Beijing also had hopes of “educating North Korean counterparts on

134 Orchestration the China model of market transition and authoritarian capitalism.”151 Here Beijing was far more successful. By 2011, “free markets” for consumer products, food, housing, and currency exchanges had become ubiquitous.152 Satellite imagery from 2015 showed their rapid expansion.153 A  new “merchant class,” with a million professional merchants, emerged.154 Agricultural markets, an “important market reform” according to UN officials, “helped to improve the efficiency of production, distribution and consumption of non-​staple but essential commodities,” as well as “increasing access to a variety of consumer goods.”155 Stable rice prices and USD exchange rates point to market efficiency.156 By 2015, Ming He estimated that markets “have now surpassed the planned economy in terms of distribution of resources.”157 China’s influence throughout this “second economy” is pervasive.158 Most markets transactions are conducted in RMB.159 DPRK border towns host lively markets dominated by Chinese goods and currency, such as Hyesan city, the site of major Chinese mining projects.160 The price of rice in these markets is generally equivalent to that in China, reflecting close economic ties.161 Satellite imagery reveals Pyongyang’s efforts to “increase road transport integration with the Chinese economy.”162 An informal commercial housing market has emerged near the Chinese border.163 “Chinese businesses . . . have permeated nearly every aspect of North Korea’s economy.”164 Kevin Gray adds: Sino-​North Korean trade has underpinned the marketisation of North Korean society. China is the key source of daily necessities and goods sold in North Korea’s burgeoning consumer markets, which have helped to raise the living standards of ordinary North Koreans in recent years.165

For instance, in the clothing outsourcing sector, the DPRK’s fastest growing export industry, orders are solicited and received by China-​based entrepreneurs, who ship raw materials into the DPRK where they are processed into clothing, returned to China, and sold as “made in China.”166 Information technology also exploded. By 2014, 2.5 million North Koreans held cellphone service subscriptions. Smartphone imports doubled from the previous year while laptops jumped 16 percent, providing “unprecedented” communication options.167 New service industries, such as Pyongyang’s now-​ubiquitous taxis, have blossomed.168

Engaging North Korea  135 Most remarkably, Pyongyang’s rural reforms closely reflect Chinese models and experience. Policies announced on June 28, 2012 and May 30, 2014 promised greater autonomy for enterprise managers and smaller “sub-​ units” on collective farms while fixing state procurement levels.169 Initially skeptical, Lankov later praised the measures as “revolutionary . . . it seems that, at long last, North Korea has decided to begin Chinese-​style reforms.”170 The changes, Ireson acknowledges, are fostering “substantial resilience in the farm sector not previously seen.”171 Chinese observers praise the reforms for utilizing “market energy” to stimulate production and consumption.172 One frequent Chinese visitor told me in 2015: The agricultural reforms are real. Farmers are now divided into small production teams of 5–​7 people. The group has control over a certain area of land, and can decide what, when, and how to plant. They have access to some of the collective farm’s equipment. They generally have to give some percentage of their produce to the farm but can keep or sell the rest. Initially an experiment, the program is now being implemented nationwide.173

These measures survived the 2016–​2017 sanctions. Reform durability reflects its domestic drivers: material deprivation, leaders’ initiatives, and individuals’ desires for a better life. China’s influence complements these dynamics. It emboldens local experiments, offers a model to follow, and provides the goods, capital, and markets essential for their success. In turn, local successes encourage further innovations—​precisely the political dynamic underpinning China’s own early economic reforms.174

Conclusion In spurring reforms, China’s economic engagement played a crucial role in bolstering the DPRK’s economy. As Zhang Huizhi notes, “Although the DPRK faced increasingly stringent international sanctions, it still achieved positive economic growth  .  .  .  Pyongyang appears to be thriving. China’s trade and investment provides North Korea with essential capital, technology, materials, and foreign currency. . . . China’s support has played an important role in enabling North Korea to improve enterprise productivity and general standard of living.”175 As two Jilin academics conclude: “Following

136 Orchestration Kim Jong-​un’s ascension to power, North Korea’s economy has taken a decisive, positive turn.”176 Western experts grudgingly agree. “In 2019, after three years of ‘maximum pressure,’ ” Kleine-​Ahlbrandt admits, “there are few signs of macroeconomic distress in North Korea . . . in the foreign exchange rate, gas prices, rice prices and the like.”177 “In this odd mix of an economy,” Brown acknowledged in March 2019, “Kim Jong-​un was able to get inflation under control and stabilize the won . . . a remarkable achievement.”178 “Shortages are not the dominant issue anymore,” Frank adds. “Access to almost anything is guaranteed—​as long as one has enough money.”179 “The new middle class,” Hanke explains, “is concentrated in Pyongyang but also spreads to the provincial capitals. DVDs, USB sticks and thousands of annual Chinese and other foreign visitors, family members and business partners have broken up the state’s once watertight information monopoly.”180 These are precisely the trends that Beijing hoped for when it embarked on its engagement strategy in 2005. As Gong Yutao explained a decade later: If North Korea’s economic adjustment measures can have a significant impact in improving its domestic economy, this will stabilize internal governance and increase the leadership’s confidence in their ability to ensure national security while reducing their fears of external threats. This will enhance their willingness to engage with the outside, including improving relations with South Korea and the US, leading to greater stability on the Korean peninsula, with positive implications for China’s own security.181

China’s strategy largely worked. While Beijing’s approach failed to deter Pyongyang’s pursuit of nuclear weapons, Chinese leaders retained considerable leverage amidst the diplomatic flurry of 2018. Moreover, policymakers’ successful mobilization of commercial actors and regional officials contributed to modest economic improvements and spurred market-​based dynamics, bolstering DPRK regime stability while shoring up bilateral ties. Yet, deepening economic ties failed to reassure Pyongyang, instead spurring efforts to reduce its economic reliance upon China. In May 2012, Kim Young Nam, the nominal head of state, visited Singapore and Indonesia, reportedly to reduce North Korea’s “over-​dependence on China.”182 A 2013 article in North Korea’s Journal of Economic Research criticized DPRK “trade companies for focusing on only one or two countries,” warning that “the whole

Engaging North Korea  137 nation may experience political and economic pressure from trade companies that restrict foreign trade to only one country.”183 China’s tightening sanctions exacerbated these fears. According to a DPRK-​affiliated newspaper in Japan, North Korea in 2015 prioritized “diversification in its foreign economy.”184 “Attracting foreign investment,” Ming He explains, “was the chief reason for the [2014] visits to Russia and Southeast Asia by Korean Workers’ Party Secretary Choe Ryong-​hae and Foreign Minister Ri Su-​yong.”185 North Korea soon approved Russian rubles for cross-​border trade, and announced new plans to link Rason port with Russia’s border city of Khasan.186 In 2016, North Korea sent a delegation to the global economic meetings in Davos, Switzerland for the first time in 18 years.187 Most significantly, Kim Jong-​un’s 2018 diplomatic outreach was likely driven, in part, by Pyongyang’s disquiet over North Korea’s extreme dependence upon China—​the costs of which were laid bare as Chinese sanctions tightened. In this unique case, anxiety over China’s growing economic influence actually aided Beijing’s diplomatic efforts. Meanwhile, problems with corporate malfeasance, moral hazard, and policy stretching were more severe than Europe but far less than in Myanmar, as the following chapter shows. Given Beijing’s strategic constraints and ambitious objectives, these are considerable achievements.

6 Crossing Lines China’s Economic Statecraft in Myanmar

Myanmar’s casinos were not really a problem for the Yunnan government. They encourage tourism, and bring in money, trade, and other benefits. Yet after several security incidents, central authorities ordered Kunming to deal with the problem, so Yunnan put pressure on the Myanmar side to close the casinos. When they resisted, Yunnan closed border crossings for tourists and turned off water and electricity supplies. This worked: the casinos were closed for a while. But after Beijing stopped paying attention, the casinos just reopened again. Interview with Yunnan scholars March 2012

In North Korea (the DPRK), central-​level policymakers’ primary challenge was encouraging enterprises to “go out” to North Korea despite its unattractive economic environment. Chinese leaders delegated authority to financial institutions and line ministries, relying upon them to provide investment capital and political support to support regional authorities and enterprises in expanding economic ties with the DPRK. While Beijing’s approach failed to deter Pyongyang’s pursuit of nuclear weapons, Chinese leaders’ successful mobilization of commercial actors and regional officials contributed to modest economic improvements and spurred market-​based dynamics. Due to North Korea’s restrictive environment and China’s limited commercial presence, problems of enterprise malfeasance, policy stretching, and moral hazard remained modest. As in North Korea, Chinese leaders expected that expanding economic ties with Myanmar would advance multiple policy goals at modest cost. China’s top priority in Myanmar is the security and stability of the border

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Crossing Lines: Myanmar  139 region. Their 2,195km-​long border is home to numerous ethnic groups, many of which maintain long-​standing armed conflicts with the central government. “Nothing makes China’s leadership as nervous as regional or border disputes with the potential to incite internal instability.”1 Beijing also seeks to limit the pernicious effects from the illicit trade rampant across Myanmar’s unregulated borderlands, while hoping to deter “encroachment by Western or Japanese interests along its southwestern border.”2 China also seeks secure access to Myanmar’s strategic natural resources, primarily the natural gas fields off Myanmar’s Bay of Bengal coast, as well as transporting oil and gas across Myanmar, thus avoiding the Straits of Malacca dominated by the United States and its allies. China’s economic statecraft is also designed to bolster diplomatic ties, in hopes that Naypyidaw will support Beijing in regional and global affairs, such as the territorial disputes in the South China Sea. Finally, Chinese leaders expect that economic engagement with Myanmar will promote economic development and political loyalty in the poor, ethnically diverse region of southwest Yunnan province, while yielding commercial benefits for Chinese enterprises. Consistent with China’s strategic culture, strategists expected deepening economic engagement to advance all four sets of interests. Expanding cross-​ border trade and investment should enrich border residents on both sides, thus discouraging illicit activities and stabilizing the border region while fostering positive sentiments toward Beijing on both sides of the border. Building oil and gas pipelines across Myanmar was predicted to expand China’s access to energy resources, promote economic development in Yunnan, and benefit Chinese firms, while fostering economic development in Myanmar and thus bolstering diplomatic goodwill toward China. However, Myanmar posed a very different environment than North Korea. Encouraging engagement was easy:  economic ministries, regional officials, SOEs, banks, and local entrepreneurs all expected to benefit from expanding trade and investment into Myanmar. The problem was keeping everyone in line. As the opening quote suggests, powerful regional actors and enterprises operating far from Beijing, combined with Myanmar’s weak domestic governance capacity, particularly across the frontier borderlands region, undermined Beijing’s implementation coherence. Moral hazard problems, policy stretching, and enterprise malfeasance all proved far more severe than in North Korea or across Europe. Central-​level officials responded with tightened oversight measures and diplomatic engagement, while some Chinese enterprises became more attentive to societal opinion.

140 Orchestration Although Beijing’s measures stabilized diplomatic ties, public sentiments remained strongly critical, while violence and smuggling persisted. These dynamics emerge from the three sub-​cases examined in this chapter. We begin by considering how Yunnan province officials utilized Beijing’s support for expanding economic ties in ways that exacerbated the pernicious effects of gambling, logging, and illicit mining in Myanmar’s loosely governed border regions. The second case covers a policy initiative designed to advance multiple interests at modest cost: China’s opium substitution program. Similar to the CEEC and North Korea cases, central leaders delegated authority to regional officials, who designed an initiative that succeeded economically:  Chinese firms earned profits while securing a foothold in Myanmar’s agricultural sector. Yet the initiative failed to stem opium production, instead exacerbating popular distrust of China and feeding instability across the border region. The final case reveals similar problems with several controversial Chinese infrastructure projects in Myanmar. I conclude by evaluating policymakers’ responses to these challenges.

Going Out to Myanmar: Yunnan Leads the Way Following the 1988–​1989 coup that brought the State Law and Order Restoration Council to power, China was the first country to recognize the newly renamed Myanmar. Isolated from the West and Japan, Myanmar’s new government turned to China for aid, trade, and investment. Beijing seized this opportunity, providing subsidized loans that enabled Chinese firms to secure a foothold in Myanmar while supporting the Myanmar government’s import-​substitution drive. Yunnan firms alone secured 123 projects from 1998 to 2002 worth $480 million.3 However, as a 2003 Yunnan Academy of Social Sciences report found: Our companies have generally prioritized securing Chinese government contracts to construct and supply these factories in Myanmar. This has expanded China’s machinery exports to Myanmar, but also stretched the indebtedness of the Myanmar recipients beyond their capacity to repay the loans. The result is that Chinese banks often cannot recoup their investments. Our economic cooperation should now shift toward natural resource projects, which can develop Myanmar’s natural resources and use these resources to repay China’s loans.4

Crossing Lines: Myanmar  141 To ensure that the commercial interests of Chinese banks and firms were aligned with Beijing’s desire for closer economic ties, Chinese policymakers provided debt forgiveness and subsidized loans to facilitate this shift toward energy projects. In 2002, China wrote off $72 million of Myanmar’s debt.5 The next year, Ex-​Im Bank offered a $200 million loan for the Yeywa hydropower plant, with $125  million going directly to the SOE Sinohydro.6 Chinese banks primarily provided export-​credit loans, conditional upon the Myanmar recipient using the loans to purchase goods and services from a specified Chinese partner. In 2006, for instance, three Chinese banks jointly provided $81.5 million in supplier credits to China Chengda Engineering Company to build a paper mill.7 In November 2006, Beijing announced another 300 million RMB in low-​interest loans, alongside 240 million RMB in debt relief.8 As President Hu Jintao promised Senior General Than Shwe in April 2005: “The PRC Government is urging Chinese companies to make more investments in Myanmar  .  .  .  China will promote its assistance to Myanmar to the best of its ability.”9 Yunnan officials seized upon this policy opening to promote their province as a “bridgehead” (桥头堡) for engaging Myanmar. Following Kunming’s intensive lobbying, the 2011 national Five-​Year Plan praised Yunnan as a “bridgehead for opening to the southwest.”10 In 2010, Kunming convinced Beijing to include the border city of Ruili among three “key experimental reform and openness zones” (重点开发开放试验区).11 Yet Beijing remained wary, demanding that Kunming “thoroughly enhance its organizational leadership over the experimental zone, ensure its healthy management, and clearly assign responsibilities.”12 Similarly, after Yunnan’s Ministry of Commerce (MOFCOM) deputized ten Yunnan firms to serve in Myanmar as “overseas commercial representative offices” (境外商务代表处), a 2014 Finance Ministry investigation warned: “there is too much overlap and confusion between when they are promoting their own companies’ commercial interests and when they are representing the Yunnan government.”13 Despite these challenges, the strength of regional and commercial interests meant that Beijing’s encouragement of deeper economic ties required much less effort than in North Korea. On the back of combined national and regional support, trade and investment levels soared (Tables 6.1 and 6.2). Beijing’s strategy rapidly swelled China’s economic presence within Myanmar. Yet, deepening cross-​border economic ties exacerbated instability and fed anti-​China sentiments, due largely to the unregulated nature of frontier capitalism along the China–​Myanmar borderlands region. The

142 Orchestration Table 6.1.  China–​Myanmar Bilateral Trade, 2001-​2016 (million USD) Year

Bilateral trade

China exports

China imports

China’s trade surplus

Myanmar overall trade

China’s % of all Myanmar trade

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

631.50 861.60 1,079.70 1,145.40 1,209.30 1,460.10 2,077.80 2,625.30 2,900.10 4,442.10 6,501.40 6,971.90 10,195.56 24,968.93 15,100.21 12,286.39

497.40 724.80 910.20 938.40 934.90 1,207.40 16,997.00 1,977.80 2,254.00 3,475.50 4,821.50 5,671.70 7,338.69 9,367.65 9,650.91 8,188.68

134.20 136.90 1,695.00 206.90 274.40 252.70 378.10 647.60 646.10 966.60 1,679.90 1,298.20 2856.87 15,601.28 5449.30 4,097.71

363.20 587.90 741.00 732.00 660.50 954.80 1,321.60 1,330.20 1,607.90 2508.90 3,141.60 4,373.50 4881.82 –​6233.63 4201.61 4,090.97

N/​A N/​A 4,570.00 4,901.00 5,542.00 8,259.00 9,752.00 11,322.00 11,768.00 15,274.00 18,171.00 18,046.00 24,963.00 29,157.00 27,715.00 29,210.00

N/​A N/​A 23.63 23.37 21.82 17.68 21.31 23.19 24.64 29.08 35.78 38.63 40.84 85.64 54.48 42.06

Sources: Bilateral trade data, 2002–​2012 from 中国统计年鉴 [China Statistical Yearbook]; Myanmar overall trade data from中华人民共和国驻缅甸联邦共和国大使馆 [Embassy of the Peoples’ Republic of China in the Republic of the Union of Myanmar]. http://​www.fmprc.gov.cn/​ce/​cemm/​ chn/​; 2013 data from 中华人民共和国驻缅甸联邦共和国大使馆经济商务参赞处 [Economic and Commercial Counsellor’ s Office of the Embassy of the Peoples’ Republic of China in the Republic of the Union of Myanmar], no longer available online.

same ethnic groups live on both sides of the Yunnan–​Myanmar border; “it is not uncommon for one village to be split down the middle with half of the relatives living in China and the other half in Myanmar.”14 Ethnic identities are often blurred. As one local expert told me: “The Kokang people speak Mandarin, Yunnanese, and Burmese. They can travel between China and Myanmar easily, doing business on both sides, so it is very hard to control or even identify them.”15 Han Chinese have also migrated into Myanmar for centuries, with over two million ethnic Chinese living in Myanmar today.16 Using these complex linkages, PRC citizens can easily cross into Myanmar, purchase identity papers, and conduct business.

Crossing Lines: Myanmar  143 Table 6.2.  China’s Foreign Direct Investment in Myanmar, 2001–​2015 (USD million) Year

China’s FDI in Myanmar

Total FDI in Myanmar

China’s % of Myanmar’s FDI

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

N/​A N/​A N/​A 4.1 11.5 12.6 92.3 232.5 376.7 875.6 217.8 749.0 475.3 343.1 331.7

208.3 150.5 248.9 211.4 234.9 275.8 709.9 863.9 10789.0 901.1 2519.8 1333.9 2254.6 2175.0 4083.8

N/​A N/​A N/​A 1.94 4.91 4.58 13.00 26.92 34.91 97.17 8.64 56.15 21.08 15.77 8.12

Sources: 2001–​ 2012 China FDI in Myanmar from《2012年度中国对外直接投资统计公报》 [Statistical bulletin of China’s foreign direct investment (FDI) for  2012]; 2001-​2012 Total FDI in Myanmar from World Bank. http://​data.worldbank.org/​indicator/​BX.KLT.DINV.CD.WD? page=2&order=wbapi_​data_​value_​2010%20wbapi_​data_​value&sort=desc; 2013 data from 中华人民共和国大使馆经济商务参赞处 [The Economic and Commercial Counsellor’s office of the Embassy of the People’s Republic of China], no longer available online.

These mixed-​identity groups are the shock troops for Yunnan’s bridgehead strategy: driving forward cross-​border trade and investment. They are also at the forefront of the illicit mining, smuggling, and gambling pervasive across these unregulated border regions.17 As one Chinese trader told me: Timber, gold, and jade: they offer the big profits, but local military leaders control the border regions. One man is in charge. You may make a deal with him, but one day he’ll come and demand more money to support his fighting. You have to pay or he’ll close your mine.18

For many, the profit potential justifies such risks. In 2014, Myanmar reported $1 billion in jade exports, though Chinese trade data recorded over $12 billion in jade and gem imports. The real value, a 2016 Harvard study estimates,

144 Orchestration was 15 to 30 times greater.19 Global Witness estimates $31 billion in annual jade production, a staggering figure nearly half of Myanmar’s official GDP.20 “In Kachin State,” Woods explains, “mainland Chinese business interests in mining, timber, large-​scale hydropower dams, and now agricultural commodities have greatly influenced the resource economy and local political and economic grievances, further contributing to the armed conflict.” 21 Lured by profits, the Myanmar military has sought to retake territorial control from local ethnic armed groups (EAGs). Like narcotics, efforts to curtail illicit trade simply reduces supply to a hungry market, thus increasing the value per unit and strengthening incentives for smugglers. Proceeds enrich armed fighters, enabling EAGs to purchase weapons and pay soldiers. Both the EAGs and the military collect fees on illicit mining and smuggling—​as one Chinese trader told me, “To do business there, you must pay off anyone with a gun.”22 High profits also fund corrupt officials, eviscerating regulatory efforts. The result is a deadly zero-​sum game in which compromise is unattractive while military aggression yields lucrative rewards. Illicit mining and trade also divert trade and investment away from legitimate sectors while encouraging gambling, prostitution, and drug smuggling, whose pernicious effects rarely stay on one side of the border. Impoverished mine workers are heavy drug users, spreading HIV/​AIDS, while mining has exacerbated environmental destruction, forcible eviction, and land theft.23 Chinese diplomats and security officials struggle with the consequences. In one incident, several Chinese citizens visiting borderland casinos were shot and killed. “This was a major international incident, and so it required the national Public Security Bureau to come down and deal with the issue, along with MOFA,” a local expert told me.24 In 2011, Chinese businesspeople negotiating a gold mine concession were captured and held ransom by disgruntled local militias, who demanded a ransom. “The Chinese military police went over, paid the ransom, and got them out, but it was a major foreign policy problem.”25 Chinese officials are certainly aware of these problems. Ambassador Yang Houlan admitted in 2014: “there are some businessmen engaged in illegal activities who, attracted by outsize profits, cross the border to mine or smuggle jade  .  .  .  there are some parts of this illicit trade that, like drugs, can’t be stamped out.”26 Feng and Zheng depict a “regional security complex where military, political, societal, economic, and environmental security spheres create negative security externalities through their interactions, posing a trans-​border security threat to China and Myanmar.”27

Crossing Lines: Myanmar  145 Why haven’t Chinese officials done more to curtail illicit trade? Part of the answer is simple: corruption. In 2015, China’s anti-​corruption campaign found that Yunnan province Party Secretary Qin Guanrong, and Bai Enpei, a member of the Yunnan’s Politburo Standing Committee, as well as embassy and military officials, were “involved and had economic interests in” jade, mining, timber, and other industries. “This resulted in the actual situation on the China–​Myanmar border not being accurately reported to Chinese central leaders, and led to the delay in appropriate policy response, thus worsening China’s dilemma in this situation.”28 Yet, blaming individual officials ignores how such dynamics are built into China’s orchestration approach to economic statecraft. The local officials, enterprises, and economic agencies driving economic expansion into Myanmar all prioritize economic objectives, while diplomats and security agencies lack authority over commercial actors. This dominance of economic priorities is evident in Kunming’s anemic response to gambling and logging. Multiple border towns in Myanmar have been “set up solely for the purposes of gambling and prostitution.”29 Adjacent Yunnan regions benefit from the tourist income as Chinese gamblers travel through Yunnan into Myanmar. As Li and Lye suggest, “local [Yunnan] governments take the gambling ventures very seriously and even provide electricity, water, and communication services for Myanmar casinos. The management of illegal migration of gamblers is not strict.”30 In 2004, Beijing suspended one-​day tourist visits to Myanmar (except for Yunnan residents). Menghai County quickly faced a 97 percent drop in cross-​border visits to Myanmar, and lost half of its tourist income. Ruili’s hotel occupancy dropped from 70 to 30 percent, while tourism and restaurants’ income declined 40 percent, shedding some 4,000 jobs across Ruili’s tourism industry. After repeated pleas from Kunming, in January 2008 Beijing lifted the ban, only to quickly renew it in September 2009 due to fighting in the adjacent Kokang region.31 Under Xi Jinping’s vociferous anti-​corruption campaign, Yunnan once again faced central-​level pressure to limit cross-​border gambling traffic. Permission for casual cross-​border travel into the Wa state was curtailed, hurting their gambling and prostitution trade.32 However, once national attention moves elsewhere, Yunnan officials are unlikely to sustain such restrictions—​as this chapter’s epigram explains. Timber offers a second example. Yunnan’s timber trade with Myanmar is dominated by small to mid-​sized firms who secure logging rights from local military leaders and then arrange for Chinese workers to cross into Myanmar

146 Orchestration to cut the trees and transport the timber back to China, bribing whichever group controls the roadways. They generally depart Myanmar illegally, but then declare their timber imports to Chinese customs officials.33 The costs have been devastating. Between 1990 and 2005, Myanmar lost 18 percent of its forests, one of the world’s highest rates of deforestation.34 In 2006, the two sides agreed to prohibit all overland trade of timber. Yet by 2013, 94 percent of China’s $621 million timber imports from Myanmar officially arrived via Yunnan, a flagrant violation of the 2006 agreement. Yunnan’s customs officials charge import duties while accepting blatant forgeries of Myanmar approval documents.35 While negotiating the return of 155 Chinese citizens involved in illegal logging in 2015, Myanmar’s Minister for Environmental Conservation and Forestry told journalists: I have requested that the State Forestry Administration of China and the regional government of Yunnan Province ban the illegal import of Myanmar’s timber. Also, I have asked the Chinese Ambassador to Myanmar to end the illicit timber trade using maps and photos as evidence. Although the central government of China does not seem to support the illicit trade, the Yunnan administration prioritizes its people’s employment and the supply of raw materials.36

In 2013, timber accounted for 24 percent of all Yunnan’s trade with Myanmar (and 13  percent of all Chinese imports from Myanmar).37 Yunnan’s processing plants benefit from access to inexpensive, high-​quality Myanmar raw timber. China’s push for a “green economy” provides another motivation. Since 2008, Yunnan officials have leveraged the province’s abundant hydropower and quartz mines to promote Yunnan as a silicon production hub. Charcoal is essential for converting quartz into pure silicon metal. Given China’s strict logging bans, Myanmar provides a lucrative alternative. From 2008 to 2013, charcoal composed 42 percent of Myanmar’s timber product exports to Yunnan. By 2011, Yunnan hosted some 68 silicon plants—​many near the Myanmar border—​enabling the province to generate nearly half of China’s national silicon production.38 In sum, Chinese leaders adopted the same approach in Myanmar as in North Korea: relying upon line ministries, financial institutions, and regional authorities to encourage enterprises and local entrepreneurs to expand cross-​ border trade and investment ties. As in North Korea, the initiative succeeded economically. However, bolstering trade across the violence-​ridden, loosely

Crossing Lines: Myanmar  147 governed borderlands economy, rife with lucrative illicit opportunities, exacerbated border-​region instability and fed popular frustration in Myanmar with China. Economic priorities explain regional officials’ reluctance to respond to these problems. Similar dynamics emerged in China’s opium substitution program.

Profiting from Opium Substitution In Central and Eastern Europe, Chinese officials developed an innovative response to criticism of China’s trade surplus: providing export certifications and financial support for Chinese agricultural firms to invest in CEE countries while expanding their exports to China. This tactic neatly aligned the interests of Chinese firms and their political backers with CEE countries’ desires for more Chinese investment and exports to China, while bolstering China’s economic presence and influence in the region. In the case of North Korea, local officials were rewarded for designing new initiatives that encouraged cross-​border trade and investment, such as Jilin province’s project that enabled Chinese trucks to carry products across the border to a DPRK port and load them onto Chinese ships for transport to southern Chinese ports, all without attracting export or import duties. Such initiatives exemplify Beijing’s orchestration approach: innovative policy initiatives aligning the interests of implementing actors with Beijing’s foreign policy goals, thus securing eager implementation despite limited oversight. These initiatives generated only modest problems due to limited commercial interests and strong governance capacity on both the Chinese and recipient country sides. Myanmar’s border region is a very different environment. Weak governance capacity combined with strong regional and commercial interests encouraged “policy stretching,” creating precisely the dynamic Song Guoyu warns of: “foreign policy becoming overly localized . . . [and] taken over by narrow local economic interests.”39 The origins of China’s poppy alternative cultivation program (罂粟替代种植) date back to the 1980s, when Myanmar emerged as the world’s largest opium producer. After peaking in 1996, Myanmar’s opium poppy cultivation began to decline, reaching a low of 21,600 hectares in 2006 before rising to some 57,600 hectares in 2013 and then stabilizing.40 By the mid-​1990s, Chinese officials became increasingly concerned with the emerging AIDS epidemic in Yunnan, exacerbated by heroin usage and smuggling

148 Orchestration into China. In response, Chinese officials pressured the three EAGs closely affiliated with China—​the National Democratic Alliance Army, the Kokang Army, and the United Wa State Army—​to ban poppy cultivation. The bans have, by most accounts, been sustained.41 The EAGs also looked to Beijing to support their efforts financially. As one high-​ranking Wa official later told journalists, “After the drug eradication campaign [of 2005], our government encouraged agencies, individuals, and Chinese investors to participate in anti-​drug activities.”42 Initially, Yunnan’s involvement was led by its anti-​drug agency. Supported by technical and agricultural agencies, they supported EAGs’ opium bans by providing Myanmar farmers with plants, seeds, and technical support in what was dubbed the “Menghai model.” This approach was similar to Thailand’s successful “Alternative Livelihood Development” model.43 However, MOFCOM officials within Yunnan quickly became dissatisfied with this “free aid” approach and began lobbying for a “market-​based model” in which the government would “actively mobilize Chinese enterprises” to engage in alternative crop cultivation.44 In early 2004, Yunnan’s Party Secretary Bai Enpei issued a formal proposal to the national State Council. In December 2004, the State Council approved his proposal, issuing its “Plan of Further Supporting the Fight against AIDS and the Work of the Anti-​Drug Program in Yunnan Province,” and establishing a State Council Working Group, coordinated by MOFCOM.45 Yunnan moved quickly to consolidate the program, issuing a major policy document in May 2005:  “The Main Task of People’s War Against Drugs.” The following year, Yunnan formally established its “Poppy Substitution Development Program for Myanmar and Laos” along with a dedicated Opium Replacement Fund.46 The central government then allocated 250 million RMB [$36 million] for the fund over the next five years, augmented by an additional 30 million RMB [$4.3 million] from Yunnan province.47 The two governments established a coordinating bilateral committee and agreed in 2007 to expand the program.48 Yunnan’s program offers financial support and tax incentives for Chinese firms to invest in agricultural production in Myanmar’s (and Laos’) border regions. The program allocates quotas to each region in Yunnan specifying the value of agricultural products they can import into China without paying import duties or value-​added taxes. These quotas are distributed to local firms from each region, who also benefit from subsidized bank loans and government grants. These firms secure access to agricultural land by

Crossing Lines: Myanmar  149 negotiating with local authorities in Myanmar, who generally arrange for labor. The Chinese investors import seeds, fertilizer, and equipment, and agree to purchase some or all of the crops at a certain price. The projects generally produce cash crops for export to China, although the Chinese government also purchases some of the rice produced and distributes it locally as food aid.49 Many Yunnan border customs stations have established a special “Green Channel” so that the exported agricultural goods can be quickly processed to avoid wastage.50 Designed to “actively mobilize Chinese enterprises” in ways that “organically combine the interests of states, enterprises, and farmers,” the program is dominated by commercial interests.51 Yunnan’s MOFCOM manages the program through its Overseas Opium Substitution Development Office. This office coordinates with Yunnan firms through their industrial association, the Yunnan Alternative Development Association (云南省替代种植发展行业协会), created in 2008 to avoid “unhealthy competition, facilitate links with the government, and protect members against unfair treatment.”52 The association closely cooperates with other agricultural industrial associations (particularly the rubber sector) and meets regularly with Chinese government officials, but pays scant attention to training local farmers, drug prevention, or development assistance.53 The program facilitates cooperation between Chinese firms, regional officials, and local authorities in Myanmar. For instance, in 2007 a subsidiary of Yunnan’s Hongyu Group (云南鸿宇集团) encouraged Yunnan’s Menglian prefectural government to reach an agreement with local Wa authorities to establish a large plantation of Jatropha trees (used to create biofuel). Wa officials guaranteed Hongyu would have a local monopoly for this sector. Hongyu also received subsidized loans and tax incentives through the crop substitution program.54 Through such activities, Hongyu grew rapidly. In 2004, Hongyu won the “Prize for International Cooperation in Border-​ Area Narcotics Prohibition” from the Yunnan Commission of Narcotics Prohibition.55 By 2011, Hongyu Group Company controlled 81,000 hectares of rubber plantations in Shan State alone.56 By 2019, Hongyu enjoyed registered capital of 50 million RMB, with over 500 employees and ten overseas projects.57 The core benefit for Chinese firms is the import duty relief; particularly the exemptions from China’s strict agricultural import limitations. Each year, following extensive lobbying by firms, the import quotas allotted to certain firms are announced.58 By 2011, Chinese firms had reportedly invested

150 Orchestration over a billion RMB through the program.59 Chinese firms expanded from simply planting alternative crops into “alternative development projects” including food processing and industrial activities spread widely across Shan and Kachin states.60 Yunnan officials widely praise the program as a success. “With the participation of Chinese enterprises,” Yunnan officials claim, “a relatively complete alternative industry chain has come into being, integrating planning processing, and marketing. . . . China’s pioneering work [of] . . . engaging enterprises under the rule of market economy is an efficient way to eradicate drugs.”61 In fact, the impact on opium production is unclear. Poppy cultivation in Myanmar has nearly tripled since the program’s onset, rising to a peak in 2013 before stabilizing.62 Moreover, the average area of poppy cultivation per family doubled from 2003 to 2013, suggesting an increased dependency upon opium cultivation for some farmers.63 While sustaining their opium bans, the Kokang and Wa EAGs have moved into methamphetamine production and smuggling.64 Kachin groups explain that Chinese firms seeking to maximize the return on their investments have planted in the lower elevations, near infrastructure and resources, while Kachin opium farmers simply moved up the hills, where they expanded their cultivation. “Even though Chinese agribusinesses are doing well, the size of the opium fields is still increasing year after year. This program is meaningless for opium farmers. It proves that the private sector approach . . . is not suitable.”65 Local activists agree. “Some Myanmar businesspeople are profiting, but poor farmers are not really making much money and their lives are not improving.”66 Kevin Woods goes further. “Local populations who have been forcibly displaced from their upland swidden agro-​forestry lands for the Chinese agricultural estates are further contributing to poverty, drugs production and trade, and social and political conflict” in Myanmar’s border regions.67 Even on the Chinese side, abuses are rampant. As one Chinese expert admitted to me privately: Some Chinese companies use the Customs allowances to import goods not under the program. Often, Chinese traders simply purchase agricultural products in local markets in Myanmar and claim that they are produced under the alternative cultivation program. It is costly and difficult for Customs officials to check their claims.68

Crossing Lines: Myanmar  151 An alternative approach, suggested to me by a Burmese economist, would be to resume China’s initial strategy: providing Chinese funding and incentives directly to local farmers in Myanmar and thus cutting out the Chinese corporations. Yet when I put this suggestion to Yunnan officials, it was uniformly dismissed—​they strongly and repeatedly defended the current program as successful. A key reason appears to be the commercial benefits for Chinese firms. As a comprehensive NGO report concludes:  “Conflicting objectives are operating behind this market-​based approach, which raises serious questions regarding its suitability to achieve the stated goals of reducing poppy cultivation and its related effects on border instability.”69 In sum, the opium substitution program illuminates crucial shortcomings of Beijing’s orchestration approach in such environments. Seeking to meet the interests of implementing actors at modest cost, central leaders delegated authority to regional officials, who designed an initiative that succeeded economically: Chinese firms earn profits while securing a foothold in Myanmar’s agricultural sector. Yet, regional and economic officials demonstrate limited concern with the reputational costs or the shortcomings in opium eradication, eroding the initiative’s effectiveness in advancing these policy goals. Similar tensions pervade China’s major infrastructure projects in Myanmar.

Wagging the Dog One of Beijing’s most prominent and controversial economic statecraft techniques is state-​backed funding for large infrastructure projects, evident across Europe’s periphery and along the North Korea border. In Myanmar, energy-​oriented infrastructure projects were particularly prominent, driven by an array of powerful strategic and commercial interests. Similar to the opium substitution program and promotion of cross-​border trade and investment, infrastructure projects were designed to advance Beijing’s policy goals at modest cost by alignment with the interests of implementing actors. One of Beijing’s key policy goals was to secure access to Myanmar’s strategic natural resources, primarily the natural gas fields off Myanmar’s Bay of Bengal coast, as well as transporting oil and gas across Myanmar, thus avoiding the Straits of Malacca dominated by the United States and its allies. This goal was realized with the deep-​water liquid natural gas (LNG) development project and onshore gas terminal, and LNG and crude oil pipelines running from Myanmar’s port of Kyaukphyu to Yunnan’s border city of Ruili.70

152 Orchestration The project’s origins date back to Hu Jintao’s 2003 warning that “some powers” always had a “finger in the pie” by controlling the Malacca Straits.71 In response, China National Petroleum Corporation (CNPC) quickly commissioned a report urging that an oil pipeline be built across Myanmar to overcome the “Malacca Dilemma.”72 Yunnan’s delegation issued a parallel proposal to the 2004 National People’s Congress.73 As Wang Peng explains, “The pipelines were seen as a ‘Yunnan plus CNPC’ joint project.”74 By 2005, the “Battle for the Southwest” between CNPC and its major rival, Sinopec, was underway.75 Sinopec has traditionally dominated energy supplies in southwestern China through its massive refineries in Guangdong province. As Dong Xiucheng explains:  “The pipeline proposal reflected CNPC pushing back against Sinopec.”76 Sinopec aligned with Chongqing city, issuing a 2005 joint proposal for a Myanmar pipeline extending up to Sinopec refineries in Chongqing. Yunnan province and CNPC quickly sent up a competing proposal, with refining capacity in Kunming.77 By 2006, CNPC had won, and quickly took the lead in negotiating with Myanmar counterparts.78 In 2009, China Development Bank (CDB) announced a $30 billion loan to CNPC to support its overseas expansion, particularly the Myanmar pipelines.79 In 2010, CDB and China Ex-​Im Bank offered $4.2 billion of interest-​free loans to Myanmar to help fund the pipelines and other major infrastructure projects.80 The following year, CDB offered Myanmar an additional $765 million credit line.81 While Chinese leaders provided crucial diplomatic support, as Chinese experts explain: “It was the combined push from the two regional governments, and two energy giants, which eventually led to the . . . pipelines.”82 Another stated privately: “really, the SOEs drove this project forward.”83 The pipelines were seen as a success, given their potential to transport up to 22 million tons of oil and 12 billion cubic meters of LNG annually: one-​ quarter of all China’s LNG imports.84 However, to many Chinese experts, they represented a clear case of policy stretching: an initiative that advanced SOE and regional government interests without enhancing China’s energy security. In 2010, Xue Li published a stinging critique, questioning the “Malacca Dilemma” and arguing that the pipelines are vulnerable to attacks while repairing them is slow and costly.85 Chen Shaofeng explains: “NOCs (national oil companies) have benefited a lot from their foreign energy quest  .  .  .  however that does not necessarily mean it will enhance China’s energy security.”86 One MOFCOM researcher even labeled the pipelines a

Crossing Lines: Myanmar  153 “strategic misjudgment” (战略误判).87 In 2016, Professor Li Chenyang, one of Yunnan’s earliest pipeline advocates, admitted: “the significance of the oil and gas pipelines for China has been exaggerated.”88 An even worse strategic overreach, also driven by SOEs and regional officials, was the Myitsone Dam. The largest of seven China-​backed dams planned for the upper reaches of the Irrawaddy River, the Myitsone Dam was dubbed China’s “overseas Three Gorges Dam.”89 Yet the benefits were questionable from the onset. Myanmar cannot use most of the electricity generated, given its dilapidated national grid, and risks electricity being sold off to China cheaply. The dam is likely to silt up within the 50 years when it is scheduled for transfer to Myanmar ownership.90 Chinese experts add that, given its hydropower surplus, “Yunnan has no need to get electrical power from Myanmar.”91 The dam’s reservoir would drive out 10,000 Kachin people, endangering a 17-​year ceasefire with the Kachin Independence Army. The area also abuts a major fault line: in 2008, a 5.3 magnitude earthquake struck just 65 kilometers to the southeast.92 Given the central role of the Irrawaddy—​“Mother River”—​ in Myanmar’s national identity, the project had triggered populist criticism since its inception. Like the pipelines, SOEs drove forward the dam project. Yunnan Machinery Export and Import Company (YMEC) initiated the project in 2005. As the scale became clear, YMEC brought in China Power Investment (CPI), a national-​level SOE worth over $100 billion. CPI quickly took control, working with Yunnan and national officials to secure political approvals within Myanmar.93 Yet just as President Thein Sein announced, in May 2011, that Myanmar considered China its “closest and most important diplomatic relationship,” the dam began to trigger a diplomatic crisis.94 Swelling anti-​ Myitsone protests, amidst rising social unrest and nascent political liberalization, forced Thein Sein to announce, on September 30, 2011, the project’s suspension. Initially, CPI president Lu Qizhou declared himself “totally astonished” by the decision and hinted at “a series of legal issues.”95 China’s foreign ministry spokesperson called for Myanmar “to guarantee the lawful and legitimate rights and interests of Chinese companies.”96 Premier Wen Jiabao insisted the Myanmar government “keep its promises” and “implement the consensus reached.”97 China’s Global Times warned “the whimsical change will inevitably send troubling signals to potential investors,” while local academics urged the Chinese government to support CPI.98 Yet Beijing soon became more concerned as street protests and NGOs began targeting China’s

154 Orchestration pipelines.99 On February 24, 2012, Yunnan’s leaders convened a high-​level meeting to warn of the seriousness of the anti-​pipeline protests and urge a concerted response by Chinese firms and central leaders.100 CPI appeared to finally get the message. In January 2012, CPI President Lu Qizhou admitted: “national SOEs are not used to dealing with NGOs or local residents. This is a lesson we need to learn as part of the process of ‘going out’.”101 The following month, CPI Yunnan’s President Li Guanghua pledged that CPI would “give priority to meeting Myanmar’s needs” for electricity.102 CPI also issued a Social Responsibility Report highlighting Myanmar’s economic benefits from the project and CPI’s spending on environmental protection.103 These concerns also spread to the pipelines project. In late 2012, CNPC established a public relations center in Yangon to publicize their profit sharing, local hiring practices, training programs, and social welfare contributions.104 In 2015, Myanmar experts told me that CNPC’s agreement to expand the percentage of LNG allotted to Myanmar amidst a domestic shortage represented “a good example of China responding to local criticism appropriately.”105 The clearest example of a Chinese enterprise shifting its approach is Wanbao Mining Corporation. Wanbao began its construction at the Letpadaung Copper Mine—​ Southeast Asia’s largest copper deposit—​ in 2010 by spending $5 million to compensate local residents for taking some 7,000 acres.106 In November 2012, police forcefully displaced occupying protesters, using white phosphorous that caused deep chemical burns to 100 protesters.107 Following widespread criticism, the Myanmar government established an investigation committee chaired by Aung San Suu Kyi to scrutinize the project. Wanbao initially responded to the incident with a propaganda campaign through Chinese media, which dutifully praised displaced residents’ new “life of modest prosperity” (小康生活) while dismissing protesters as “a few troublemakers” and environmental concerns as an “excuse.”108 Wanbao’s CEO insisted that the situation had been “completely politicized” by “outside elements.”109 Yet after Suu Kyi’s commission issued its report in March 2013, Wanbao’s approach shifted sharply. The report denoted numerous problems with the project, but still recommended its continuation.110 As she explained: We have to deprioritize our emotions and needs when it comes to the greater good. . . . I believe that this project, if done right, would not only bring profit for the locals but for the whole country and this is why I’m

Crossing Lines: Myanmar  155 recommending to continue it. . . . The other country [China] might think that our country cannot be trusted on the economy. We have to get along with the neighboring country whether we like it or not.111

After meeting with Suu Kyi and touring local villages, Wanbao CEO Chen Defang admitted:  “The mistake we made is we didn’t consult the people enough; local people weren’t involved in our development plan.”112 Chen reassured another Western reporter, “Talk of financial returns is the language of the past, now our focus is on social returns.”113 Chen hired a local resident to publicize Wanbao’s funding for new schools, libraries, medical clinics, and upgraded local roads.114 Wanbao also connected villages to the national electric grid, and hired more local workers and enterprises. As one resident told reporters: “At first, we were opposed to this project. But they’ve built schools, supported education and health care, and given us electricity—​and we changed our mind.”115 Wanbao also renegotiated its profit-​sharing arrangements in July 2013, taking only 30 percent while offering the Myanmar government 51 percent. Wanbao also pledged to contribute two percent of its profits toward social welfare.116 Wanbao’s efforts won support from Aung Naing Oo, Director-​General of National Planning, who declared in October 2013 that the project “now has transparency,” and praised Wanbao for “working hard to improve their relationship with local residents.”117 As one influential Burmese economist and government advisor told me privately, “Wanbao is a hopeful example for Chinese investment.”118 Following the Myitsone cancellation, public anger set back a number of potential Chinese investment projects in Myanmar. Plans to build a railway and highway alongside the oil and gas pipelines fell apart by June 2014.119 China’s failure contrasted sharply with Japan’s success in funding new railways in Myanmar.120 In July 2016, China’s Ex-​Im Bank lost out to the Asia Development Bank on a $180 million project extending Myanmar’s national electrical grid, as Myanmar officials complained: “Loans from Ex-​Im Bank take time, have high interest rates, and we must give priority to buy Chinese products.”121 Only one Chinese bank (ICBC) succeeded in Myanmar’s 2014 and 2016 issuing of banking licenses.122 In 2013, Norwegian and Qatar firms beat Chinese competitors to become Myanmar’s first foreign telecommunications operators.123 Yet, China’s projects were not the only ones caught up in the swell of populist anger:  Japanese, Thai, and Indian infrastructure projects also suffered protests and delays.124 And some Chinese projects did move

156 Orchestration forward, including several controversial dams.125 In December 2015, China International Trust and Investment Corporation (China’s largest conglomerate), secured contracts to build port facilities and an industrial zone adjacent to where the oil and gas pipelines meet the Bay of Bengal.126 In March 2016, a Guangdong SOE secured approval to purchase 70 percent of a $3 billion oil refinery near the Thai border.127 A new business district in Muse with Chinese backing, aimed at undercutting illicit trade by selling legitimate jade within Myanmar, opened in January 2016.128 Despite these hopeful signs, China’s infrastructure investments into Myanmar were driven more by SOEs and regional authorities rather than a strategic vision by central leaders. Even though central leaders initially created the policy opening in hopes that the projects would advance foreign policy interests, SOEs and regional officials shaped the projects’ design and implementation in ways that undermined diplomatic ties and public opinion. China’s energy infrastructure projects in Myanmar are a clear case of the tail wagging the dog.

Problems and Responses Chinese firms’ aggressiveness damaged China’s public image in Myanmar. While survey data on Myanmar public opinion toward China is rare, the 2015 Asian Barometer Survey found that only 28  percent of respondents in Myanmar had positive views of China, slightly more than Vietnam (20 percent) but far less than the Philippines, Malaysia, and Thailand (41, 76, and 86 percent, respectively).129 By 2012, Min Zin argues, anti-​Chinese attitudes were “widely felt in the whole country.”130 Anti-​China sentiment, Turnell adds, “is across all strata of society, from business, government, to the ordinary people,” creating “China’s growing public relations disaster in Myanmar.”131 Yunnan scholars agree, finding strongly negative attitudes toward Chinese aid and investment among NGO workers and urban residents in July 2013.132 Fan Hongwei noted in February 2014: “Myanmar Internet postings are filled with accusations, rumors, attacks, curses, and satire against Chinese and China. Anti-​Chinese sentiments are clearly on the rise.”133 As Chinese experts explain, “China’s policy of cooperating with Myanmar’s military government, while declaring that China does not interfere in domestic politics of another country, led most local people to see China as an ‘accomplice’ (帮凶) of the military government and a supporter

Crossing Lines: Myanmar  157 of the dictatorship.”134 “For the majority of Myanmar’s people,” Myoe adds, “the reason military rule in Myanmar lasted so long was because of China’s support.”135 A  member of the Presidential Economic and Social Advisory Council told me in June 2015, “Burmese people automatically hate China due to its support for the junta,” adding “during the period of sanctions, Chinese companies had unfair opportunities.”136 Once political change began, Beijing found itself on the wrong side of history. “The relaxation of media restrictions under the new government allowed this [anti-​Chinese] expression to gather steam and spread throughout the country,” Zin Min explains.137 Amidst this “unique historical moment,” Chinese experts claim, China’s aid and investment was “politicized” by activists.138 Fan Hongwei disagrees, explaining: Chinese investment projects, primarily in natural resources and energy, have failed to create sizeable employment opportunities for the locals. At the same time, the military government of Myanmar did not spend the earnings from deals with China on improving the people’s livelihood. As a result, China’s presence in Myanmar has not brought substantial benefits and has instead strengthened the locals’ perception that the economic relations between the two countries were unequal. In particular, locals believe that China is grabbing their natural resources and disregarding their interests.139

Myoe dismisses Chinese “public relations efforts” as “just a small token given the fact that there are many more Chinese firms and individuals creating negative images of China and Chinese business activities.”140 Most firms’ public relations efforts, Chinese experts explain, “are usually via a middleman, leaving them still distant from the local people.”141 Even on aid projects, a Yangon professor insisted, “Chinese companies break all the rules and hire only Chinese workers. Chinese companies just want to make money, and will even bribe local officials to get their way.”142 Sensitivities are particularly high near the Chinese border, as I saw during my extensive travels there. “Mandalay is a mini-​Chinese colony,” a Yangon professor told me angrily.143 “Our ancestral homes have been sold off to the Chinese,” one opposition party leader added. “We should crack down on illegal immigrants. If they are not citizens, they should go home to their own place.”144 In Mandalay, ethnic Chinese do not even dare to hang Chinese couplets on their doors during Chinese New Year.145 As one local diplomat

158 Orchestration observed in January 2014, “China is getting on the wrong side of Burmese nationalism—​this is very dangerous.”146 Cultural differences feed such animosity. “The Chinese are business-​ minded people with no ethics; they just know how to make money,” one university professor told me. Even ethnic Chinese “are like strangers to us.”147 Chinese experts partially blame the local Chinese business community for “not participating in local politics, living isolated from society in fancy townhouses and going only to expensive restaurants.”148 An ethnic Chinese businessman in Yangon fumed: “China’s SOEs have made a lot of mistakes, and have given China a very bad reputation. How long does it take to get back a good reputation? Ten years? Twenty?”149 Progress will take “time and patience,” caution Yunnan scholars.150 As the introduction chapter noted, China’s orchestration approach is likely to generate such challenges in countries like Myanmar. One of the key tests for Beijing’s effectiveness is officials’ capacity to recognize and respond to problematic behavior. In this case, Chinese officials did at least acknowledge the problem. As Ambassador Yang Houlan admitted in January 2014: “Our approach needs some changes.” Establishing a new public relations department, he explained, “Our embassy has shifted its emphasis to dealing with everyone in the society, especially the media, and sending positive messages to spread our ideas.”151 Yang also noted: “We have asked Chinese companies to change their practice and have more communication with locals.”152 On April 19, 2013, Yangon’s ECC office demanded that all MOFCOM offices in Yunnan redistribute regulations governing Chinese firms in Myanmar.153 The ECC and Yunnan’s MOFCOM office brought in Kunming-​ based experts to promote corporate social responsibility.154 Yunnan’s Commercial Representative Office in Yangon warned:  “investment in Myanmar should begin with respect for local traditions and customs in Myanmar.” Investors “should be careful when choosing partners for cooperation” and demonstrate “a sense of responsible investment and a correct attitude.”155 China’s aid also shifted. “We observed how other countries were conducting their aid programs in Myanmar, and we learned from this,” a Yunnan academic explained to me.156 China’s Poverty Alleviation Fund established a project office in Yangon, while China’s border city of Ruili established an office in Myanmar to oversee its expanding aid projects.157 In June 2013, State Councilor and former Foreign Minister Yang Jiechi pledged $100 million in low-​interest loans to support Myanmar’s agricultural sector.

Crossing Lines: Myanmar  159 “Trying to be a good neighbor,” Yang added that China would “try to increase the import of Myanmar agricultural products.”158 In November 2014, Premier Li Keqiang announced in Naypyidaw a new $200 million small-​loan facility for fighting poverty and promised to import 100,000 tons of rice.159 The most significant shift came in China’s deepening engagement with opposition groups. The policy began, according to ambassador Yang Houlan, with “the idea of ‘closeness, honesty, benefits, and tolerance’ promoted by President Xi Jinping around this time.”160 Soon after his arrival in Myanmar, in April 2013, Ambassador Yang visited Suu Kyi at her home in Yangon and donated $1,000 to the National League for Democracy’s (NLD) Health Network.161 In December 2013, a NLD delegation made its first visit to China. Over the next 18 months, three other NLD delegations traveled to China. In February 2014, Vice-​Foreign Minister Ai Ping visited NLD headquarters along with ambassador Yang Houlan—​the first NLD visit by a senior Chinese government official since 1990.162 Yuan Zhibing, Deputy Director-​General of the CCP’s International Department, even attended an NLD campaign rally in May 2014.163 In June 2015, Yunnan University scholars told me they were receiving at least one Myanmar group a month.164 “China is opening a new page in its relationship with the Myanmar opposition,” admitted U Nyein Thint, a senior NLD member who visited Beijing in April 2014.165 Beijing’s strategy peaked in June 2015, with the long-​awaited visit of Aung San Suu Kyi to Beijing.166 Beijing’s reversal helped stabilize bilateral ties, contrary to US claims that “America is winning Burma’s ‘Great Game’ between the US and China.”167 In fact, Myanmar’s post-​2011 foreign policy is best understood as returning to its traditional non-​aligned approach.168 As a top NLD advisor told me in June 2015, “As an initiator of the Bandung conference, we look back fondly on this period. Today, we need a new non-​aligned movement. China can and should support this. A neutral, non-​aligned Myanmar would be beneficial to all parties.”169 An important signal of this “new normal” was Myanmar’s approach to South China Sea disputes as the 2014 ASEAN Chair. “We couldn’t act like Cambodia” (widely seen as caving in to Chinese pressure in 2012), experts told me. “We would lose face in ASEAN. We didn’t want to openly refuse Chinese requests, but we also didn’t want to appear to be too close to China.”170 The final communique threaded this fine line, expressing “serious concerns” and defending freedom of navigation while urging “all parties to exercise self-​restraint” and settle disputes peacefully.171 The statement, Zhang Jie noted, “didn’t mention China, nor issue a separate statement more

160 Orchestration specific or even critical [of China]; I think it is not a small achievement for China’s diplomacy.”172 As she assumed political power, Suu Kyi also adopted “a pragmatic and practical approach” toward China, reaching important understandings with Xi Jinping during her landmark August 2016 visit to Beijing.173 With Xi promising support for Suu Kyi’s upcoming peace conference with EAGs, she praised China’s “long-​term support,” pledging to maintain border stability, and promised to “not allow anything that could affect Myanmar’s friendly relations with neighboring countries.”174 Suu Kyi added:  “If [Chinese] investments can clearly demonstrate benefits to our economy and nation, then we will welcome them.”175 In August 2016, Suu Kyi accepted Beijing’s funding to build two new hospitals and a bridge near the China–​Myanmar border.176 Beijing’s diplomatic outreach also helped blunt Myitsone criticism. In February 2014, NLD leader U Nyan Win reassured China’s Global Times: The suspension of the Myitsone hydropower project did not need to happen. The project was signed by the Chinese company with the previous military government and now has become the victim of political change. If the project had been approved by the parliament and signed by the current government, there would not have been a need for revocation. It was done by the previous government, but this will not happen in the future. . . . There will not be special constraints on the Chinese companies.177

Myanmar’s new leaders were realizing that they could not afford to alienate Chinese policymakers or investors. As Tang Xiaoyang notes: “Western economic activity in Myanmar cannot replace China’s comprehensive engagement. Given the importance of solid economic growth, advocates of Myanmar’s political reforms must ensure that the country’s transition will not affect its relationship with China.”178 On my final day of interviews in Yangon, an influential expert reminded me privately: “No one can escape or ignore China—​it will always be important for Myanmar.”179

Conclusion The three cases examined in this chapter—​Yunnan’s promotion of cross-​ border economic ties, the opium substitution program, and China’s

Crossing Lines: Myanmar  161 controversial infrastructure projects—​exemplify both the strengths and shortcomings of Beijing’s orchestration approach. In all three instances, Beijing’s reliance upon regional authorities and corporations succeeded in rapidly expanding economic ties, bolstering Chinese access to Myanmar’s strategic natural resources and yielding economic benefits for Chinese enterprises and border regions. Yet this success came at considerable cost: eroding the security and stability of the border region while damaging China’s public reputation across Myanmar, undermining diplomatic ties, and threatening key economic projects. The Myanmar case thus offers strong support for my expectation that China’s implementation coherence varies with the intensity of principal–​ agent challenges. Beijing’s reliance upon regional authorities and commercial actors with strong economic interests, exacerbated by Myanmar’s limited governance capacity in its border regions, triggered major problems with policy stretching, moral hazards, and enterprise malfeasance. Chinese officials responded to these problems by tightening their oversight over Chinese firms, broadening foreign aid provision, and deepening their engagement with opposition groups. Beijing’s reverse course helped stabilize bilateral diplomatic ties, though populist anti-​China sentiments remained more entrenched. Ultimately, Beijing’s capacity to mitigate these negative effects in Myanmar, combined with the significant benefits for Chinese firms and officials, suggests that despite its considerable shortcomings, China is unlikely to dramatically revise its orchestration approach to economic statecraft.

7 Conclusion Despite China’s burgeoning military might, Chinese leaders are often wary of deploying coercive force abroad. China has no major military bases overseas and only one military ally—​North Korea. Any use of its armed forces raises sharp anxieties among its neighbors and the world’s most powerful nations, threatening a costly balancing response. Moreover, China’s authoritarian political system enjoys scant attractiveness around the world. Beijing’s massive soft-​power campaign has proven a dismal failure. Simply put, the world’s second-​largest power faces considerable difficulty in trying to exert influence abroad via military coercion or ideational persuasion. That leaves money. Here Beijing seems better placed. With the Communist Party controlling the “commanding heights” of a vast economy, China appears ideally structured to use economic resources to advance its foreign policy goals—​to engage in economic statecraft. Yet, as the preceding chapters show, domestic complications often hinder Chinese leaders’ efforts to deploy economic resources abroad for strategic purposes. This book embarked from the premise that interactive effects between a country’s domestic political economy and its underlying collective belief structure will exert a powerful influence upon how that country engages in economic statecraft. In seeking the sources of China’s orchestration approach to economic statecraft, I thus started with ideas and institutions. As the first two chapters show, China’s unique experience as a planned economy followed by a development state, all under a single Leninist party, left Chinese leaders with unchallenged political authority over their economy. Amidst China’s dramatic surge in wealth and power, Party-​state control over China’s industrial and financial sectors, overseen by powerful economic agencies, Party oversight mechanisms, and ambitious regional officials, fortified policymakers’ confidence that the Party-​state can and should mobilize commercial actors to advance multiple goals simultaneously. Chinese strategists and policymakers also express convictions that China’s economic resources can be deployed for both strategic leverage and reassurance and can advantage both China and recipient countries.

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Conclusion  163 However, Chinese leaders’ ambition of retaining a central role for the Party-​state while relying upon a broad array of economic statecraft techniques to advance multiple policy goals creates considerable implementation challenges. In response, policymakers have developed a distinctive approach for implementing economic statecraft, one best understood as orchestration. As the concept’s developers explain, orchestration is a type of indirect governance based upon the “mobilization of an intermediary by an orchestrator on a voluntary basis in pursuit of a joint governance goal.”1 The orchestrator identifies a like-​minded agent who shares their basic priorities, and then utilizes a set of incentives and other techniques to support the agent as it acts in ways that should advance both the agent’s and the orchestrator’s goals. The core challenge is the inevitable trade-​off between control and competence: the “governor’s dilemma.” To maximize their control over subordinate actors while still benefiting from these actors’ capacity and creativity, Chinese leaders rely upon “nested orchestration.” Leaders directly implement some initiatives while delegating authority for others to line ministries, which in turn rely upon orchestration techniques to encourage participation from financial institutions, enterprises, and regional authorities. The most effective of these tactics is the creation of broad-​based initiatives and investment funds that attract eager participation by regional authorities and enterprises. Beijing also relies upon economic statecraft techniques designed to facilitate interest alignment among the implementing actors, thus mobilizing a broad array of domestic actors at modest cost. My first empirical challenge was determining if Chinese policymakers actually employ these three orchestration techniques. I chose four cases varying widely across the variables traditionally assumed to shape economic statecraft practices and outcomes: levels of development and regime type, as well as diplomatic affiliation, economic dependence, and geographic proximity vis-​a-​vis the “sending” state. Each of the four case study chapters examines three to four distinct techniques of China’s economic statecraft, including promoting trade and investment, creating regional associations, foreign aid, infrastructure provision, sanctions, and financial statecraft. The target countries range from the distant, wealthy democracies of Western Europe to impoverished authoritarian states on China’s periphery. The cases include a wide range of policy objectives across the Hu Jintao and Xi Jinping eras. This diversity provides a robust test for my argument that China employs

164 Orchestration a consistent approach to economic statecraft shaped primarily by domestic factors. The cases yield overwhelming evidence of Chinese policymakers utilizing all three orchestration tactics across widely different contexts. In Western Europe and North Korea, top leaders used diplomatic visits to initiate major new economic statecraft initiatives. Policymakers responded rapidly to Europe’s financial crisis, allocating state resources to purchase European debt and invest in EU funds, leading business delegations to Europe, presiding over major investment announcements, and forging new institutional linkages. Policymakers also deftly coordinated among key actors to present firms’ investment and purchasing announcements in ways designed to maximize their diplomatic payoffs. Top leaders similarly instigated Beijing’s economic engagement with North Korea through intense diplomacy, signing bilateral accords while pledging hefty increases in aid and investment. Consistent with the “nested orchestration” approach, policymakers also delegated authority to line ministries and financial institutions, which in turn mobilized an array of subordinate actors through political and financial rewards. Beijing’s financial statecraft in Western Europe, for instance, deployed line ministries to lead numerous purchasing delegations to the region amidst the depths of its financial crisis. Policymakers also brought an array of ministries together to support the new China–​-​CEE initiative, with each agency assigned responsibility for expanding cooperation in their functional area. Prosperous coastal cities such as Shenzhen and Suzhou were “paired” with Central and Eastern European counterparts, sparking bilateral government and corporate initiatives that spurred Chinese investment and trade with the region. Beijing’s most significant orchestration tactic was the creation of competitive investment funds backing broad-​based policy initiatives. In North Korea, for instance, such funds successfully enticed regional authorities and companies to develop innovative projects that rapidly bolstered cross-​border economic ties, thus advancing Beijing’s policy objectives with relative ease. In the CEE case, Chinese financial institutions established subsidized credit lines to provide investment capital for transportation and energy infrastructure projects implemented by Chinese firms across the region. In Western Europe, Beijing’s RMB internationalization effort relied upon creating attractive opportunities for Chinese banks. At the core of Beijing’s orchestration efforts are economic statecraft techniques aligned with the goals of implementing actors. By supporting

Conclusion  165 COSCO’s investments into the Greek port of Piraeus while taking credit for the benefits to Greece, policymakers were able to advance diplomatic and strategic objectives at modest cost. Beijing’s strategic provision of export certifications and encouragement for Chinese agricultural firms to invest in CEE countries while expanding their exports to China aligned the interests of Chinese firms with CEE countries’ desires for more Chinese investment and exports to China. Similarly, encouraging local innovations like Jilin province’s cross-​border road-​and-​port linkages with North Korea enabled Beijing to leverage local initiative for strategic benefit. The evidence is clear: across a diverse range of countries and issues, over a decade and under two different preeminent leaders, China’s economic statecraft consistently and repeatedly employed the three core orchestration tactics laid out in my introduction chapter. The most likely reason for this remarkable consistency is that China’s approach is shaped primarily by domestic factors, namely ideas and institutions. Having traced the origins of China’s ambitious approach, I then assessed its implementation effectiveness. My first test is simple:  was Beijing successful in mobilizing domestic actors to expand economic activities in the direction it desired? Given policymakers’ extensive authority across China’s economy, this is a low bar. The cases show that Beijing sails over it. Combining process-​tracing with quantitative data reveals that even in the hard cases of Eastern Europe and North Korea, policymakers played a significant role in spurring dramatic increases in Chinese trade and investment. Despite considerable commercial reluctance and popular criticism, Beijing also facilitated major investments and currency support amidst Europe’s financial crisis. Isolating policymakers’ impact upon corporate decision making is even easier when political initiatives run contrary to commercial interests. The sanctions imposed on Baltic states over Dalai Lama receptions, and toward North Korea over its nuclear weapons program, demonstrate Beijing’s capacity to reverse course in pursuit of broader strategic goals. Implementation coherence is a far greater challenge for Beijing. My primary expectation was that implementation problems are more likely when principal–​agent challenges are more intense, namely when Chinese leaders rely upon regional and commercial actors who are difficult to monitor and have strong economic interests in the target state, and when the target state has weaker domestic governance capacity. Our intra-​regional comparisons bear this out: enterprise malfeasance, policy stretching, and moral hazard were more intense in Eastern than in Western Europe, and worse in Myanmar

166 Orchestration than in North Korea. As expected, the most severe problems emerged in Myanmar, evident across all three initiatives: promoting cross-​border trade and investment, opium substitution, and infrastructure projects. Myanmar thus posed the toughest test for my third and final effectiveness measure, namely: were Chinese policymakers able to identify and alter agents’ behavior that undermined Beijing’s foreign policy objectives? As the introduction chapter explains, top-​down adjustments are particularly difficult when powerful local interests limit information flows upward or when central leaders have developed vested interests in locally driven projects, such as the massive infrastructure projects across northern Myanmar. Yet even in Myanmar, central leaders proved willing and able to adapt on the fly, tightening oversight over ambitious enterprises while diversifying aid projects and broadening diplomatic engagement to key opposition groups. Beijing’s efforts successfully stabilized diplomatic ties with Myanmar while ensuring that China’s most valuable infrastructure projects—​the oil and gas pipelines—​remained on line. Central policymakers demonstrated similar adjustment capacity when facing difficulties across Europe and in North Korea. For instance, policymakers adroitly pivoted after a state-​dominated investment fund proved ill-​suited to the CEE region, creating a new market-​ based fund without demanding state-​backed guarantees and Chinese firm involvement. Across all four cases, Chinese leaders demonstrated an impressive capacity to recognize and adjust in response to such challenges. In sum, the core expectations of this study were borne out by our empirical investigations: Chinese leaders rely upon an orchestration approach to economic statecraft, derived primarily from domestic ideas and institutions and implemented similarly around the world. Central-​level policymakers are able to mobilize an array of domestic actors to advance—​and when desired, reverse—​economic ties with target states. While problematic behavior is likely to emerge in situations with more intense principal–​agent challenges, policymakers retain the capacity to rein in troublemakers and reverse course, thus minimizing the damage to key policy objectives. Simply put, this book shows how and why Chinese leaders are able to effectively orchestrate their economic statecraft. But can they actually get what they want? As the first chapter shows, Chinese experts express a remarkable level of confidence that their country’s wealth can be deployed to strategic benefit. They widely agree that China’s economic resources can be deployed for both strategic leverage and reassurance; share a faith that economic statecraft can concurrently benefit both

Conclusion  167 China and recipient countries; and generally believe that the interests of Chinese enterprises can be neatly aligned with Beijing’s foreign policy goals. Do the findings of this book support their confidence?

Getting What You Want This book is not designed to identify when China is most likely to secure its desired policy outcomes: that task is best left to another book, one which I hope someone else will write. However, my case studies do reveal telling variations in China’s successes and failures. These findings yield important policy implications for countries targeted by China’s economic statecraft. In Western Europe, Beijing successfully presented itself as bestowing benevolent “gifts,” helping secure European support for China’s ambitious regional and global investment initiatives. Chinese policymakers shrewdly offered selective benefits to key interest groups within European countries, including influential financial sectors across the continent and Greece’s shipping industry, who then dutifully urged their home governments to support Beijing’s policy preferences. Athens’ willingness to block EU statements critical of China proved a notable success. Beijing also secured European support for including the RMB within the IMF’s Special Drawing Rights basket without having to provide greater liquidity or open its capital account, a remarkable foreign policy achievement. In Eastern Europe, China created a new regional framework, expanded linkage infrastructure, and shored up its diplomatic ties and economic presence across the region. Beijing successfully leveraged market access in pressuring Baltic leaders to avoid meeting the Dalai Lama. Promoting trade and investment into Hungary also yielded payoffs: Budapest quickly joined the AIIB, strongly supported the BRI, and promoted Chinese priorities within the EU. Even in Myanmar, Beijing succeeded in promoting Yunnan’s economic interests while expanding Chinese access to strategic resources—​ most importantly, the oil and gas pipelines that remain operational today. North Korea was perhaps China’s greatest success. While Beijing’s approach failed to deter Pyongyang’s pursuit of nuclear weapons, Chinese leaders retained considerable leverage amidst the diplomatic flurry of 2018. Moreover, policymakers’ successful mobilization of commercial actors and regional officials contributed to modest economic improvements and spurred market-​based dynamics in the DPRK, bolstering regime stability

168 Orchestration while shoring up bilateral ties. Given Beijing’s ambitious objectives and strategic constraints in North Korea, these are impressive outcomes. However, Chinese experts’ optimistic expectations that enterprises’ priorities could be neatly aligned with Beijing’s foreign policy goals were only partially supported by the evidence. In several instances, local actors’ pursuit of their own economic interests undermined Beijing’s diplomatic objectives. As predicted, this problem was most severe in Myanmar, evident in the opium substitution program. While the initiative succeeded economically, local officials remained unconcerned with its reputational damage and ineffectiveness in opium eradication. Similar tensions pervaded China’s major infrastructure projects and investment promotion in Myanmar. Even in North Korea, Chinese leaders’ rhetorical defense of “market-​based operations” meant that Chinese firms—​which enjoy commercial advantages over their isolated and less experienced DPRK comrades—​could and did exploit these advantages for their own benefit. Even more problematically, China’s aggressive expansion of trade, aid, and investment into target countries failed to reassure them of Beijing’s benevolent intent and the mutual benefits of economic engagement. Instead, China’s deepening economic presence exacerbated anxieties and distrust across all four cases. The surge of populist anti-​China sentiments was sharpest in Myanmar, fed by high levels of corporate malfeasance enabled by Myanmar’s weak governance capacity. In the Czech Republic, concerns over China’s growing economic presence also began to turn politicians against Beijing. Even North Korea, China’s only military ally, became worried. As Chapter 5 shows, Kim Jong-​un’s 2018 diplomatic outreach was likely encouraged by disquiet over North Korea’s extreme economic dependence upon China—​ the costs of which were laid bare once Chinese sanctions tightened. Also contrary to Chinese experts’ optimism, intensifying public distrust directly undermined Beijing’s pursuit of its policy goals—​most strikingly in Western Europe. Despite the effective implementation of China’s economic statecraft, expanding economic ties exacerbated popular distrust of China, evident in European public opinion data. As Chapter 3 shows, negative popular sentiments proved costly, undermining Beijing’s two top policy goals in Europe: ending the EU’s arms embargo and securing EU support for China’s market economy status in the WTO. Despite China’s valuable support amidst Europe’s financial crisis a decade earlier, by 2020 European policymakers and public sentiments had swung sharply against Beijing.

Conclusion  169

So What? While these shortcomings are unwelcome news to Beijing, for countries targeted by China’s economic statecraft the policy implications are broadly reassuring. The European example is particularly relevant for the United States. Like Americans, Europeans have become acutely concerned over the threat posed by China’s economic statecraft. A leading German think-​tank warned in 2018 that European elites are “starting to embrace Chinese rhetoric and interests” and acting as “willing enablers” of Chinese influence, resulting in Europe’s “pre-​emptive obedience” to Beijing.2 The evidence suggests otherwise. As stable and prosperous democracies, EU member states have successfully attracted Chinese investment, expanded exports to China, and deepened their diplomatic engagement with Beijing with limited constraints upon their policy autonomy. As I argue elsewhere, Europe’s “divided sovereignty” structure has proven far more effective than most European experts acknowledge.3 The implications for Americans, Australians, and other citizens of wealthy democracies far from China’s shores is that anxiety over the political costs of accepting Chinese investment and trade has been vastly overwrought. While Beijing is able to effectively orchestrate its economic statecraft, Chinese leaders have been unable to wrest significant policy concessions from the leaders of wealthy, stable democracies. For such countries, economic engagement with China yields far more economic benefits with far fewer political costs than most popular analyses assume. The threat posed to developing countries, particularly those on China’s periphery, is vastly different. Rather than facing a coherent China juggernaut, such countries are at greatest risk from Beijing’s loss of control. Ambitious Chinese firms and regional officials largely dominate economic engagement strategies in these countries; at points, they drive investment, trade, infrastructure, and foreign aid in directions damaging for Beijing’s diplomatic objectives. For these countries, raising concerns over enterprise malfeasance directly with central Chinese leaders may offer the most effective approach to curtailing the excesses currently attributed to “China, Inc.” across the developing world. A final question remains: is China likely to retain or revamp its current approach? Although China’s orchestration of economic statecraft failed to secure key foreign policy goals in Western Europe and caused considerable

170 Orchestration diplomatic headaches in Myanmar, Beijing is unlikely to veer from its current approach. Orchestration remains an attractive option for Chinese leaders due to its effectiveness in delivering multiple benefits at modest cost. An array of powerful domestic actors benefit from its interest-​alignment approach. More importantly, Chinese leaders’ reliance upon orchestration techniques has encouraged them to see economic statecraft as an attractive option for advancing multiple policy goals at modest political and economic costs. This leads policymakers to engage in even more economic statecraft, fostering a greater need for this low-​cost, multiple-​benefit strategy—​evident in the massive Belt and Road Initiative. Given these self-​reinforcing dynamics, I expect that Beijing will continue to expand its orchestration approach to economic statecraft for the foreseeable future.

Next Steps: Putting China in Perspective This book began by noting the scarcity of studies comparing different countries’ approaches to economic statecraft. Before closing, I would like to suggest how subsequent studies might build upon my findings to develop an exciting new field of research: comparative economic statecraft. I conclude by briefly describing previous efforts in this direction, offering an alternative strategy, and suggesting how this might be developed in future studies. The first round of inquiries toward comparative economic statecraft emerged in the wake of the end of the Cold War. Luttwak usefully highlighted variations in state–​ enterprise relations across “geo-​ economically active states” by contrasting the United States’ “laissez faire attitude” with the state activism of France and Japan.4 The most promising branch of this scholarship noted that countries like Germany and Japan, which Maull labeled “civilian powers” and Rosecrance called “trading states,” relied heavily upon economic means to advance their foreign policy goals.5 Although implicitly comparative, such work tended to simplify economic statecraft into a dichotomous variable (states either engage in it or not; do more or less of it) and never really identified or explained cross-​national variation. While recent scholarship has begun to identify and explain such variation, the typologies provided rely upon identifying a state’s underlying intentions and are hardly objective.6 However, useful categories are emerging

Conclusion  171 in specific sub-​areas, such as Armijo and Katada’s exciting work on comparative financial statecraft.7 Given the scarcity of studies describing variation across different approaches to economic statecraft, it is understandable why efforts to explain such variation have been even more limited.8 Some scholars imply that variation or trends in relative state power shape a country’s approach to economic statecraft.9 While this claim has not been systematically tested, shifts in relative power levels alone are likely to prove too broad-​brush to explain variation across countries. Others focus on regime type, such as variation between authoritarian and democratic states.10 While domestic institutions and ideology certainly matter, we need to drill down further to identify how they impact a country’s approach to economic statecraft. A better approach would be to distinguish countries along three dimensions:  who engages in economic statecraft, why they use economic statecraft, and how they do so. Variations across countries and over time can guide subsequent research questions. Why, for instance, would a country apply the same approach over time, across issues, and toward different targets? Why would a certain group of countries engage in economic statecraft similarly, and why might their approaches vary from another set of countries? How do domestic attributes—​such as strategic culture and political-​economic institutions—​influence how a country engages in economic statecraft? The answers to such questions will likely form the building blocks for the study of comparative economic statecraft. The first dimension—​who engages in economic statecraft—​relates to the nature of state–​society interactions in implementing economic statecraft. Countries could be placed along a continuum, with variation likely shaped by the state’s role in the domestic economy. At one extreme are cases of state dominance, such as the Soviet Union and Maoist China. The US model of neoliberal, free-​market capitalism with a limited state role is at the other extreme, while more managed or corporatist economies such as Germany or Japan fall in the middle. Countries may also vary in the extent and type of direct state involvement in economic statecraft, which can change over time. For instance, the US government’s role evolved over the Cold War from direct engagement toward regulating US firms’ overseas interactions through domestic legal constraints.11 A second area of comparison is the degree to which the country’s economic statecraft is designed to benefit their own economy and firms. At one end of this continuum is a strategy that assumes advancing strategic

172 Orchestration goals requires sacrificing economic interests. This approach, adopted by US policymakers in the early Cold War era, approximates military policy in that financial costs are seen as necessary to ensure national security. The other extreme is an assumption that economic interests are compatible with foreign policy goals:  namely, both can be advanced simultaneously through carefully designed economic statecraft techniques. This approach, typical of both Germany and Japan during the Cold War, is closer to foreign economic policy. In military strategy, while empowering the military may be a necessary means, it is rarely the end goal. In contrast, foreign economic policy generally views enriching one’s own companies and citizens as a core objective. For the final distinction, strategies of economic statecraft can be divided into two broad types:  reciprocity and engagement.12 In reciprocity, as Drezner explains, any benefit “comes with a clear quid pro quo; in return for the benefit, the receiver is expected to grant some concession to the sender . . . the carrot is not proffered in the hopes of influencing the receiver country’s policies over the long run.”13 While most studies focus exclusively on reciprocity, doing so risks missing a great deal of economic statecraft. History’s most significant initiatives have been open-​ended engagement strategies, such as the United States’ and USSR’s support for their Asian and European allies in the early Cold War era. These are best understood as strategic engagement: “a policy of deliberately expanding economic ties with an adversary in order to change the behavior of the target state and improve bilateral political relations.”14 Strategic engagement also offers hope for advancing the interests of multiple actors through a single policy: the elusive “win-​win” outcome. The Reagan administration’s technology transfers to China, for instance, helped strengthen China’s interest in strong US ties, bolster Chinese capacity to balance against the Soviet Union, support moderate Chinese leaders, and integrate China into the global economy while also advancing US business interests.15 These three distinctions—​who engages in economic statecraft, why they use economic statecraft, and how they do so—​usefully highlight broad variations between China’s approach and US, Japanese, and German economic statecraft at key historical moments. Similar to Germany and the United States in the early Cold War era, China relies heavily upon a strategy of open-​ended economic engagement designed to bring about changes in the attitudes and orientations of target countries.16 While, like the United States today, Beijing relies heavily upon sanctions, Chinese sanctions are more closely attuned to advancing domestic economic interests.17 Instead, Beijing’s

Conclusion  173 pursuit of self-​benefit through economic statecraft most closely reflects Japan’s approach to foreign aid during the Cold War.18 Indeed, as Chapter 1 shows, Chinese attitudes on foreign aid were deeply influenced by Japan’s aid to China. And while Beijing, like Germany at the Cold War’s dénouement, seeks to use economic engagement to ease anxiety and build trust, China’s failures in this regard more closely reflect the Japanese experience.19 China’s most significant difference from all three countries, however, is in the nature of state–​enterprise relations. US economic statecraft hinges upon regulating commercial actors, while Japanese officials tended to prioritize supporting commercial actors, and German officials seek to actively coordinate with commercial actors. China’s orchestration approach, in contrast, relies on mobilizing commercial actors: deploying the vast array of resources and power vested in the Party-​state to convince a broad array of commercial actors to engage in economic activities designed to advance domestic and foreign policy goals simultaneously. This crucial distinction derives from China’s unique combination of historical experience and political-​economic structures: domestic ideas and institutions. Therefore, it is upon these domestic foundations that future studies in comparative economic statecraft should be built.

Notes Introduction 1. My definition builds principally upon:  David Allen Baldwin, Economic Statecraft (Princeton: Princeton University Press, 1985); William J. Norris, China’s Economic Statecraft:  Commercial Actors, Grand Strategy, and State Control (Ithaca:  Cornell University Press, 2016). While some scholars use ‘geo-​economics,’ I believe that term should be reserved for cases/​arguments where geography is a central element. Geo-​ economics might also be useful as a system-​level concept, whereas economic statecraft is a mode of foreign policy. 2. Jacob Viner, “Power vs. Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth Centuries,” World Politics I, no. 1 (1948): pp. 1–​29. 3. Isidor Wallimann, Nicholas Ch. Tatsis, and George V. Zito, “On Max Weber’s Definition of Power,” Journal of Sociology 13, no. 3 (1977): p. 231. 4. Robert Dahl, “The Concept of Power,” Behavioral Science 2 (1957): pp. 201–​215. In this book, I focus on “direct power” and bilateral—​not systemic—​influence. For these alternative approaches, see (respectively):  Eric Helleiner, “Below the State:  Micro-​ Level Monetary Power,” in David M. Andrews (ed.), International Monetary Power (Ithaca: Cornell University Press, 2006); Leslie Elliott Armijo and Saori N. Katada, “Theorizing the Financial Statecraft of Emerging Powers,” New Political Economy 20, no. 1 (2015): pp. 42–​62. 5. Benn Steil and Robert Litan, Financial Statecraft: The Role of Financial Markets in American Foreign Policy (Washington: Brookings Institution, 2008). 6. Jonathan Kishner, Coercion and Currency:  The Political Economy of International Monetary Power (Princeton: Princeton University Press, 1997). 7. My review of the field is: James Reilly, “Economic Statecraft,” in David S. G. Goodman (ed.), Handbook of the Politics of China (Cheltenham:  Edward Elgar Publishing, 2015):  pp. 381–​396. Since then, major books include:  Sophia Kalantzakos, China and the Geopolitics of Rare Earths (New  York:  Oxford University Press, 2017); Eswar S. Prasad, Gaining Currency:  The Rise of the Renminbi (New  York:  Oxford University Press, 2017); Robert D. Blackwill and Jennifer M. Harrison, War by Other Means:  Geoeconomics and Statecraft (Cambridge:  Harvard University Press, 2016). Regional studies include: Jeffrey Reeves, Chinese Foreign Relations with Weak Peripheral States: Asymmetrical Economic Power and Insecurity (Abington: Routledge, 2016); Philippe Le Corre and Alain Sepulchre, China’s Offensive in Europe (Washington:  Brookings Institution, 2016). Historical studies include:  Amy King, China–​Japan Relations after World War Two:  Empire, Industry and War, 1949–​ 1971 (Cambridge: Cambridge University Press, 2016); Shu Guang Zhang, Beijing’s

176 Notes Economic Statecraft During the Cold War: 1949–​1991 (Washington: Wilson Center, 2014); Andrew Mertha, Brothers in Arms: Chinese Aid to the Khmer Rouge, 1975–​1979 (Ithaca: Cornell University Press, 2014). Edited volumes include: Mingjiang Li and Natalie Yan Hong (eds.), China’s Economic Statecraft:  Co-​option, Cooperation, and Coercion (Singapore: World Scientific, 2017); Eric Helleiner and Jonathan Kirshner (eds.), The Great Wall of Money: Power and Politics in China’s International Monetary Relations (Ithaca: Cornell University Press, 2014). 8. Xu Yi-​Chong, Sinews of Power: The Politics of the State Grid Corporation of China (New  York:  Oxford University Press, 2017); Chih-​ Shian Liu, “Rent-​ seeking at Home, Capturing Market Share Abroad:  The Domestic Determinants of the Transnationalization of China State Construction Engineering Corporation,” World Development 54 (2014): pp. 220–​231. 9. Sandra Heep, China in Global Finance: Domestic Financial Repression and International Financial Power (New York: Springer, 2014); Deborah Bräutigam and Tang Xiaoyang, Economic Statecraft in China’s New Overseas Special Economic Zones:  Soft Power, Business, or Resource Security? IFPRI Discussion Paper 01168 (March 2012). 10. Raymond Fisman et  al., “Nationalism and Economic Exchange:  Evidence from Shocks to Sino-​Japanese Relations,” Review of Financial Studies 27, no. 9 (2014): pp. 2626–​2660; Andreas Fuchs and Nils-​Hendrik Klann, “Paying a Visit: The Dalai Lama Effect on International Trade,” Center for European Governance and Economic Development Research Paper 113 (October 19, 2010). 11. Jonathan Kirshner, “The Microfoundations of Economic Sanctions,” Security Studies 6, no. 3 (1997): pp. 32–​64. 12. Gustavo A. Flores-​Macias and Sarah E. Kreps, “The Foreign Policy Consequences of Trade: China’s Commercial Relations with Africa and Latin America, 1992—​2006,” The Journal of Politics 75, no. 2 (2013): pp. 357–​371; James R. Masterson, “Analysing China’s Economic Interdependence and Political Relations with its Neighbours,” China Information 26, no. 1 (2012): pp. 3–​33. 13. James Reilly, The Role Of China As An Education Aid Donor, UNESCO (2015), http://​unesdoc.unesco.org/​images/​0023/​002324/​232475e.pdf; Sabrina Snell, China’s Development Finance: Out-​bound, Inbound, and Future Trends in Financial Statecraft (Washington:  U.S.–​ China Economic and Security Review Commission, 2015). Useful online resources include: the China Global Investment Tracker (https://​www. aei.org/​china-​global-​investment-​tracker/​); Aid Data (http://​aiddata.org); and CSIC’s Reconnecting Asia site (https://​reconnectingasia.csis.org/​about/​). 14. Evelyn Goh (ed.), Rising China’s Influence in Developing Asia (Oxford:  Oxford University Press, 2016). 15. Gideon Rose, “Neoclassical Realism and Theories of Foreign Policy,” World Politics 51 (October 1998): p. 146. 16. Peter J. Katzenstein, ed. Between Power and Plenty:  Foreign Economic Policies of Advanced Industrial States (Madison: University of Wisconsin Press, 1978). 17. Peter A. Hall and David Soskice (eds.), Varieties of Capitalism:  The Institutional Foundations of Comparative Advantage (Oxford:  Oxford University Press, 2001); Christopher A. McNally, “Sino-​Capitalism:  China’s Reemergence and the International Political Economy,” World Politics 64, no. 4 (2012): pp. 741–​776.

Notes  177 18. Stephen D. Krasner, “United States Commercial and Monetary Policy,” in Katzenstein (ed.), Between Power and Plenty: pp. 51–​80. The classic statement is, of course, Samuel P. Huntington, Political Order in Changing Societies (New Haven:  Yale University Press, 1968). 19. Richard J. Samuels, The Business of the Japanese State: Energy Markets in Comparative and Historical Perspective (Ithaca: Cornell University Press, 1987): p. 262. 20. Arthur A. Stein, “Sanctions, Inducements, and Market Power:  Political Economy of International Influence,” in Etel Solingen (ed.), Sanctions, Statecraft, and Nuclear Proliferation (Cambridge: Cambridge University Press, 2012): p. 50. 21. Patricia A. Davis, The Art of Econ Persuasion:  Positive Incentives and German Economic Diplomacy (Ann Arbor: University of Michigan Press, 2000). 22. Jean-​Jacques Laffont and David Martimort, The Theory of Incentives: The Principal-​ Agent Model (Princeton: Princeton University Press, 2002): p. 145. 23. Manfred Elsig and Mark A. Pollack, “Agents, Trustees, and International Courts: The Politics of Judicial Appointment at the World Trade Organization,” European Journal of International Relations 20, no. 2 (2014): pp. 391–​415. 24. Andreas Dür and Manfred Elsig, “Principals, Agents, and the European Union’s Foreign Economic Policies,” Journal of European Public Policy 18 no. 3 (2011): 323–​ 338; Mark Furness, “Who Controls the European External Action Service? Agent Autonomy in EU External Policy,” European Foreign Affairs Review 18, no. 1 (2013): pp. 103–​126. 25. Bates Gill and James Reilly, “The Tenuous Hold of China, Inc. In Africa,” The Washington Quarterly 30, no. 3 (2007): 37–​52. For a longer exposition of this argument, see: James Reilly and Wu Na, “China’s Corporate Engagement in Africa,” in Marcel Kitissou (ed.), Africa in China’s Global Strategy (London: Adonis & Abbey, 2007): pp. 132–​155. 26. Chris Alden and Daniel Large, “China’s Exceptionalism and the Challenges of Delivering Difference in Africa,” Journal of Contemporary China 20, no. 68 (2011): p. 31. 27. Norris, China’s Economic Statecraft, pp. 27, 21, 227. 28. While successful top-​down control of the SOE giant Chinalco emboldened its takeover attempt of Australian mining giant Rio Tinto, Beijing’s blatant involvement fed anxieties in Canberra, leading the Australian government to block the deal and sparking a sharp downturn in China–​Australia relations. (Norris, China’s Economic Statecraft, pp.  92–​96). For extensive discussion of this case and its aftermath, see:  James Reilly and Jingdong Yuan, Australia and China at 40 (Sydney:  UNSW Press, 2012). Conversely, despite Beijing’s “failed control” over its national oil companies, Norris notes that “through its commercial actors, China has been able to gain access to a considerable amount of oil and other raw materials.” Norris, China’s Economic Statecraft, pp. 83–​84. 29. Hawkins et al., Delegation and Agency in International Organizations (Cambridge: Cambridge University Press, 2006): pp. 26–​27. 30. Helen V. Milner and Dustin Tingley, “The Choice for Multilateralism: Foreign Aid and American Foreign Policy,” Review of International Organizations 8 (2013): pp.

178 Notes 313–​341; Mark A. Pollack, The Engines of European Integration: Delegation, Agency and Agenda Setting in the EU (New York: Oxford University Press, 2003). 31. Francis Fukuyama, “What Is Governance?” Governance 26, no. 3 (2013): pp. 347–​368. 32. Eileen M. Crumm, “The Value of Economic Incentives in International Politics,” Journal of Peace Research, Vol. 32, No. 3 (August 1995), p. 326. 33. Michael Mastanduno, “Trade as a Strategic Weapon: American and Alliance Export Control Policy in the Early Postwar Period,” International Organization 42 (1988): pp. 121–​150. 34. Sarah Eaton and Zhang Ming, “A Principal–​Agent Analysis of China’s Sovereign Wealth System: Byzantine by Design,” Review of International Political Economy 17, no. 3 (2010): pp. 481–​506. 35. Stephen Bell and Hui Feng, The Rise of the People’s Bank of China:  The Politics of Institutional Change (Cambridge, MA: Harvard University Press 2013): p. 33. 36. Kenneth W. Abbott, Philipp Genschel, Duncan Snidal, and Bernhard Zangl, “Two Logics of Indirect Governance:  Delegation and Orchestration,” British Journal of Political Science 44, no. 3 (2015): p. 722. 37. Abbott et al., “Two Logics,” pp. 719–​729. I am grateful to Philipp Genschel for his patient explanation of these concepts to me in Florence. 38. Abbott et al., “Two Logics,” pp. 723. 39. Kenneth W. Abbott and Duncan Snidal, “International Regulation without International Government:  Improving IO Performance through Orchestration,” Review of International Organisations 5 (2010): p. 336. 40. Antonio Salvador Alcazar III, “EU as Principal-​Orchestrator:  Horizontal Policy Externalisation through Intermediaries,” Global Politics Review 5, no. 1-​ 2 (2019): pp.  67–​91. 41. Abbott et al., “Two Logics.” 42. Abbott and Snidal, “International.” 43. Kenneth W. Abbott, Philipp Genschel, Duncan Snidal, and Bernhard Zangl, “The Governor’s Dilemma:  Competence Versus Control in Indirect Governance,” WZB Discussion Paper, No. SP IV 2018–​2101 (Berlin: 2018). 44. Abbott et al., “Two Logics,” p. 724–​725. 45. Lasse Folke Henriksen and Stefano Ponte, “Public Orchestration, Social Networks, and Transnational Environmental Governance: Lessons From The Aviation Industry,” Regulation and Governance 12 (2018): pp. 23–​45. 46. Abbott et al., “Two Logics,” p. 728–​729. 47. Alcazar, “EU as Principal-​Orchestrator.” 48. Abbott and Snidal, “International.” 49. Abbott and Snidal, “International.” 50. Sebastian Heilmann, “From Local Experiments to National Policy: The Origins of China’s Distinctive Policy Process,” The China Journal 59 (2008): pp. 1–​30. 51. Abbott et al., “Two Logics,” pp. 728–​729. 52. This is consistent with definitions of success as measured by “actors’ ability to realize the goals they set for themselves.” Amitav Acharya and Alastair Iain Johnston, “Comparing Regional Institutions:  An Introduction,” in Amitav Acharya and

Notes  179 Alastair Iain Johnston (eds.), Crafting Cooperation: Regional International Institutions in Comparative Perspective (Cambridge: Cambridge University Press, 2009): p. 13. 53. This is similar to what da Conceição-​Heldt and Meunier refer to as ‘internal cohesiveness,’ which they distinguish from ‘external effectiveness.’ Eugénia da Conceição-​ Heldt and Sophie Meunier, “Speaking with a Single Voice: Internal Cohesiveness and External Effectiveness of the EU in Global Governance,” Journal of European Public Policy 21, no. 7 (2014): pp. 961–​979. 54. Jing-​Lin Duanmu, “State-​Owned MNCs and Host Country Expropriation Risk: The Role of Home State Soft Power and Economic Gunboat Diplomacy,” Journal of International Business 45, no. 8 (2014): pp. 1044–​1060. 55. Interview, MOFCOM researcher, Beijing (May 29, 2012). 56. Audrye Wong, “Reaping What You Sow: Public Accountability and The Effectiveness of China’s Economic Statecraft,” (unpublished paper, May 10, 2019), https://​ndisc. nd.edu/​assets/​320488/​wong_​audrye_​emerging_​scholars_​051019.pdf.

Chapter 1 1. Margaret MacMillan, Dangerous Games: The Uses and Abuses of History (New York: Modern Library, 2009): p. 8. 2. Alastair Iain Johnston, Cultural Realism:  Strategic Culture and Grand Strategy in Chinese History (Princeton: Princeton University Press, 1998). 3. Jack Snyder, The Soviet Strategic Culture:  Implications for Limited Nuclear Options (Santa Monica, CA:  RAND, 1977):  p. 8, https://​www.rand.org/​content/​dam/​rand/​ pubs/​reports/​2005/​R2154.pdf. 4. Elizabeth L. Stone, Christopher P. Twomey, and Peter R. Lavoy, “Comparative Strategic Culture,” Conference Report, U.S. Naval Postgraduate School (September 21–​ 22, 2005):  p. 11, https://​calhoun.nps.edu/​bitstream/​handle/​10945/​29623/​ Comparative%20Strategic%20Culture.pdf?sequence=1. 5. Benjamin E. Goldsmith, “Imitation in International Relations: Analogies, Vicarious Learning, and Foreign Policy,” International Interactions 29, no. 3 (2003): p. 237. See also: Jack S. Levy, “Learning and Foreign Policy: Sweeping a Conceptual Minefield,” International Organization 48, no. 2 (1994): pp. 279–​312. 6. Hal Brands and Jeremi Suri, eds. The Power of the Past:  History and Statecraft (Washington, DC: Brookings Institution, 2016): p. 3 7. Barbara Levitt and James G. March, “Organizational Learning,” Annual Review of Sociology 14 (1988): pp. 324–​334. 8. Respectively:  Thomas G. Mahnken, “Containment:  Myth and Metaphor,” in Hal Brands and Jeremi Sur (eds.), The Power of the Past:  History and Statecraft (Washington, DC: Brookings Institution, 2016): pp. 133–​150; Yuen Foong Khong, Analogies at War:  Korea, Munich, Dien Bien Phu, and the Vietnam Decisions of 1965 (Princeton:  Princeton University Press, 1992); Injoo Sohn, “Learning to Co-​ operate: China’s Multilateral Approach to Asian Financial Co-​operation,” The China Quarterly 194 (2008): pp. 309–​326.

180 Notes 9. Chao Guo and Rongrong Ren, “Learning and Problem Representation in Foreign Policy Decision-​making: China’s Decision to Enter the Korean War Revisited,” Public Administration Quarterly 27, no. 3/​4 (2003–​2004): pp. 274–​310. 10. Wen–​Hsuan Tsai and Nicola Dean, “The CCP’s Learning System: Thought Unification and Regime Adaptation,” The China Journal 69 (2013): p. 90. 11. Tomas P. Bernstein, “Introduction:  The Complexities of Learning from the Soviet Union,” in Thomas P. Bernstein and Hua–​yu Li (eds.), China Learns from the Soviet Union, 1949–​Present (Lanham, MD: Lexington Books, 2010): pp. 15–​18. 12. David L. Shambaugh, China’s Communist Party: Atrophy and Adaptation (Berkeley: University of California Press, 2008). 13. Zhang, Beijing’s Economic Statecraft, p. 141. 14. Shu Guang Zhang, Economic Cold War:  America’s Embargo against China and the Sino-​Soviet Alliance, 1949–​1963 (Stanford:  Stanford University Press, 2002):  pp. 156–​159,  196. 15. Hong Zhou, “Soviet Aid to China,” in Hong Zhou, Jun Zhang, and Min Zhang, (eds.), Foreign Aid in China (Berlin: Springer, 2015): pp. 57–​106. 16. Zhang, Economic Cold War, p. 167. 17. John F. Copper, China’s Foreign Aid and Investment Diplomacy, Vol. 1: Nature, Scope, and Origins (New York: Palgrave, 2016): p. 115. 18. Lorenz M. Lüthi, The Sino-​ Soviet Split:  Cold War in the Communist World (Princeton: Princeton University Press, 2010). 19. John F. Copper, China’s Foreign Aid and Investment Diplomacy, Vol. 1I: History and Practice in Asia (New York: Palgrave, 2016): p. 98. 20. 舒云，“纠正与国力不符的对外援助—​—中 ​ 国外援往事”同舟共进 [Shu Yun, “Correcting Foreign Aid That Does Not Match National Strength –​Future Tasks for China’s Foreign Aid,” Advance Hand in Hand] 1 (2009): pp. 40–​44. 21. “中华人民共和国政府和朝鲜民主主义人民共和国政府代表团谈判公报”人民 日报 [“Statement of the Discussions between the Government of the PRC and the DPRK Delegation,” People’s Daily] (November 24, 1953): p. 1. The initial aid package was announced as 8 trillion RMB. However, in 1955 China engaged upon a large-​ scale currency revaluation at a ratio of 1:10,000. The amounts listed here apply the post-​1955 currency values. See: Philip P. Cowit, ed., World Currency Yearbook, 27th ed., 1990–​1993 (Brooklyn, NY: Currency Data and Intelligence, 1996): p. 415. 22. 沈志华、董洁，“朝鲜战后重建与中国的经济援助，1954–​ 1 960”四川政协 [Shen Zhihua and Dong Jie, “North Korea’s Postwar Reconstruction and China’s Economic Aid, 1954–​1960,”] Sichuan CPPCC (May 4, 2012). 23. Zhihua Shen and Yafeng Xia, “China and the Post-​War Reconstruction of North Korea, 1953–​1961,” Working Paper 4, North Korea International Documentation Project, Woodrow Wilson Center (2012): p. 7. 24. 毛泽东等祝贺中朝经济及文化合作协议签订一周年的电报 [Mao Zedong and others send telegrams commemorating the one year anniversary of the signing of the China–​DPRK economic and cultural cooperation agreement], November 22, 1954. 25. 林今淑、权哲男，“现代朝鲜经济”延边：延边大学出版社 [Lin Jinshu and Quan Zhenan, “Modern North Korea Economy,” Yanbian: Yanbian University Press] (2011): p. 299.

Notes  181 26. Shen and Xia, “China and the Post-​War,” p. 18. 27. 孙露晞，“从国家利益视野下看中国建设以来的对外援助政策”经济金融观察 [Sun Luxi, “China’s Foreign Aid Policy from the Perspective of National Interests,” Economic and Financial Observations] 11 (2007): p. 9. 28. Jae Ho Chung and Myung–​hae Choi, “Uncertain Allies or Uncomfortable Neighbors? Making Sense of China-​North Korea Relations, 1949–​2010,” Pacific Review 26, no. 3 (2013): p. 259. 29. Kosal Path, “China’s Economic Sanctions Against Vietnam, 1975–​1978,” China Quarterly 212 (2012): p. 119. 30. See: 张郁慧，“一边倒的外交战略与中国的对外援助”国际关系学院学报 [Zhang Yuhui, “The Foreign Policy of Leaning to One Side and China’s Foreign Aid,” Journal of School of International Relations] 3 (2011):  pp. 18–​24; 周宏，中国援外60年 (北京：社会科学文献出版社， 2013) [Zhou Hong, 60 Years of China’s Foreign Aid (Beijing: Social Science Academic Press, 2013)]. 31. 尚长风，“ ‘文革’时期中国的对外援助”党史文汇 [Shang Changfeng, “Chinese Foreign Aid in the Era of the ‘Cultural Revolution’,” Party History Digest] 2 (2010): pp.  56–​57. 32. Preceding points from: Cooper, China’s Foreign Aid, Vol. 1, p. 117. 33. Cooper, China’s Foreign Aid, Vol 1I, p. 152. 34. Shang, “Chinese Foreign Aid,” p. 57. 35. 王晨燕，“借鉴国际经验：科学推进援助”国际经济合作 [Wang Chenyan, “Borrowing from International Experience:  Scientifically Advancing Foreign Aid,” International Economic Cooperation] 6 (2009): p. 44. 36. 张曙光，“中国经济外交战略考察”文汇报 [Zhang Shuguang, “Examining China’s Economic Statecraft,” Wenhui Bao] (August 20, 2012), available at:  http://​finance. sina.com.cn/​review/​hgds/​20120820/​101512895688.shtml. 37. 张晓通、王宏禹、赵柯，“论中国经济实力的运用问题”东北亚论坛 [Zhang Xiaotong, Wang Hongyu, and Zhao Ke, “On the Use of China’s Economic Strength,” Northeast Asia Forum] 1 (2013): p. 96. 38. Deborah Bräutigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford: Oxford University Press, 2009): p. 41. 39. Phrase from: Stefan A. Halper, The Beijing Consensus: How China’s Authoritarian Model Will Dominate the Twenty-​first Century (New  York:  Basic Books, 2010): p. 109. 40. Sun, “Viewing China’s.” 41. Cited in:  朱蓉蓉，“中国共产党对外援助策略的历史演进”毛泽东邓小平理论 研究 [Zhu Rongrong, “The Historical Evolution of the Chinese Communist Party’s Strategy towards Foreign Aid,” A Study of Mao Zedong’s and Deng Xiaoping’s Theories] 9 (2011): pp. 71–​76. 42. 杨鸿玺，“中国对外援助的回顾与发展”学习月刊 [Yang Hongxi, “Reflections and Development of China’s Foreign Aid,” Study Times] 21 (2009): p. 40. 43. Cooper, China’s Foreign Aid, Vol. 1, p. 118. 44. Tomozo Morino, “China–​Japan Trade and Investment Relations,” Proceedings of the Academy of Political Science 38, no. 2 (1991): p. 92.

182 Notes 45. Jong H. Park, “Impact of China’s Open-​Door Policy on Pacific Rim Trade and Investment,” Business Economics 28, no. 4 (1993): p. 54. 46. Bräutigam, The Dragon’s Gift, p. 51. 47. Bräutigam, The Dragon’s Gift, pp. 63–​64, quoting a Chinese official in The Gambia. 48. Zhang, Beijing’s Economic Statecraft, pp. 284–​286. 49. William J. Long, “Economic Incentives and International Cooperation: Technology Transfer to the People’s Republic of China, 1978–​86,” Journal of Peace Research 28, no. 2 (1991): pp. 175–​189; Ezra F. Vogel, Yuan Ming, and Tanaka Akihiko, eds. The Golden Age of the U.S.-​China–​Japan Triangle, 1972–​1989 (Cambridge:  Harvard University Press, 2002). 50. Zhang, Beijing’s Economic Statecraft, p. 311. 51. Yong Deng, “Chinese Relations with Japan:  Implications for Asia-​ Pacific Regionalism,” Pacific Affairs 70, no. 3 (1997): p. 381. 52. Ian Taylor, “The ‘All-​Weather Friend’? Sino-​African Interaction in the 21st Century,” in Ian Taylor and Paul Williams (eds.), Africa in International Politics:  External Involvement on the Continent (London: Routledge, 2004): p. 87. 53. 李巍、孙忆，“理解中国经济外交”外交评论 [Li Wei and Sun Yi, “Understanding China’s Economic Diplomacy,” Foreign Affairs Review] 4 (2014): pp. 1–​24. 54. 刘威，“国际经济制裁新特点及我国的应对策略”商业经济研究 [Liu Wei, “New Characteristics of International Economic Sanctions and the Countermeasures China Should Take,” Commercial Economic Research] 28 (2008):  p. 32; Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1980). 55. Chang and Chen, “The Application.” 56. Chang and Chen, “The Application,” p. 15. 57. 薛本辉、王丽，“大陆对台湾经济制裁的可行性分析”法制与社会 [Xue Benhui and Wang Li, “Analysis of the Possibility of Mainland Sanctions Against Taiwan,” Law and Society] 11 (2006): p. 150. 58. See:  James Reilly, “Popular Nationalism and Economic Interests in China’s Japan Policy,” in Robert S. Ross and Oystein Tunsjo (eds.), Strategic Adjustment and the Rise of China (Ithaca: Cornell University Press, 2017): pp. 169–​195. 59. 张向晨，“在新的历史起点上进一步推进对外开放”对外经贸 [Zhang Xiangchen, [“At a New Historical Starting Point, Promote Further Opening to the Outside World,” Foreign Economic Relations & Trade] 3 (2013): p. 7. 60. A  useful review is:  周永生，“ ‘经济外交’概念在中国使用情况研究”杭州师范学 院学报（社会科学版） [Zhou Yongsheng, “Research on the Concept of ‘Economic Diplomacy’ in China,” Journal of Hangzhou Teachers College (Social Science Edition)] 6 (2007):  pp. 67–​ 70. See also:  周永生，经济外交 (北京：中国青年出版社， 2004)  [Zhou Yongsheng, Economic Diplomacy (Beijing:  China Youth Publishing House, 2004)]: pp. 10–​13. 61. 金熙德，“战后日本经济外交的作用及其演变”日本学刊 [Jin Xide, “The Role and Evolution of Japan’s Economic Diplomacy after World War II,” Japanese Studies] 4 (1995):  p. 89; 李恩民，中日民间经济外交（1945–​1972）（北京：人民出 版社, 1997）[Li Enmin, China-​Japan Foreign Economic Diplomacy (1945–​1972)

Notes  183 (Beijing: People’s Publishing House, 1997)]; 张健，战后日本的经济外交（1952–​ 1972）（天津：天津人民出版社 [Zhang Jian, Japan’s Economic Diplomacy after World War II (Tianjin: Tianjin People’s Publishing House, 1998)]. 62. 车玉明，“中国将强化对发展中国家的经济外交工作” [Che Yuming, “China Will Strengthen Economic Diplomacy for Developing Countries”] (September 2, 2004), http://​news.163.com/​40902/​6/​0V9P2ONC0001124T.html. 63. 温家宝，“政府工作报告：2005年3月5日在第十届全国人民代表大会第三次 会议上”北京：人民出版社 [Wen Jiabao, “Government Work Report:  March 5, 2005 At the Third Session of the Tenth National People’s Congress,” Beijing: People’s Publishing House] (2005): p. 40. 64. 明金维，“中国经济外交战略：为中国和世界的共同利益而来”中华人民共 和国中央政府网站 [Ming Jinwei, “China’s Economic Diplomacy Strategy: For the Common Interests of China and the World,” The Central People’s Government of the People’s Republic of China Website] (November 21, 2013), http://​www.gov.cn/​jrzg/​ 2013-​11/​21/​content_​2531919.htm. For purposes of this study, I  use the term economic statecraft, based on the definition provided earlier; though I generally translate 经济外交 as ‘economic diplomacy.’ 65. 宋国友，“中国周边经济外交：机制协调与策略选择”国际问题研究 [Song Guoyou, “China’s Peripheral Economic Diplomacy: Coordination Mechanisms and Strategic Choice,” International Studies] 2 (2014):  p. 45; 张晓通，“中国经济外交 理论构建：一项初步的尝试”外交评论（外交学院学报）[Zhang Xiaotong, “China’s Economic Diplomacy Theory Construction:  A Preliminary Attempt,” Foreign Affairs Review] 6 (2013): pp. 49–​60. 66. Xiaotong, “China’s Economic Diplomacy Theory.” 67. 常璐璐、陈志敏，“吸引性经济权力在中国外交中的运用”外交评论 [Chang Lulu and Chen Zhimin, “The Application of Attraction Economic Power in China’s Diplomacy,” Foreign Affairs Review] 3 (2014): p. 4. 68. 李巍，“金融外交在中国的兴起”世界经济与政治 [Li Wei, “The Rise of Financial Diplomacy in China,” World Economics and Politics] 2 (2013): pp. 77–​98. 69. 常城、李慧，“论中国共产党经济外交思想的当代价值”云南行政学院学报 [Chang Cheng and Li Hui, “On the Contemporary Value of CPC’s Economic Diplomatic Thought,” The Journal of Yunnan Administration College] 2 (2013): pp. 98–​101. 70. 石岩，“年终经济观察：2013中国‘经济外交’九大热词”中国新闻网 [Shi Yan, “Year-​End Economic Observation:  2013 China’s ‘Economic Diplomacy’ Nine Hot Words,” China News Network] (December 24, 2013), http://​sd.ifeng.com/​caijing/​ yaowenzonghe/​detail_​2013_​12/​24/​1633665_​0.shtml. 71. Xiaotong, “China’s Economic Diplomacy Theory Construction.” 72. 窦晓博，“经济外交与中国软实力”学理论 [Dou Xiaobo, “Economic Diplomacy and China’s Soft Power,” Theory Research] 26 (2012): p. 7. 73. Quoted in: Verna Yu, “Has Beijing Got What it Takes to be a Global Player?” South China Morning Post (October 2, 2010). 74. 张曙光, “中国经济外交战略考察” 文汇报 [Zhang Shuguang, “Strategic Thinking in China’s Economic Statecraft,” Wenhui News] (August 20, 2012), http://​baike.baidu. com/​subview/​317052/​5329377.htm.

184 Notes 75. 叶皓，“对深化经济外交的若干思考”国际问题研究 [Ye Hao, “Some Thoughts on Deepening Economic Diplomacy,” International Studies] 4 (2013): p. 41. 76. 赵 宗 博 ， “国 际 金 融 危 机 形 势 下 的 中 国 经 济 外 交 战 略 研 究 ”学 理 论 [Zhao Zongbo, “A Study on China’s Economic Diplomatic Tactics under the Situation of International Financial Crisis,” Theory Research] 27 (2010): p. 99. 77. Yan Xuetong, “China’s New Foreign Policy:  Not Conflict but Convergence of Interests,” Huffington Post (January 28, 2014), https://​www.huffingtonpost.com/​yan-​ xuetong/​chinas-​new-​foreign-​policy_​b_​4679425.html. 78. 陈德民 ，“经济外交助推中国和平发展”思想理论教育导刊 [Chen Demin, “Economic Diplomacy Boosts China’s Peaceful Development,” Journal of Ideological & Theoretical Education] 12 (2005): p. 32. 79. 赵磊，“理解中国软实力的三个维度：文化外交、多边外交、对外援助政 策”社会科学论坛 [Zhao Lei, “Three Dimensions of Understanding China’s Soft Power: Cultural Diplomacy, Multilateral Diplomacy, Foreign Aid Policy,” Tribune of Social Sciences] 5 (2007): pp. 150–​157. 80. 张静，“中国的经济外交”商场现代化 [Zhang Jing, “China’s economic diplomacy,” Market Modernization] 17 (2008): p. 16. 81. 汪嘉波，“中国可以不结盟但不能不交友”国际先驱导报 [Wang Jiabo, “China Cannot Form an Alliance but Needs to Make Friends,” International Herald Leader] (December 14, 2010), https://​finance.qq.com/​a/​20101215/​003122.htm. 82. 王丽娟、武晓光，“全球化时代的经济外交与政治安全”领导之友 [Wang Lijuan and Wu Xiaoguang, “Economic Diplomacy and Political Security in the Era of Globalization,” Lingdaozhiyou] 4 (2006): p. 42. 83. 陈文杰，“浅析中国对菲律宾的经济外交”人民论坛（2013年11期）[ChenWenjie, “An Analysis of China’s Economic Diplomacy toward the Philippines,” People’s Tribune] 11 (2013): pp. 254–​255. 84. Zhang, “Strategic Thinking.” 85. Cited in: 李明波、邢磊，“专家讨论打破‘中国威胁论’：‘经济外交’是关键”广州 日报 [Li Mingbo and Xing Lei, “Experts Talk About Breaking the ‘Chinese Threat Theory’: ‘Economic Diplomacy’ is the Key,” Guangzhou Daily] (December 18, 2010), http://​news.ifeng.com/​mainland/​detail_​2010_​12/​18/​3574402_​0.shtml?_​f rom_​ ralated. 86. 王周钦，“浅谈日本政府开发援助与综合商社”时代金融 [Wang Zhouqin, “On Japan’s Official Development Assistance and Comprehensive Trading Association,” Times Finance] 1 (2007): pp. 97–​99. 87. Ye, “Some Thoughts.” 88. 陈德铭，“努力开创援外工作新局面”求是 [Chen Deming, “Striving to Create a New Situation of Foreign Aid Work,” Qiu Shi] 19 (2010): pp. 42–​44. 89. 张海冰，“中国对外援助配合‘一带一路’战略”凤凰网 [Zhang Haibing, “Chinese Foreign Aid Works With ‘The Belt And Road’ Strategy,” Phoenix New Media] (December 9, 2014), http://​phtv.ifeng.com/​a/​20141209/​40897760_​0.shtml. 90. 丁学良，“对外援助，中国怎么提‘附加条件’？”南方周末 [Ding Xueliang, “How Does China Raise ‘Additional Conditions’ for Foreign Aid?” Southern Weekend] (July 9, 2009), http://​www.infzm.com/​content/​31126.

Notes  185 91. 谭浩俊，“中国经济外交谋求新变化，对外援助实现新突破”凤凰网 [Tan Haojun, “China’s Economic Diplomacy Seeks New Changes and Foreign Aid to Achieve New Breakthroughs,” Phoenix New Media] (November 25, 2011). 92. All cited in:  傅云威，“经济外交促中国产业资源全球共享”凤凰网 [Fu Yunwei, “Economic Diplomacy Promotes the Global Sharing of China’s Industrial Resources,” Phoenix New Media] (November 21, 2013), http://​ n e w s . i fe ng . c om / ​ g u n d ong / ​ d e t ai l _ ​ 2 0 1 3 _ ​ 1 1 / ​ 2 1 / ​ 3 1 4 5 5 0 2 0 _ ​ 0 . s ht m l . ; 丁一凡，“中国在经济外交领域将面临三方面挑战”人民网 [Ding Yifan, “China Will Face Three Challenges in the Economic and Diplomatic Fields,” People’s Network] (December 18, 2011), http://​news.ifeng.com/​gundong/​detail_​2011_​12/​ 18/​11401625_​0.shtml?_​from_​ralated. 93. 崔绍忠，“论中国经济外交”思想战线 [Cui Shaozhong, “On China’s Economic Diplomacy,” Thinking] 1 (2012): pp. 80–​83. 94. “全国对发展中国家经济外交工作会议召开”央视国际 [“National Economic and Diplomatic Work Conference for Developing Countries,” CCTV International] (September 2, 2004), http://​www.cctv.com/​news/​china/​20040902/​101088.shtml. 95. “Foreign Minister Wang Yi Meets the Press,” China Ministry of Foreign Affairs (March 8, 2014), http://​www.fmprc.gov.cn/​mfa_​eng/​wjb_​663304/​wjbz_​663308/​ 2461_​663310/​t1135385.shtml. 96. Ming, “China’s Economic Diplomacy Strategy.” 97. Cited in: Tan, “China’s Economic Diplomacy Seeks New Changes.” 98. 薛磊，“入世后中国经济外交的战略转型与政策调整”国际展望 [Xue Lei, “Strategic Transformation and Policy Adjustment of China’s Economic Diplomacy after China’s Entry into WTO,” World Outlook] 1 (2009): pp. 55–​66. 99. 陈进、郑启航、李铭、陈瑶、张春晓、常天童，“中国经济外交新常态之一 ：经济外交开启中国范式”中国江苏网 [Chen Jin, Zheng Qihang, Li Ming, Chen Yao, Zhang Chunxiao, and Chang Tiantong, “A New Norm for China’s Economic Diplomacy:  Economic Diplomacy Reveals a Chinese Model,” Jiangsu Network] (December 25, 2014), http://​news.ifeng.com/​a/​20141225/​42795325_​0.shtml. 100. For a theoretical discussion, see: 刘丽云，“国际政治学理论视角下的对外援助” 教学与研究 [Liu Liyun, “Foreign Aid from the Perspective of International Political Science,” Teaching and Research] 10 (2005): pp. 83–​88. 101. Hans Morgenthau, “A Political Theory of Foreign Aid,” American Political Science Review 56, no. 2 (1962): pp. 301–​309. 102. 田德文，“国家利益至上：解析英国政府对外援助政策”国际贸易 [Tian Dewen, “National Interests on Top: Analyzing the British Government’s Policy on Foreign Aid,” International Trade] 9 (2001): p. 27. 103. 聂宏毅、周宝根，“当前西方国家的对外援助规划”国际经济合作 [Nie Hongyi and Zhou Baogen, “Current Plans of Western Countries’ Foreign Aid,” International Economic Cooperation] 10 (2008): p. 45. 104. 胡再勇，“对外援助领域的经济外交”国际经济合作 [Hu Zaiyong, “Economic Diplomacy in the Field of Foreign Aid,” International Economic Cooperation] 7 (2012): p.35.

186 Notes 105. 丁韶彬、杨蔚林，“西方国家对外援助：政策目标及其实现”世界经济与 政治 [Ding Shaobin and Yang Weilin, “Western Countries’ Foreign Aid:  Policy Goals and their Realization,” World Economics and Politics] 6 (2008): p. 59. 106. “对外援助与国际关系成果发布会及研讨会综述”欧洲研究 [“Summary of the Results of the Conference on Foreign Aid and International Relations,” Chinese Journal of European Studies] 2 (2002): p. 104. 107. 姜 磊 ， “简 论 冷 战 后 中 国 与 欧 盟 对 外 援 助 的 政 策 目 标 及 其 差 异 ”科 教 文 汇 [Jiang Lei, “On Political Goals and Other Differences Between Chinese and EU Foreign Aid in the Post-​Cold War Era,” Educational Materials] 6 (2007): pp. 184–​185. 108. Steven W. Hook and Guang Zhang, “Japan’s Policy Aid Policy since the Cold War: Rhetoric and Reality,” Asian Survey 38, no. 11 (1998): pp. 1051–​1066. 109. Alberto Alesina and David Dollar, “Who Gives Foreign Aid to Whom and Why?” Journal of Economic Growth 5, no. 1 (2000): pp. 33–​63. 110. Peter J. Schraeder, Bruce Taylor, and Steven W. Hook, “Clarifying the Foreign Aid Puzzle:  A Comparison of American, Japanese, French, and Swedish Aid Flows,” World Politics 50, no. 2 (1998): p. 316. 111. Ngarie Woods, “The Shifting Politics of Foreign Aid,” International Affairs 81, no. 2 (March 2005): pp. 393–​409. 112. Bruce Bueno de Mesquita and Alastair Smith, “A Political Economy of Aid,” International Organization 63, no. 2 (2009): p. 310. 113. Zhu, “The Historical Evolution.” 114. Julia C. Strauss, “The Past in the Present:  Historical and Rhetorical Lineages in China’s Relations with Africa,” China Quarterly 199 (September 2009): p. 789. 115. China’s Africa Policy (January 2006), http://​www.fmprc.gov.cn/​zflt/​eng/​zt/​ zgdfzzcwj/​t230479.htm. 116. Strauss, “The Past,” p. 780. 117. 翟东升，“对外援助的审慎道德原则”经理世界 [Zhai Dongsheng, “The Cautious Moral Principles of Foreign Aid,” CEOCIO China] 7 (2010): p. 92. 118. “Premier Zhou Enlai’s Three Tours of Asian and African Countries,” China Ministry of Foreign Affairs, http://​www.fmprc.gov.cn/​mfa_​eng/​ziliao_​665539/​ 3602_​665543/​3604_​665547/​t18001.shtml. More recent statements have quietly dropped the “poor” from Zhou’s phrase, describing China’s aid as “assistance among friends”; see “Ambassador Wang Min’s Statement to 4th UN Conference on the Least Developed Countries” (April 4, 2011), http://​www.china-​un.org/​eng/​dbtxx/​ WMdsjl/​WANGminhuodong/​t812478.htm. 119. “China’s Foreign Aid,” Information Office of the State Council (July 10, 2014), http://​ english.gov.cn/​archive/​white_​paper/​2014/​08/​23/​content_​281474982986592.htm. 120. 王 毅 ， “探 索 中 国 特 色 大 国 外 交 之 路 —​ — ​ 王 毅 部 长 在 第 二 届 世 界 和平论坛午餐会上的演讲” [Wang Yi, “Exploring the Road of Foreign Affairs with Chinese Characteristics -​Minister Wang Yi’s Speech at the Luncheon of the Second World Peace Forum,”] (June 27, 2013). 121. “习近平总书记在党的十九大的报告,” 新华网 [General Secretary Xi Jinping’s Report to the 19th Party Congress] (October 18, 2017), http://​news.youth.cn/​sz/​ 201710/​t20171018_​10888424.htm.

Notes  187 122. James Reilly, “A Northeast Asian Model of ODA? Comparing Chinese, Japanese and Korean Official Development Assistance,” in Christopher M. Dent and Jorn Dosch (eds.), The Asia-​Pacific, Regionalism and the Global System (Cheltenham: Edward Elgar, 2012): pp. 216–​231. 123. Cited in: Penny Davis, “Aid Effectiveness and Non-​DAC Providers of Development Assistance,” International Policy Centre Background Paper (2008). 124. Cited in: Wang Ping, “The Chinese View: Reflection of the Long-​Term Experiences of Aid Receiving and Giving,” in Yasutami Shimomura and Hideo Ohashi (eds.), A Study of China’s Foreign Aid (Basingstoke: Palgrave Macmillan, 2013): pp. 125–​144. 125. 张翠珍，“对非援助促进了中非贸易及相互直接投资吗？ 基于统计分析的 回答” [Zhang Cuizhen, “Does China’s Foreign Aid to Africa Promote Bilateral Trade and Investment? Answers From Statistical Analysis,” unpublished manuscript, n.d.]. 126. Xue, “Strategic Transformation.” 127. Shuguang, “Strategic Thinking.” 128. Xiaotong, “China’s Economic Diplomacy Theory Construction.” 129. Song, “China’s Peripheral Economic Diplomacy.” 130. 黄梅波、刘爱兰，“中国对外援助中的经济动机和经济利益”国际经济合作 [Huang Meibo and Liu Ailan, “The Economic Motivation and Economic Interests of China’s Foreign Aid,” International Economic Cooperation] 4 (2013): pp. 65–​67. 131. Tan, “China’s Economic Diplomacy.” 132. 何茂春，“经济外交面临新课题”中国报道 [He Maochun, “Economic Diplomacy Faces New Issues,” China Report] 11 (2012): pp. 22–​23. 133. Zhang, Wang, and Zhao, “On the Use of China’s Economic Strength.” 134. Xiaotong, “China’s Economic Diplomacy Theory Construction.” 135. 李巍，“经济外交更需要跨部门协调”中国经济周刊 [Li Wei, “Economic Diplomacy Requires Cross-​ sector Coordination,” China Economic Weekly] 41 (2012): p. 18. For a similar call, see: Chang and Li, “On the Contemporary Value.” 136. The official restructuring announcement is available here:  “深化党和国家机 构改革方案” [“Program for Deepening Reform of the Party and State Institutions”] (March 21, 2018), http://​www.xinhuanet.com/​politics/​2018-​03/​21/​c_​1122570517. htm.

Chapter 2 1. Li and Sun, “Understanding.” 2. Henriksen and Ponte, “Public Orchestration.” 3. Li and Wei, “Understanding,” p. 8. The following descriptions draw upon numerous interviews with Chinese academics, and MOFCOM and MOFA officials. 4. He, “Economic.” 5. “三大抓手—​—展 ​ 望 2014 年中国经济外交”新华网 [“Three Big Hands: Looking Forward to China’s Economic Diplomacy in 2014,” Xinhua Net] (December 26, 2013), http://​news.ifeng.com/​gundong/​detail_​2013_​12/​26/​32494649_​0.shtml. MOFCOM’s writ does not extend, however, to financial entities. See: http://​english. mofcom.gov.cn/​column/​mission2010.shtml.

188 Notes 6. On the revamped aid agency (ICDA), see:  “中国开展国际发展合作大有可为—​ —​专家谈组建国家国际发展合作署”新华网 [“China Has Great Potential For International Development Cooperation: Experts Discuss the Establishment of the IDCA,” Xinhua Net] (April 18, 2018). http://​www.gov.cn/​zhengce/​2018-​04/​18/​content_​5283809.htm. 7. Interview, Chinese academic (Beijing, May 26, 2012). 8. SASAC offices at the national, provincial, and city levels oversee their ‘local’ SOEs. 9. Li and Wei, “Understanding.” They maintain that MOF is the second-​most influential agency in economic diplomacy, behind only MOFCOM. 10. Specifically, the state assets in state-​owned commercial banks are generally managed by the Central Huijin Investment Company, which is under the PBC. On the PBC, see: Bell and Feng, The Rise. 11. Jean-​ Pierre Cabestan, “China’s Foreign and Security Policy Decision-​ making Processes under Hu Jintao,” Journal of Current Chinese Affairs 38, no. 3 (2009): pp.  63–​97. 12. 李巍，“经济外交更需要跨部门协调”中国经济周刊 [Li Wei, “Economic Diplomacy Needs More Interdepartmental Coordination,” China Economic Weekly] 41 (2012): p. 18; 曹伟，“外交部成立国际经济司‘经济外交’大局开启”小康 [Cao Wei, “The Ministry of Foreign Affairs Establishes the International Economic Division and the Overall Situation of ‘Economic Diplomacy’ Opens Up,” Xiaokang] 11 (2012): pp. 30–​32. 13. Ka Zeng “Multilateral versus Bilateral and Regional Trade Liberalization: Explaining China’s Pursuit of Free Trade Agreements (FTAs),” Journal of Contemporary China 19, no. 66 (2010): pp. 635–​652. The point about MOF comes from my interview with a MOFCOM researcher (Beijing, May 29, 2012). 14. The definitive statement in English remains:  Kenneth Lieberthal and Michel Oksenberg, Policy Making in China:  Leaders, Structures, and Processes (Princeton: Princeton University Press, 1990). 15. Interview, Mekong River Association (Vientiane, January 8, 2018). 16. Susan V. Lawrence, China’s Political Institutions and Leaders in Charts, Washington, DC: Congressional Research Service (November 12, 2013), https://​fas.org/​sgp/​crs/​ row/​R43303.pdf. 17. Yadong Luo, Qiuzhi Xue and Binjie Han, “How Emerging Market Governments Promote Outward FDI: Experience from China,” Journal of World Business 45, no. 1 (2010): pp.  68–​79. 18. Based primarily upon interviews with MOFCOM researchers. 19. http://​www.audit.gov.cn/​n10/​n14/​index.html. 20. Its official website is at: http://​www.12388.gov.cn/​. 21. Brødsgaard, “Politics and Business,” p. 645. 22. Interview, Chinese academic (Beijing, May 20, 2012). 23. Interview, MOFCOM researcher (Beijing, May 31, 2012). 24. Interview, MOFCOM researcher (Beijing, May 31, 2012). 25. Heep, China in Global Finance, p. 3. 26. Cited in: Chen Shaofeng, “Has China’s Foreign Energy Quest Enhanced Its Energy Security?,” China Quarterly 207 (2011): pp. 600–​625. Emphasis added.

Notes  189 27. Interview, Chinese academic (Beijing, June 1, 2012). 28. Interview, MOFCOM researcher (Beijing, April 10, 2012). 29. William J. Norris, Economic Statecraft with Chinese Characteristics:  The Use of Commercial Actors in China’s Grand Strategy (PhD dissertation, MIT, Cambridge, MA, 2010): p. 234. 30. Michael H. Cognato, “Understanding China’s New Sovereign Wealth Fund,” NBR Analysis 19, no. 1 (2008). 31. CIC is the only financial SOE not under the authority of the PBC. See: Sarah Eaton and Ming Zhang, “Dragon on a Short Leash:  An Inside-​Out Analysis of China Investment Corporation,” East Asian Bureau of Economic Research Working Paper 21983 (2008). 32. Interview, Chinese academic (Beijing, April 15, 2012). 33. Erica Downs, Inside China, Inc: China Development Bank’s Cross-​Border Energy Deals (Washington:  Brookings, 2011), p.  20. https://​www.brookings.edu/​wp-​content/​ uploads/​2016/​06/​0321_​china_​energy_​downs.pdf. 34. Interview, Chinese academic (Beijing, April 15, 2012). 35. Downs, Inside China, Inc., p. 14. 36. Paul B. McGuinness and Kevin Keasey, “The Listing of Chinese State-​Owned Banks and their Path to Banking and Ownership Reform,” The China Quarterly 201 (2010): pp. 125–​155. 37. See:  https://​www.forbes.com/​sites/​antoinegara/​2017/​05/​24/​the-​worlds-​largest-​ banks-​in-​2017-​the-​american-​bull-​market-​returns/​. 38. “China Development Bank,” available at http://​www.idfc.org/​Members/​cdb.aspx. 39. Simon Rabinovitch, “A New Way of Lending,” Financial Times (September 24, 2012). http://​www.ft.com/​intl/​cms/​c1628ce2-​03a3-​11e2-​bad2-​00144feabdc0.pdf. 40. http://​www.swfinstitute.org/​fund-​rankings/​. 41. Victor Shih, “Dealing with Non-​ Performing Loans:  Political Constraints and Financial Policies in China,” The China Quarterly 180 (2004): pp. 922–​944. 42. Kjeld Erik Brødsgaard, “Politics and Business Group Formation in China: The Party in Control?,” The China Quarterly 211 (2012): pp. 629–​630. 43. Barry Naughton, “Top-​Down Control: SASAC and the Persistence of State Ownership in China,” conference paper, University of Nottingham (June 23, 2006):  p. 10. https://​www.nottingham.ac.uk/​gep/​documents/​conferences/​2006/​june2006conf/​ naughton-​june2006.pdf. 44. “Fortune Global 500,” available at http://​fortune.com/​global500/​. 45. Derek Scissors, “China’s Global Investment Rises,” Heritage Backgrounder 2757 (January 8, 2013):  p. 5. http://​www.heritage.org/​research/​reports/​2013/​01/​chinas-​global​investment-​rises-​the-​us-​should-​focus-​on-​competition. 46. “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform,” (January 16, 2014). http://​www.china.org.cn/​china/​third_​plenary_​session/​2014-​01/​16/​content_​ 31212602.htm. 47. 习近平，“关于‘中国中央关于全面深化改革若干问题的决定’的说明”人民日报 [Xi Jinping, “A Note on the ‘CCP Central Committee Decision on Several Major Issues

190 Notes Concerning Comprehensively Deepening Reforms’” People’s Daily] (November 16, 2013): A1. 48. Interview (Dalian, November 10, 2012). 49. Interview, Sinosure employee (Beijing, May 27, 2012). 50. Nicholas R. Lardy, Markets over Mao:  The Rise of Private Business in China (Washington: Peterson Institute for International Economics, 2014): p. 59. 51. Abbott and Snidal, “International Regulation.” 52. See: http://​www.china-​asean-​fund.com. 53. A  collection of Xi’s speeches on BRI is here:  “习近平谈‘一带一路’ ” [Xi Jinping Discusses ‘One Belt, One Road’], http://​www.xinhuanet.com/​politics/​2018-​12/​11/​c_​ 1123838560.htm. 54. 佚名, “一带一路领导班子 ‘一正四副’名单首曝光,” 环球网 [Yi Ming, “The Belt and Road Leadership Team of ‘One Leader And Four Deputies’ Released for First Time,”] Xinhua, April 5, 2015, http://​hainan.ifeng.com/​news/​jujiao/​detail_​2015_​04/​ 06/​3749127_​0.shtml. 55. Officially, the “Working Office of the LSG for Promoting the Construction of BRI” (推进“一带一路”建设工作领导小组办公室). See:  “推进“一带一路”建设工作 领导小组办公室主任会议研究部署学习贯彻习近平总书记在5周年座谈会 上重要讲话精神” [Important BRI Office Meeting for Studying and Implementing the Spirit of General Secretary Xi Jinping’s Important Speech on the BRI’s 5th Anniversary] MOFCOM website, August 28, 2018, http://​www.ndrc.gov.cn/​tpxw/​ 201808/​t20180828_​896305.html 56. Numerous “Action Plans” available here [in Chinese]: https://​www.yidaiyilu.gov.cn/​ info/​iList.jsp?cat_​id=10009. 57. SRF’s three other contributors are CIC, Ex-​Im Bank, and CDB. 58. SRF website: http://​www.silkroadfund.com.cn/​enweb/​23819/​23770/​index.html. 59. Building the Belt and Road: Concept, Practice and China’s Contribution, BRI Office (May 2017): p. 6. https://​eng.yidaiyilu.gov.cn/​wcm.files/​upload/​CMSydylyw/​201705/​ 201705110537027.pdf. 60. Chuin-​Wei Yap, “Chinese Banks Ramp Up Overseas Lending,” Wall Street Journal (April 10, 2017). https://​www.theaustralian.com.au/​business/​wall-​street-​journal/​ chinese-​banks-​ramp-​up-​overseas-​lending/​news-​story/​32c34bfcb81ced8902363a0c5 b599dce. 61. “Bank Backs Global Development Drive,” China Daily (March 13, 2017), http://​www. chinadaily.com.cn/​cndy/​2017-​03/​13/​content_​28527092.htm. 62. “Bank of China lists 500-​mln-​USD BRI bond in Luxembourg,” Xinhua (April 26, 2019), http://​www.xinhuanet.com/​english/​2019-​04/​26/​c_​138009924.htm. 63. “ICBC Singapore issues Green ‘Silk Road’ Bond,” Belt and Road News (April 18, 2019), https://​www.beltandroad.news/​2019/​04/​18/​icbc-​singapore-​issues-​green-​silk-​ road-​bond/​. 64. “China policy bank provides financing worth 190 bln USD for B&R projects,” Xinhua (March 27, 2019), http://​www.xinhuanet.com/​english/​2019-​03/​27/​c_​137928072. htm. 65. “Bank Backs,” China Daily.

Notes  191 66. Kroeber “Financing,” p. 32. 67. Many provinces’ plans are available here:  https://​www.beltroad-​initiative.com/​ documents/​. 68. Hubei’s plan: https://​www.yidaiyilu.gov.cn/​zchj/​jggg/​1851.htm; Henan’s plan: https://​ www.yidaiyilu.gov.cn/​zchj/​jggg/​1804.htm. 69. Yu Jie, “The Belt and Road Initiative: Domestic Interests, Bureaucratic Politics and the EU-​China Relations,” Asia Europe Journal 16, no. 3 (2018): p. 229. 70. Lee Jones and Jinghan Zeng, “Understanding China’s ‘Belt and Road Initiative’: Beyond ‘Grand Strategy’ to a State Transformation Analysis,” Third World Quarterly (2019): p. 8. 71. “2016 政府工作报告解读三大战略” [Explaining the Three Great Strategies in the 2016 State Council Work Report] People’s Daily (March 16, 2016), http://​www.gov.cn/​ xinwen/​2016-​03/​16/​content_​5053966.htm. 72. State Council Information Office, China’s BeiDou Navigation Satellite System (June 16, 2016), http://​www.scio.gov.cn/​32618/​Document/​1480601/​1480601.htm. 73. State Council Information Office, China’s Arctic Policy (January 26, 2018), https://​eng. yidaiyilu.gov.cn/​zchj/​qwfb/​46076.htm. 74. Based on interviews with DFA officials and Chinese academics (Beijing, October 10–​12, 2012). See also: Reilly, The Role Of China. Under the March 2018 administrative restructuring, the International Development Cooperation Agency (IDCA; 国家国际发展合作署), will replace DFA and operate as a nominally independent agency. 75. Reilly, “A Northeast Asian Model,” p. 226. 76. 孙乾平，“商务部援外项目存廉政风险，招投标易滋生腐败”京华时报 [Sun Qianping, “MOFCOM’s Foreign Aid Projects Contain Political Integrity Risk; Bidding Is Prone To Corruption,” Jinghua Times] (December 6, 2014), http://​finance. sina.com.cn/​china/​20140612/​020019384500.shtml. 77. Csilla Lakatos, et. al., China’s Slowdown and Rebalancing:  Potential Growth and Poverty Impacts on Sub-​Saharan Africa. World Bank Working Paper WPS 7666 (2016). 78. Denghua Zhang and Graeme Smith, “China’s Foreign Aid System:  Structure, Agencies, and Identities,” Third World Quarterly 38, no. 10 (2017): pp. 2330–​2346. 79. “韩对华出口商品不合格批次猛增11倍”环球网 [“The Amount of Disqualified South Korean Exports to China Rises 11 Times,” Global Times Online] (October 17, 2016), http://​finance.huanqiu.com/​caigc/​2016-​10/​9559379.html; Hyunjoo Jin and Adam Jourdan, “Beauty Contest: China Make-​Up Brands Rein in South Korea Rivals,” Reuters (December 1, 2017), https://​www.reuters.com/​article/​us-​southkorea-​china-​ companies/ ​ b eauty- ​ c ontest- ​ china- ​ make- ​ upbrands- ​ rein- ​ i n- ​ s outh- ​ korea- ​ r ivals-​ idUSKBN1DV3PI. 80. Preceding points from: Xianwen Chen and Roberto J. Garcia, “Economic Sanctions and Trade Diplomacy: Sanction-​busting Strategies, Market Distortion, and Efficacy of China’s Restrictions on Norwegian Salmon Imports,” China Information 30, no. 1 (2016): pp.  29–​58.

192 Notes 81. 侠客岛, “精准打击! 中国对美的500亿反击清单大有玄机,” 凤凰网 [Xia Kedao, “A Precision Strike! The Great Mystery of China’s $50 billion Counter-​list Against America] Phoenix Web (April 5, 2018), http://​opinion.haiwainet.cn/​n/​2018/​0405/​ c456317-​31292879.html. 82. Preceding point also from:  Peter Harrell, Elizabeth Rosenberg, and Edoardo Saravalle, China’s Use of Coercive Economic Measures, Center for a New American Security (June 2018): p. 46. 83. James J. Przystup, “Japan-​ China Relations:  Another New Start,” Comparative Connections 13, no. 3 (January 2012), http://​cc.pacforum.org/​2012/​01/​another-​new-​ start/​. 84. Yang Wanli, “At 97m and Growing, China Has Most Outbound Tourists,” China Daily (January 9, 2014), http://​www.chinadaily.com.cn/​china/​2014-​01/​09/​content_​ 17224806.htm. 85. Gregory Meyer and Lucy Hornby, “China Blocks Imports of Canola from Canadian Exporter,” Financial Times (March 6, 2019), https://​www.ft.com/​content/​ fc981bb2-​3fa9-​11e9-​b896-​fe36ec32aece. 86. Lifen Zhang, “Transcript of Interview with Wang Yi,” Financial Times (January 29, 2014), http://​www.ft.com/​intl/​cms/​s/​0/​c0b29fd8-​88e2-​11e3-​bb5f-​00144feab7de. html#axzz35ncg6puH. 87. James Reilly, Strong Society, Smart State: The Rise of Public Opinion in China’s Japan Policy (New York: Columbia University Press, 2012). 88. Sherisse Pham, “Delta flies into China trouble over Tibet and Taiwan,” CNN Online (January 12, 2018), https://​money.cnn.com/​2018/​01/​12/​news/​companies/​delta-​zara-​ china-​taiwan-​tibet/​. 89. Year-​ on-​ year comparison. Tom Hancock and Wang Xueqiao, “South Korean Consumer Groups Bear Brunt of China’s THAAD Ire,” Financial Times (April 4, 2017), https://​www.ft.com/​content/​f3c78afe-​821d-​11e7-​94e2-​c5b903247afd. 90. Bernard F.W. Loo, “Tanks for Nothing! Making Sense of the Terrex Incident,” (December 5, 2016) PacNet 88, https://​www.csis.org/​analysis/​ pacnet-​88-​tanks-​nothing-​making-​sense-​terrex-​incident. 91. “China Issues U.S. Travel Alert,” Xinhua (June 4, 2019), http://​www.xinhuanet.com/​ english/​2019-​06/​04/​c_​138116181.htm. 92. Zhang, “China’s Economic Diplomacy Theory Construction.” 93. John Ravenhill and Yang Jiang, “China’s Move to Preferential Trading:  a New Direction in China’s Diplomacy,” Journal of Contemporary China 18, no. 58 (2009): pp.  27–​46. 94. Yi-​Wen Yua, Ko-​Chia Yu and Tse-​Chun Lin, “Political Economy of Cross-​Strait Relations: is Beijing’s Patronage Policy on Taiwanese Business Sustainable?” Journal of Contemporary China 25, no. 99 (2016): pp. 372–​388. 95. Song, “China’s Peripheral.” 96. Interview, Chinese academic, Beijing (September 10, 2014). 97. Interview, MOFCOM researcher, Beijing (April 6, 2012). 98. Interview, MOFCOM researcher, Beijing (May 29, 2012). 99. Interview, MOFCOM researcher, Beijing (April 10, 2012).

Notes  193 100. Wen Jiabao, “Report on the Work of the Government,” delivered at the Fifth Session of the Eleventh National People’s Congress, March 5, 2012, http://​online.wsj.com/​ public/​resources/​documents/​2012NPC_​GovtWorkReport_​English.pdf. 101. Duanmu, “State-​Owned MNCs.” 102. Brent Flyvbjerg, “Survival of the Unfittest:  Why the Worst Infrastructure Gets Built—​and What We Can Do About It,” Oxford Review of Economic Policy 25, no. 3 (2009), pp. 344–​367. 103. Matthew Funaiole and Jonathan Hillman, “China’s Maritime Silk Road Initiative: Economic Drivers and Challenges,” CSIS Brief (March 2018). 104. David Briginshaw, “Can China-​Europe Rail Freight Continue to Prosper Without Chinese Subsidies?,” International Railways Journal (August 18, 2018), https://​ www.railjournal.com/ ​ i n_ ​ d epth/ ​ c an- ​ c hina- ​ e urope- ​ r ail- ​ f reight- ​ c ontinue-​ to-​prosper-​without-​chinese-​subsidies 105. Cited in:  Daniel H. Rosen and Thilo Hanemann, China’s Changing Outbound Foreign Direct Investment Profile:  Drivers and Policy Implications,” PIIE Policy Brief 09-​14 (June 2009):  p. 15, https://​piie.com/​system/​files/​documents/​ pb09-​14.pdf. 106. All appeared in this NYT series on China’s ‘global reach:’ https://​www.nytimes.com/​ spotlight/​china-​reach. 107. Li Wei, “Economic Diplomacy.” 108. Interview, Chinese academic, Beijing (June 17, 2014). 109. Carla P. Freeman, “Dam Diplomacy? China’s New Neighbourhood Policy And Chinese Dam-​Building Companies,” Water International 42, no. 2 (2017):  pp. 187–​206. 110. Interview, former diplomat, Beijing (September 12, 2014). 111. “人民日报刊文提醒企业对外投资注意舆论风险”人民日报 [“People’s Daily Reminds Enterprises to Pay Attention to Public Opinion Risk in Foreign Investment,” People’s Daily] (September 5, 2011), http://​news.sina.com.cn/​c/​2011-​ 09-​05/​033023104722.shtml 112. 查 道 炯 、 李 福 胜 、 蒋 姮 ， “中 国 境 外 投 资 环 境 与 社 会 风 险 案 例 研 究 ”北 京大学出版社 [Zha Daojiong, Li Fusheng and Jiang Heng, “Chinese Overseas Investment Case Studies on Environmental and Social Risk,” Peking University Press] (2014). Contributors to this influential publication include officials from NDRC, MOFCOM, MEP, Ex-​Im Bank, and the State Council’s Development and Research Centre. 113. 福蒙蒙，“中国企业‘出海’松绑，境外投资备案制落地”华夏时报[FuMengmeng, “Chinese enterprises Let Loose to ‘Leap Into The Sea’: Overseas Investments Filing System Provide a ‘Landing’,” China Times] (May 4, 2014). http://​www.chinatimes. cc/​article/​42539.html. 114. Interview, MOFCOM official, Beijing (September 15, 2014). 115. Interview, MOFCOM official, Beijing (September 19, 2014). 116. Lucy Corkin, “Redefining Foreign Policy Impulses toward Africa: The Roles of the MFA, the MOFCOM and China Exim Bank,” Journal of Current Chinese Affairs 40: 4 (2011): p. 73.

194 Notes 117. Interview, Chinese academic/​former diplomat, Beijing (April 12, 2012). 118. Interview, Chinese academic, Beijing (April 10, 2012). 119. Erica S. Downs, “China’s ‘New’ Energy Administration,” China Business Review (November–​December 2008), https://​www.brookings.edu/​wp-​content/​uploads/​ 2016/​06/​11_​china_​energy_​downs.pdf. 120. Interview, Chinese academic, Beijing (June 1, 2012). 121. Interview, Chinese academic, Beijing (April 10, 2012). 122. For details, see:  James Reilly, “Going Out and Texting Home:  New Media and China’s Citizens Abroad,” in Jacques deLisle, Avery Goldstein, and Guobin Yang (eds.), The Internet, Social Media, and a Changing China (Philadelphia: University of Pennsylvania Press, 2016): pp. 180–​199.

Chapter 3 1. “温家宝总理在第六届中欧工商峰会上的演讲” [“Premier Wen Jiabao’s Speech at the Sixth China EU Business Summit,” (October 6, 2010)], http://​www.fmprc.gov. cn/​ce/​cede/​chn/​zt/​asd/​t759179.htm. 2. David S. Shambaugh, “The ‘China Honeymoon’ Is Over,” Yale Global Online (December 7, 2007), http://​yaleglobal.yale.edu/​content/​china-​honeymoon-​over. 3. “Brussels Stunned as Beijing Cancels EU-​China Summit,” Euractive (November 27, 2008), http://​www.euractiv.com/​foreign-​affairs/​brussels-​stunned-​beijing-​cancels-​ eu-​china-​summit/​article-​177550. 4. Júlia Mező and Beáta Udvari, “Effects of the Debt Crisis on EU-​China Relations,” MPRA Paper 40367 (August 6, 2012): p. 445, https://​mpra.ub.uni-​muenchen.de/​ 40367/​1/​MPRA_​paper_​40367.pdf. 5. Ye Hao, “Some Thoughts.” 6. Lionel Barber, “Transcript of Interview with Wen Jiabao,” Financial Times (February 2, 2009), https://​www.ft.com/​content/​795d2bca-​f0fe-​11dd-​8790​0000779fd2ac?mhq5j=e5. 7. “Premier Wen Jiabao’s speech at the Sixth China EU Business Summit,” https://​ cpcchina.chinadaily.com.cn/​2010-​10/​08/​content_​13919237.htm. 8. 尚军：“中国采购团受欧洲企业追捧”中国企业报 [Shang Jun, “Chinese Purchasing Group is Pursued by European Enterprises,” Chinese Enterprise Newspaper] (March 3, 2009). 9. 庞明川、刘殿和、倪乃顺：“欧债危机背景下中国对欧盟直接投资问题研究 ”财贸经济 [Pang Mingchuan, Liu Dianhe and Ni Naishun, “Research on China’s Direct Investment in EU Under the Background of Europe’s Debt Crisis,” Finance and Trade Economics] 7 (2012): p. 85. 10. Thilo Hanemann and Mikko Huotari, “A New Record Year for Chinese Outbound Investment in Europe.” MERICS Report (February 2016), https://​www.stiftung-​ mercator.de/​media/​downloads/​3_​Publikationen/​MERICS_​A_​New_​Record_​Year_​ for_​Chinese_​Outbound_​Investment_​in_​Europe_​20160216.pdf. 11. Thilo Hanemann and Mikko Huotari, “Record Flows and Growing Imbalances: Chinese Investment in Europe in 2016,” MERICS Report 3 (January 2017), http://​

Notes  195 rhg.com/​reports/​record-​flows-​and-​growing-​imbalances-​chinese-​investment-​in-​ europe-​in-​2016. Where feasible, I use the currency values provided in the source document. For instance, I  follow Beijing’s practice of reporting in USD when using Chinese official data. I also follow media and think-​tank reports of Chinese purchases or investments in their use of USD, RMB, euros, or local currency. When comparison or clarity seems to require conversions, I  report the original source’s currency value and then convert using the average weekly exchange rates for that date, available from Oanda at:  https://​www.oanda.com/​fx-​for-​business/​ historical-​rates. 12. Thilo Hanemann and Daniel H. Rosen, “China Invests in Europe,” Rhodium Group Report (June 2012), http://​rhg.com/​wp-​content/​uploads/​2012/​06/​RHG_​ ChinaInvestsInEurope_​June2012.pdf. 13. Françoise Nicolas, “China’s Direct Investment in the European Union: Challenges And Policy Responses,” China Economic Journal 7, no. 1 (2014): pp. 37–​41. Chinese experts generally agree. See: Li Guo, “CIC’s Investment in Europe, Peking University Law Journal 3 no. 1 (2015): pp. 63–​86; Chen Xin, “China-​EU Trade and Economic Relations (2003-​2013),” Global Economic Observer 2, no. 1 (2014): pp. 41–​55. 14. “China and France Sign Deals as Hu Jintao Visits Paris,” BBC News (November 4, 2010), http://​www.bbc.com/​news/​world-​europe-​11694214. 15. Peter Wise, “China Offers Help to Debt-​Hit Lisbon,” Financial Times (November 8, 2010), https://​www.ft.com/​content/​67667e5e-​ea9d-​11df-​b28d-​00144feab49a. 16. Nick Skrekas and Andrew Batson, “Beijing Offers Support to Greece,” Wall Street Journal (October 4, 2010), http://​online.wsj.com/​news/​articles/​SB10001424052748 704380504575529523835140714. 17. “Premier Wen Jiabao’s speech at the Sixth China EU Business Summit,” https://​ cpcchina.chinadaily.com.cn/​2010-​10/​08/​content_​13919237.htm. 18. David Barboza, “Merkel Wins Beijing’s Backing Over Euro,” International Herald Tribune (September 1, 2012). 19. Mario Esteban, “Spain-​China Relations:  Friends but Not Partners,” in Mapping Europe-​China Relations:  A Bottom-​up Approach, edited by Mikko Huotari et  al. (Berlin: European Think-​tank Network on China, 2015): p. 78 (pp. 73–​78). 20. “Netherlands Deal to Expand Milk Exports:  President Xi Jinping Meets Dutch Leader at Start of Visit Expected to Bolster Ties with Europe,” South China Morning Post (March 24, 2014): p. A7. 21. Julia Marie Ewert, “What To Expect From Xi’s Europe Visit,” China Daily (March 20, 2014): p. 9. 22. Melissa Eddy, “Germany and China Affirm their Business Ties,” New York Times (October 11, 2014): p. 10. On Berlin’s policy, see: https://​ec.europa.eu/​growth/​tools-​ databases/​dem/​monitor/​sites/​default/​files/​DTM_​Industrie%204.0.pdf. 23. 王羚，“中国对欧投资劲增体现伙伴责任”第一财经日报 [Wang Ling, “China’s Strong Investment in Europe Embodies Partner Responsibility,” First Finance Daily] (September 29, 2011), http://​news.ifeng.com/​c/​7faTHQT2hLE. 24. Pang, Liu and Ni, “Research on China’s Direct Investment in EU.”

196 Notes 25. 肖茜，“浅析中国对欧直接投资现状及对促进中欧关系的作用”佳木斯教育学 院学报 [Xiao Qian, “China’s Direct Investment in Europe and Its Role in Promoting Sino-​EU Relations,” Journal of Jiamusi Education Institute] 11 (2012): pp. 471–​472]. 26. 丁一凡，“欧债危机给中国对欧投资提供机遇”中国经贸 [Ding Yifan, “The European Debt Crisis Offers China an Opportunity to Invest in Europe,” China Business Update] (February 2013):  pp. 50–​51; 韩树杰，“投资欧洲：中国企业的 历史机遇与战略抉择”国际贸易 [Han Shujie, “Investing in Europe:  The Historical Opportunity and Strategic Choice of Chinese Enterprises,” Intertrade] 7 (2013): pp.  54–​57. 27. 吴刚，“中国对欧洲投资走向多元化”人民日报 [Wu Gang, “China’s Investment in Europe is Diversifying,” People’s Daily] (October 29, 2014), http://​opinion.people. com.cn/​n/​2014/​1029/​c1003-​25927033.html. 28. 荣守俊，“到欧洲投资，要防范哪些风险”国际融资 [Rong Shoujun, “Risks You Should Avoid When Investing In Europe,” International Financing] (October 2014): pp. 12–​18. 29. 罗 宁 ， “中 国 企 业 对 欧 投 资 的 机 遇 、 挑 战 及 应 对 ”中 国 城 市 金 融 （ 2014 年07期） [Luo Ning, “Opportunities, Challenges and Countermeasures for Chinese Enterprises to Invest in Europe,” Urban Finance in China] 7 (2014), http://​cufs.org.cn/​upload/​1/​28bb99fe-​32a2-​407b-​821d-​64764c3d0232.pdf; see also:  刘栋，“欧洲成为中企投资并购新热点”人民日报 [Liu Dong, “Europe Has Become a New Hot Spot For Investment and Acquisition by Chinese Enterprises,” People’s Daily] (February 24, 2016), http://​finance.people.com.cn/​n1/​2016/​0224/​ c1004-​28144708.html. 30. Hanemann and Rosen, China Invests in Europe. 31. Laimutė Urbšienė, Viktorija Nemunaitytė, and Artūras Zatulinas, “Comparison of Premiums of Chinese and European Companies in Merger and Acquisitions in Europe,” Organizations and Markets in Emerging Economies 6, no. 2 (2015):  pp. 67–​102. 32. Wenxin Guo and Joseph A. Clougherty, “The Effectiveness of The State in Chinese Outward Foreign Direct Investment:  The ‘Go Global’ Policy and State-​ Owned Enterprises,” Emerging Economies and Multinational Enterprises 28 (2015):  pp. 141–​159. 33. 叶檀，“中投投资歌鸟：又一笔愚蠢生意？”金融网 [Ye Tan, “CIC Invested in Songbird Estates:  Another Stupid Business?” Finance Web] (September 2, 2009), http://​blog.sina.com.cn/​s/​blog_​49818dcb0100fcm2.html. 34. 何隽，“破解中国对欧投资的制度障碍”中国社会科学报 [He Jun, “Breaking the Institutional Barriers to China’s Investment in Europe,” Chinese Social Sciences News] (April 2014); 卢俊美，“欧债危机下中国企业对欧投资：风险与策略”中国外资 [Lu Junmei, “Chinese Enterprises’ Investment in Europe Under the European Debt Crisis:  Risks and Strategies,” Foreign Investment in China] (April 2012); 孔凡伟，“中国需防范对欧投资政治风险”中国社会科学报 [Kong Fanwei, “China Needs to Pay Attention to The Political Risk of Investment in Europe,” Chinese Social Science News] (March 10, 2016); 金德明，“中国对欧投资的心得体会：知易则行易”中国经济导报 [Jin Deming,

Notes  197 “China’s Experience of Investing in Europe:  Knowing and Doing is Easy,” China Economic Herald] (January 23, 2014). 35. Pang, Liu and Ni, “Research on China’s Direct Investment.” 36. As explained in Chapter 2, SAFE is formally under PBC authority. 37. Wieland Wagner, “Capitalizing on the Euro Crisis: China Expands its Influence in Europe,” Der Spiegel (December 14, 2010). 38. “China’s Wen Offers to Buy Greek Debt,” Reuters (October 2, 2010). 39. Cited in: Mező and Udvari, “Effects.” 40. Mező and Udvari, “Effects.” 41. Martin Flanagan, “Boost for Europe as China’s Leader Pledges Support for Single Currency,” The Scotsman (June 27, 2011). 42. Jamil Anderlini and David Oakley, “China Eyes Cut in Euro Exposure,” Financial Times (May 27, 2010): p. 8. 43. Miguel Otero-​Iglesias, “The Euro for China: Too Important to Fail and Too Difficult to Rescue,” The Pacific Review 27, no. 5 (2014): p. 708. 44. Previous quotes from: Otero-​Iglesias, “The Euro for China.” 45. Gregory White, “Soros: China Saved the Euro,” Business Insider (September 16, 2015). 46. Eduardo Kaplan and Robert Flint, “China Displays Sophistication on Euro-​Zone Debt,” Wall Street Journal (May 27, 2010). 47. “Premier Wen Jiabao’s speech at the Sixth China EU Business Summit.” 48. Cited in: Otero-​Iglesias, “The Euro for China.” Emphasis added. 49. Otero-​Iglesias, “The Euro for China,” p. 719. 50. Oliver Fletcher, “Wen Renews China’s Promise to Keep Buying Europe Bonds,” Wall Street Journal (June 29, 2011). 51. Aileen Wang and Nick Edwards, “China to Keep Investing in Euro Zone Debt: China Central Bank,” Reuters (February 15, 2012). 52. Li Keqiang, “China Has High Hopes for European Ties,” Financial Times (May 2, 2012). 53. “PM Samaras Says Greece Can Become China’s Gateway to Europe,” Athens News Agency (June 19, 2014). 54. Liz Alderman and David Barboza, “Europe Tries to Lure Chinese Cash to Back Rescue of Euro,” New York Times (October 28, 2011). 55. Lan Shen, Stephen Green, and Thomas Costerg, “China: Less America, more Europe,” Standard Chartered Global Research (June 20, 2011). 56. Sophie Meunier, Brian Burgoon, and Wade Jacoby, “The Politics of Hosting Chinese Direct Investment in Europe,” Asia Europe Journal 12, no. 1 (2014): pp. 109–​126. 57. Miriam Campanella, “The Internationalization of the Renminbi and the Rise of a Multipolar Currency System,” ECIPE Working Paper 1 (2014), http://​www.ecipe.org/​ app/​uploads/​2014/​12/​WP201201_​1.pdf. 58. Interview, Brussels (February 10, 2016). 59. Interview, Brussels (April 16, 2016). 60. Jorge Valero, “Brussels Clears Way for China to Pour Billions into Juncker Plan,” EurActiv (April 13, 2016), http://​www.euractiv.com/​section/​innovation-​industry/​ news/​brussels-​clears-​way-​for-​china-​to-​pour-​billions-​into-​juncker-​plan/​. See also:

198 Notes 郑青亭，“欧洲议会议员：中国有意投资欧盟基础设施基金规模未定”21世纪 经济报道 [Zheng Qingting, “Members of the European Parliament: China’s Intention to Invest in the EU Infrastructure Fund is Uncertain,” 21st Century Economic Report] (June 17, 2015). 61. Wagner, “Capitalizing.” 62. Xu Tianran, “Wen:  China Will Help Europe,” Global Times (September 15 2011), http://​www.globaltimes.cn/​content/​675363.shtml. 63. 杨超，“对中国参与投资欧洲稳定机制的几点看法”国际金融 [Yang Chao, “Views on China’s Participation in European Investment Stabilization Mechanism,” International Finance] (February 2013). 64. “China Investment Corporation:  Greece is EU’s Responsibility,” SWF Institute (March 6, 2010), http://​www.swfinstitute.org/​swf-​news/​china-​investment-​corporation-​ greece-​is-​eu-​responsibility/​. 65. Kejal Vyas, “CIC, Noting Losses, Sees ‘Very Challenging’ 2010,” LBO Wire (June 9, 2010). 66. Both quotes from:  Ferry Batzoglou and Manfred Ertel, “Chinese Investors Take Advantage of Greek Crisis,” Spiegel Online (November 16, 2011), http://​www.spiegel. de/​international/​europe/​good-​friends-​are-​there-​to-​help-​chinese-​investors-​take-​advantage-​of-​greek-​crisis-​a-​797751.html 67. “China Risks Public Backlash If It Rescues Europe,” NewsMax (November 3, 2011), https://​www.newsmax.com/​finance/​markets/​china-​backlash-​rescues-​europe/​2011/​ 11/​03/​id/​416761/​. 68. Cited in: Meunier, et al., “The Politics.” 69. Esteban, “Spain-​China.” 70. Jonathon Holslag, “Unravelling Harmony: How Distorted Trade Imperils the Sino-​ European Partnership,” Journal of World Trade 46, no. 2 (2012): pp. 439–​456. 71. Meunier et  al., “The Politics;” Nicola Casarini, “China’s Geoeconomic Strategy: China’s Approach to US Debt and The Eurozone Crisis,” LSE IDEAS Report SR012 (2012), http://​eprints.lse.ac.uk/​44208/​. 72. Andrew Small, “China, the Euro Crisis and Transatlantic Cooperation: Testimony to the U.S.-​China Economic and Security Review Commission,” (April 19, 2012), https://​www.uscc.gov/​sites/​default/​files/​4.19.12Small.pdf. 73. Otero-​Iglesias, “The Euro for China.” 74. Tyler Durden, “China’s European Bailout (And TBTF) Bid Hits Overdrive,” (June 25, 2011), http://​www.zerohedge.com/​article/​chinas-​european-​bailout-​and-​tbtf-​bid-​ hits-​overdrive-​wen-​jiabao-​now-​market-​hungarian-​bonds. 75. Cited in: Gregory T. Chin, “True Revisionist: China and the Global Monetary System” in China’s Global Engagement:  Cooperation, Competition, and Influence in the 21st Century, edited by Jacques DeLisle and Avery Goldstein (Washington:  Brookings, 2017): pp.  35–​66. 76. Eswar S. Prasad, Gaining Currency:  The Rise of the Renminbi (New  York:  Oxford University Press, 2017). 77. Arthur R. Kroeber, “The Political Economy of a Currency,” Foreign Policy (September 7, 2011), http://​www.foreignpolicy.com/​articles/​2011/​09/​07/​the_​renminbi_​the_​political_​economy_​of_​a_​currency.

Notes  199 78. Yang Chao, “Views on China’s Participation.” 79. “ECB and the People’s Bank of China Successfully Test Bilateral Currency Swap Arrangement,” ECB Press Release (November 26, 2015), https://​www.ecb.europa.eu/​ press/​pr/​date/​2015/​html/​pr151126.en.html. 80. Liu Li-​ Gang, “China Plants RMB Clearing Banks Around the World,” China Money (July 5, 2014), http://​www.chinamoneynetwork.com/​2014/​07/​05/​china-​ plants-​rmb-​clearing-​banks-​around-​the-​world. 81. Prasad, “China’s Efforts.” 82. Prasad, “China’s Efforts.” 83. Shengzhe Wang and Fugui Tan, “RMB Internationalisation and Its Implication for Europe,” Baker McKenzie (August 6, 2014), http://​www.lexology.com/​library/​detail. aspx?g=cc9cd91e-​93d5-​4cd5-​b295-​c85614f538c0. 84. Phyllis Papadavid, “China’s Balancing Act:  Why The Internationalisation of the Renminbi Matters for the Global Economy,” Overseas Development Institute (January 2016), https://​www.odi.org/​publications/​10268-​chinas-​balancing-​act. 85. “ECB Gives Renminbi its Forex Seal of Approval,” Financial Times (June 13, 2017), https://​www.ft.com/​content/​37bae3b8-​504c-​11e7-​bfb8-​997009366969. 86. Cited in: Steven Liao and Daniel McDowell, “Redback Rising: China’s Bilateral Swap Agreements and Renminbi Internationalization,” International Studies Quarterly 59, no. 3 (2015): pp. 401–​422. 87. Prasad, “China’s Efforts.” 88. Liao and McDowell, “Redback Rising.” 89. Gregory Chin, “Globalizing the RMB? Beijing Appoints Three New Clearing Banks in London, Frankfurt, and Seoul,” Asia Pathways (July 29, 2014), https://​www. asiapathways-​adbi.org/​2014/​07/​globalizing-​the-​rmb-​beijing-​appoints-​three-​new-​ clearing-​banks-​in-​london-​frankfurt-​and-​seoul/​. 90. Liao and McDowell, “Redback Rising.” 91. For a rare example of such anxiety, see:  Wieland Wagner, “China Plans Path to Economic Hegemony,” Der Spiegel (January 26, 2011), http://​www.spiegel.de/​international/​business/​exchange-​rates-​and-​reserve-​currencies-​china-​plans-​path-​to-​economic-​hegemony-​a-​741303.html. 92. Renminbi Internationalisation and the Evolution of Offshore RMB Centres: Opportunities for Sydney (November 2015), http://​www.industry.nsw.gov.au/​_​_​data/​ assets/​pdf_​file/​0019/​80560/​Offshore-​RMB-​Report-​November-​2015.pdf. 93. Eswar Prasad, “Global Ramifications of the Renminbi’s Ascendance,” in Renminbi Internationalization:  Achievements, Prospects, and Challenges, edited by Barry Eichengreen and Masahiro Kawai (Brookings Institution Press 2015): p. 107. 94. James Blitz, “China to Back London as Offshore Renminbi Centre,” Financial Times (September 7 2011), https://​www.ft.com/​content/​16ffc08a-​d974-​11e0​b52f-​00144feabdc0?mhq5j=e5. 95. See: http://​www.ft.com/​intl/​cms/​s/​0/​d8bb441c-​cc7f-​11e0-​b923-​00144feabdc0.html. 96. Saikat Chatterjee and Rachel Armstrong, “China Currency Claims a Bigger Share Of Reserve Manager Portfolios,” Reuters (October 29, 2014), http://​www.reuters.com/​ article/​us-​china-​summit-​reserves-​reuters-​summit-​idUSKBN0II0VX20141029.

200 Notes 97. “London:  A Centre For Renminbi Business,” April 2012, https://​www. cityoflondon.gov.uk/​business/​support-​promotion-​and-​advice/​promoting-​the-​ city-​internationally/​china/​Documents/​London_​A_​Centre_​for_​RMB_​business_​ 2013.pdf. 98. “Renminbi Internationalisation,” http://​www.industry.nsw.gov.au/​_​_​data/​assets/​ pdf_​file/​0019/​80560/​Offshore-​RMB-​Report-​November-​2015.pdf, p. 40. 99. “UK Becomes Second-​ Largest Offshore RMB Clearing Centre,” Financial Times (April 28, 2016), http://​www.ft.com/​fastft/​2016/​04/​28/​uk-​becomes​second-​argest-​offshore-​rmb-​clearing-​centre. 100. “Why is Tiny Luxembourg Key to China’s Global Plans?” Reuters (October 30, 2015), http://​thomsonreuters.com/​en/​articles/​2015/​luxembourg-​key-​chinese-​ dim-​sum-​bond-​listing.html. 101. “Yuan Set to Soar as Global Currency,” LuxembourgforFinance (June 3, 2015), http://​www.luxembourgforfinance.com/​en/​news/​yuan-​set-​soar-​global-​currency-​ european-​financial-​centres-​prioritise-​internationalisation-​rmb. 102. Preceding data from:  “The RMB Internationalisation:  Paris, a Hub for Europe,” (September 9, 2016), http://​www.paris-​europlace.net/​rmb/​page028.htm 103. Hansakul and Levinge, “China-​EU relations.” 104. See, for example, https://​www.db.com/​specials/​en/​docs/​Deutsche_​Bank_​A_​brief_​ guide_​to_​China_​s_​global_​currency.pdf. 105. Klaus Larres, “Germany Courts China:  Leading From the Middle,” Foreign Affairs (May 3, 2016), https://​www.foreignaffairs.com/​articles/​2016-​05-​03/​ germany-​courts-​china. 106. See: http://​www.rmbbudapest.hu. 107. See: http://​www.rmbbudapest.hu/​letoltes/​rqfii-​qa-​2017feb-​eng-​clean-​final-​2.pdf; http://​ w ww.rmbbudapest.hu/​ l etoltes/​ 5 -​ n iche- ​ n ext- ​ r enminbi- ​ h ub- ​ t o- ​ b e-​ established-​in-​budapest.pdf. 108. Thomas Hale, “European Banks Issue Record RMB Bonds,” Financial Times (August 4, 2015), http://​www.ft.com/​cms/​s/​0/​a7992050-​3a87-​11e5-​bbd1-​b37bc06f590c. html#axzz4KkO6nnWP. 109. Syetarn Hansakul and Hannah Levinge, “China-​EU Relations:  Gearing Up for Growth,” DB Research, (July 31, 2014). 110. Nicola Casarini, “The Internationalization of the Renminbi and the Role of the Euro,” China Focus (January 8, 2014), http://​www.chinausfocus.com/​finance-​ economy/​the-​internationalization-​of-​the-​renminbi-​and-​the-​role-​of-​the-​euro/​. 111. “China Development Bank and Deutsche Bank Sign 3 Billion US Dollar Cooperation Agreement,” DB Press Release (May 31, 2017), https://​www.db.com/​ newsroom_​news/​2017/​medien/​china-​development-​bank-​and-​deutsche-​bank-​ sign-​3-​billion-​us-​dollar-​cooperation-​agreement-​en-​11549.htm. 112. http://​www.reuters.com/​article/​us-​china-​france-​idUSTRE6A344U20101104. 113. As quoted in Prasad, “China’s Efforts,” n. 77. 114. Prasad, “China’s Efforts.” 115. “G20 summit  –​Press conference given by Nicolas Sarkozy, President of the Republic,” (November 4, 2011), http://​www.ambafrance-​uk.org/​President-​Sarkozy-​ s-​G20-​summit.

Notes  201 116. “Press Release: Statement by Ms. Christine Lagarde on IMF Review of SDR Basket of Currencies,” IMF Press Release 15/​513 (November 13, 2015), https://​www.imf. org/​en/​News/​Articles/​2015/​09/​14/​01/​49/​pr15513. 117. “Joint Communiqué between the People’s Republic of China and the Republic of Greece on the Establishment of Comprehensive Strategic Partnership,” (June 19, 2006), http://​www.fmprc.gov.cn/​mfa_​eng/​wjdt_​665385/​2649_​665393/​t233106. shtml. 118. “Ex-​Cosco Chief Capt Wei and His Greek Connections,” Seatrade Maritime News (July 19, 2013), http://​www.seatrade-​maritime.com/​news/​europe/​ex-​cosco-​chief-​ capt-​wei-​and-​his-​greek-​connections.html. 119. Asteris Huliaras and Sotiris Petropoulos, “Shipowners, Ports and Diplomats: The Political Economy of Greece’s Relations with China,” Asia Europe Journal 12 (2014): pp. 215–​230. 120. Sophie Meunier, “A Tale of Two Ports,” CritCom (December 14, 2015), https://​ mnccenter.org/​sites/​default/​f iles/​publication_​f iles/​Meunier%20A%20Tale%20 of%20Two%20Ports%20CritCom.pdf/​. 121. Xieshu Wang, Joel Ruet, and Xavier Richer, “One Belt, One Road and the Reconfiguration of China-​EU Relations,” ISPI Report China (March 30, 2017), https://​hal.archives-​ouvertes.fr/​hal-​01499020/​document. 122. Huliaras and Sotiris Petropoulos, “Shipowners,” p. 225. 123. “Agreements Signed by China and Greece,” Enterprise Greece (May 17, 2013), http://​ www.enterprisegreece.gov.gr/​en/​about-​us-​/​media-​center/​news-​&-​highlights/​ agreements-​signed-​by-​china-​and-​greece?pg=4. 124. Xing Zhigang, “Li Charms Dock Workers in Greece,” China Daily (June 20, 2015), http://​www.chinadaily.com.cn/​world/​2014livisitbritaingreece/​2014-​06/​21/​content_​17605748.htm. 125. “Deutsche Welle Business:  China Wants Greek Port of Piraeus to Become its ‘Gateway to Europe’,” Newstex Global Business Blogs (June 20, 2014), https://​www. dw.com/​en/​china-​wants-​greek-​port-​of-​piraeus-​to-​become-​its-​gateway-​to-​europe/​ a-​17723942. 126. “Xi Jinping Makes Stopover Visit to Greece on His Way to Latin America,” (July 14, 2014), http://​www.fmprc.gov.cn/​mfa_​eng/​topics_​665678/​xjpzxcxjzgjldrdlchwdbxa gtwnrlgbjxgsfwbcxzlldrhw/​t1174660.shtml. 127. “Ex-​Cosco chief Capt Wei.” 128. “Greece’s PPC and China’s CMEC expand their cooperation,” (October 25, 2016), http://​chinaandgreece.com/​sino-​greek-​energy-​cooperation/​. 129. Eleni Chrepa and Sotiris Nikas, “Number of Chinese Tourists Visiting Greece to Rise 10-​Fold,” Bloomberg (May 9, 2017), https://​www.bloomberg.com/​news/​articles/​ 2017-​05-​09/​fosun-​targets-​bringing-​10-​times-​more-​chinese-​tourists-​to-​greece. 130. “Athens’ Old Airport ‘Hellinikon’ to be Soon Redeveloped,” http://​chinaandgreece. com/​memorandum-​understanding-​hellinikon/​. 131. “China State Grid Buys 24 percent of Greek ADMIE,” (December 21, 2016), http://​ chinaandgreece.com/​china-​state-​grid-​buys-​24-​greek-​admie/​.

202 Notes 132. “Energy Cooperation between Copelouzos Group and Shenhua Group,” (May 13, 2017), http://​chinaandgreece.com/​energy-​cooperation-​copelouzos-​group-​ shenhua-​group/​. 133. Preceding points from:  Frans-​Paul van der Putten, “Greece:  Piraeus and the Maritime Silk Road,” in The Geopolitical Relevance of Piraeus and China’s New Silk Road for Southeast Europe and Turkey, Frans-​ Paul van der Putten (ed.), December 2016, https://​www.clingendael.org/​publication/​geopolitical​relevance-​piraeus-​and-​chinas-​new-​silk-​road. 134. OOCL Press Release (April 20, 2016), http://​www.oocl.com/​eng/​pressandmedia/​ pressreleases/​2016/​Pages/​20apr16.aspx. 135. “Shanghai Port Teams Up with Greece’s Piraeus to Boost Container Traffic,” CNBC (June 12, 2017), http://​www.cnbc.com/​2017/​06/​12/​reuters-​america-​shanghai-​ port-​teams-​up-​with-​greeces-​piraeus-​to-​boost-​container-​traffic.html. 136. Nicola Casarini, “Is Europe to Benefit from China’s Belt and Road Initiative?” IAI (October 2015), http://​www.iai.it/​sites/​default/​files/​iaiwp1540.pdf. 137. Frans-​Paul van der Putten, “Infrastructure and Geopolitics:  China’s Emerging Presence in the Eastern Mediterranean,” Journal of Balkan and Near Eastern Studies 18, no. 4 (2016): pp. 337–​351 138. CDB signed a $74 million loan agreement with Cardiff Marine; while Ex-​Im Bank offered $111 million to Angelicoussis Shipping and $82.6 million to Diana Shipping Inc. See:  http://​councilforeuropeanstudies.org/​critcom/​the-​chinese-​presence-​in-​ greece-​facts-​and-​complexities/​. 139. In 2012, for instance, CDB Ningxia along with Bank of China (Ningxia) issued a $122 million loan to a Greek firm, Dryships Inc., to fund construction of three vessels by a Shanghai firm. See: http://​world.greekreporter.com/​2012/​02/​21/​first-​ loan-​facility-​signed-​b etween-​china-​development-​b ank-​and-​dryships-​g reek-​ company/​. 140. “Agreements Signed by China and Greece,” (May 17, 2013), http://​www. enterprisegreece.gov.gr/ ​ e n/ ​ a bout- ​ u s- ​ / ​ m edia-​ c enter/​ n ews-​ & -​ h ighlights/​ agreements-​signed-​by-​china-​and-​greece?pg=4. 141. “China Development Bank Signs Deals With Greece Worth $3bn,” (June 20, 2014), http://​w ww.chinagoabroad.com/​en/​market_​review/​china-​development-​bank​signs-​deals-​with-​greece-​worth-​3bn. 142. “Chinese Bank To Expand Into Greek Projects,” (February 28, 2017), http:// ​ w ww.ekathimerini.com/​ 2 16535/​ a rticle/ ​ e kathimerini/ ​ b usiness/​ chinese-​bank-​to-​expand-​into-​greek-​projects. 143. “Kelemenis & Co. Acts For China Development Bank in a €94-​Million Project Finance Facility in Greece,” (July 24, 2013), http://​www.kelemenis.com/​ufaqs/​ kelemenis- ​ c o- ​ a cts- ​ f or- ​ c hina- ​ d evelopment- ​ b ank- ​ i n- ​ a - ​ e 94- ​ m illion- ​ project-​ finance-​facility-​in-​greece/​. 144. “China Attracts Greek Ship Owners: Chinese Shipyards Taking Business from Japan and South Korea,” Wall Street Journal (September 30, 2013), http://​online.wsj.com/​ article/​SB10001424052702303918804579106732244443344.html#printMode. 145. Meunier, “A Tale of Two Ports.”

Notes  203 146. “PortGraphic:  Top 15 Container Ports in Europe in 2016  –​Has TEU Growth Resumed?” (March 26, 2017), http://​www.porteconomics.eu/​2017/​03/​26/​ portgraphic-​top-​15-​container-​ports-​in-​europe-​in-​2016-​has-​teu-​growth-​resumed/​. 147. See: http://​www.coscopac.com.hk/​en/​investor.php?class_​id=43 148. David Glass, “Piraeus Port One of the Few Successes in Greek Privatisation Programme,” Seatrade Maritime News (March 8, 2017), http://​www.seatrade-​ maritime.com/​news/​europe/​piraeus-​p ort-​one-​of-​the-​few-​successes-​in-​greek-​ privatiation-​programme.html. 149. Ding, “The European Debt Crisis.” 150. Cited in: Meunier, “A Tale of Two Ports.” 151. Tonchev, “Greece and China.” 152. Van der Putten, “Greece.” 153. Huliaras and Petropoulos, “Shipowners.” This paragraph draws from their excellent article. 154. “The Joint Communiqué between the People’s Republic of China and the Republic of Greece on the Establishment of Comprehensive Strategic Partnership,” (January 19, 2006), http://​www.fmprc.gov.cn/​mfa_​eng/​wjdt_​665385/​2649_​665393/​t233106. shtml. 155. Laurence Norman, “EU Issues South China Sea Statement Ending Discord Within Bloc,” Wall Street Journal (July 17, 2016), http://​www.wsj.com/​articles/​eu-​issues-​ south-​chinasea-​statement-​after-​failing-​to-​agree-​common-​stance-​1468583961. 156. “Greece Blocks EU’s Criticism at UN of China’s Human Rights Record,” The Guardian (June 19, 2017), https://​www.theguardian.com/​world/​2017/​jun/​18/​ greece-​eu-​criticism-​un-​china-​human-​rights-​record. 157. See: http://​trends.gmfus.org/​transatlantic-​trends/​. 158. See: http://​www.pewglobal.org/​category/​datasets/​. 159. Question: “Please tell me if you think each of the following countries is having a mainly positive or mainly negative influence in the world.” Respondents were provided a list of countries and asked to answer either ‘positive’ or ‘negative’ for each country. I present here the percentage of respondents who listed China as having a ‘positive’ influence. Data sourced from: https://​globescan.com/​insight/​ ?gsk=China. 160. Question: “There are different views about the rise of China. In economic terms, some people see China as more of an opportunity for new markets and investment, while others see it as a threat to our jobs and economic security. Which view is closer to your own?” Percentages here include ‘threat’ and ‘more of an economic threat.’ Data sourced from:  http://​www.gmfus.org/​initiatives/​ transatlantic-​trends-​-​public-​opinion. 161. Question: “Overall, do you think that China’s growing economy is a good thing or a bad thing for our country?” Respondents could only choose good or bad; I report the percentage that chose ‘bad.’ Data sourced from: http://​www.pewglobal.org/​category/​datasets/​. 162. A ‘leader visit’ is when one of China’s two top leaders visits a EU member state. If a leader visits two countries in one day, this counts as one visit to each country.

204 Notes Data collected from the ‘political interactions’ webpages of every Chinese embassy to a EU member state, augmented by Chinese government websites and Chinese-​ language news websites. 163. “China’s EU Policy Paper,” 2003. 164. “China’s Policy Paper on the EU,” China Ministry of Foreign Affairs (April 2, 2014), http://​www.fmprc.gov.cn/​mfa_​eng/​wjdt_​665385/​wjzcs/​t1143406.shtml. 165. Liming Wu, “Commentary: Time for EU to Recognize China’s Market Economy Status,” Xinhua (September 14, 2011). 166. Xu Tianran, “China Will Help Europe: Wen,” Global Times (September 15, 2011), http://​www.globaltimes.cn/​content/​675363.shtml. 167. 石岩，“年终经济观察：2013中国‘经济外交’九大热词”中国新闻网 [Shi Yan, “Year-​End Economic Observation: 2013 China’s ‘Economic Diplomacy’ Nine Hot Words,” China News Network] (December 24, 2013), http://​sd.ifeng.com/​caijing/​ yaowenzonghe/​detail_​2013_​12/​24/​1633665_​0.shtml. 168. “中方希望欧盟能够今早解除对华武器禁运”游侠网 [“China Wishes that EU Would Soon Remove the China Arms Embargo,” Youxiawang] (July 13, 2012), https://​news.qq.com/​a/​20120713/​000221.htm. 169. “China Premier Wen Jiabao Urges End to EU Arms Embargo,” BBC (September 20, 2012), http://​www.bbc.com/​news/​world-​asia-​19657940. 170. Catherine Ashton, “Europe and the World:  Speech in Athens,” EC Press Release (July 8, 2010), http://​europa.eu/​rapid/​press-​release_​SPEECH-​10-​378_​en.htm; Antoine Feron, “The High Representative and China:  Assessing Ashton’s Style,” UCL Analysis Note 32 (March 2014), https://​geopolcecri.files.wordpress.com/​ 2015/​01/​note-​danalyse-​32bis-​ashton-​chine.pdf. 171. Although most of her report remains classified, the EU Observer attended the session and saw a copy of the report. Andrew Rettman, “Ashton Pragmatic on China in EU Foreign Policy Blueprint,” EU Observer (December 17, 2010), https://​euobserver. com/​china/​31538. The official ‘disclosable’ version is:  Strategic Partners:  Progress Report for the European Council (December 16-​17, 2010), http://​www.asktheeu. org/​en/​request/​379/​response/​1148/​attach/​4/​Strategic%20partners%20Dec%20 2010%20disclosable%201.pdf. 172. Nicola Casarini and Marco Sanfilippo, “Italy and China: Investing in Each Other,” in Mapping Europe-​China relations: A Bottom-​up Approach, edited by Mikko Huotari et al. (Berlin: European Think-​tank Network on China, 2015): pp. 46–​51. 173. Nicola Casarini, “Is Europe to Benefit from China’s Belt and Road Initiative?” Istituto Affari Internazionali Working Paper 15, no. 40 (October 2015), http://​www. iai.it/​sites/​default/​files/​iaiwp1540.pdf. 174. Thilo Hanemann and Mikko Huotari, “A New Record Year for Chinese Outbound Investment in Europe,” MERICS Report (February 2016), https://​merics.org/​en/​report/​new-​record-​year-​chinese-​outbound-​investment-​europe. 175. Marco Sanfilippo, “Chinese Investments in Italy:  Facing Risks and Grasping Opportunities,” IAI Working Papers 14, no. 19 (December 2014): pp. 19–​20, http://​ www.iai.it/​en/​node/​2375.

Notes  205 176. Yinan Zhao, “‘Main Course’ Still Ahead,” China Daily (October 16, 2014), http://​ english.gov.cn/​premier/​news/​2014/​10/​16/​content_​281474997646584.htm. 177. “China, Italy Agree to Further Promote Partnership,” Xinhua (October 15, 2014), http://​www.chinadaily.com.cn/​world/​2014livisitgrl/​2014-​10/​15/​content_​ 18743363.htm. 178. James Politi and Christian Oliver, “Italy Defends EU Tariffs as Last Defence Against China,” Financial Times (October 4, 2015), https://​www.ft.com/​content/​ eea6fab2-​68f4-​11e5-​a57f-​21b88f7d973f. 179. “EU Launches Public Consultation for Granting China Market Economy Status,” China Daily (February 11, 2016), http://​www.chinadaily.com.cn/​world/​2016-​02/​ 11/​content_​23450048.htm. 180. “China Signs Second-​Biggest Swap Line With ECB,” Reuters (October 10, 2013), http://​www.reuters.com/​article/​us-​ecb-​china-​swap-​idUSBRE9990A220131010 181. Interviews with DG Trade officials, Brussels, May 2016. 182. Yang Yanyi, “China Critics Fail to Translate the Good in its Economic Development,” Euractiv (February 2, 2016), http://​www.euractiv.com/​section/​trade-​society/​ opinion/​china-​critics-​fail-​to-​translate-​the-​good-​in-​its-​economic-​development/​ 183. Interview, Brussels, May 2016. 184. “European Parliament Resolution of 12 May 2016 on China’s Market Economy Status,” (2016/​2667(RSP)), http://​www.europarl.europa.eu/​sides/​getDoc.do? pubR ef=- ​ / / ​ E P// ​ T EXT+TA+P8- ​ TA- ​ 2 016- ​ 0 223+0+D O C+XML+V0//​ EN&language=EN. 185. Shawn Donnan, Lucy Hornby, and Arthur Beesley, “China Challenges EU and US over Market Economy Status,” Financial Times (December 13, 2016), https://​www. ft.com/​content/​6af8da62-​bf5d-​11e6-​9bca-​2b93a6856354. In June 2019, the WTO announced that China had suspended its request. See: https://​www.wto.org/​english/​tratop_​e/​dispu_​e/​cases_​e/​ds516_​e.htm. 186. Andrew Small, “Why Europe Is Getting Tough on China,” Foreign Affairs (April 3, 2019), https://​www.foreignaffairs.com/​articles/​china/​2019-​04-​03/​why-​europe​getting-​tough-​china. 187. Mikko Huotari and Agatha Kratz, Beyond Investment Screening:  Expanding Europe’s Toolbox to Address Economic Risks from Chinese State Capitalism, MERICS Report (October 2019), https://​www.bertelsmann-​stiftung.de/​fileadmin/​files/​BSt/​ Publikationen/​GrauePublikationen/​DA_​Studie_​ExpandEurope_​2019.pdf. 188. EU-​China  –​ A  Strategic Outlook, European Commission (March 12, 2019), p.  1, https://​ec.europa.eu/​commission/​sites/​beta-​political/​files/​communication-​eu-​ china-​a-​strategic-​outlook.pdf. 189. Duncan Freeman, “China’s Outward Investment  –​Institutions, Constraints and Challenges.” Brussels Institute of Contemporary China Studies, Asia Paper 7, no. 4 (2013). 190. James Reilly, “Leveraging Diversity:  Europe’s China Policy,” EUI Working Paper RSCAS 33 (2017), http://​cadmus.eui.eu/​handle/​1814/​47144.

206 Notes

Chapter 4 1. “Li Hails Bright Prospect of Infrastructure Cooperation with CEE Countries,” Xinhua (December 19, 2014), http://​www.chinadaily.com.cn/​world/​2014livisitkst/​2014-​12/​ 19/​content_​19127216.htm. 2. Greece formally joined the China–​CEEC Partnership in April 2019. However, since my analysis focuses on the pre–​April 2019 period, I continue to use the 16+1 formula. See:  “Greece Joins China’s 16+1 Initiative,” Ekathimerini (April 12, 2019), http://​w ww.ekathimerini.com/​239502/​article/​ekathimerini/​news/​g reece-​j oins​chinas-​161-​initiative. 3. Agatha Kratz, “The Best of Both Worlds? CEE’s Place in China-​Europe Economic Relations,” China Analysis (December 14, 2016), http://​www.ecfr.eu/​publications/​ summary/​chinas_​investment_​in_​influence_​the_​future_​of_​161_​cooperation7204. 4. Long Jing, “Relations Between China and CEE Countries: Development, Challenges and Recommendations,” China Institute of International Studies (November 21, 2014), http://​www.ciis.org.cn/​english/​2014-​11/​21/​content_​7388215.htm; Kong Tianping, “16+1 Cooperation Framework: Genesis, Characteristics And Prospect,” Chinese Academy of Social Sciences (December 3, 2015), http://​16plus1-​thinktank. com/​1/​20151203/​868.html. 5. Li Keqiang, “Forging a Reliable Partnership for Win-​Win Cooperation,” Speech at the Sixth China–​CEEC Business Forum, Riga (November 5, 2016), http://​english.gov.cn/​ premier/​speeches/​2016/​11/​08/​content_​281475486159412.htm. 6. Jakub Jakóbowski, “Chinese-​ Led Regional Multilateralism in Central and Eastern Europe, Africa and Latin America:  16 + 1, FOCAC, and CCF,” Journal of Contemporary China 27, no. 113 (2018): p. 660. 7. “为中国—​—中 ​ 东欧合作再添活力”人民日报 [“Seeking to Add Vigor to China-​ CEE Cooperation,” People’s Daily] (June 14, 2016): p. A3, http://​world.people.com. cn/​n1/​2016/​0614/​c1002-​28441618.html. 8. Liu Zuokui, “The Pragmatic Cooperation between China and CEE: Characteristics, Problems and Policy Suggestions,” CASS Working Paper Series on European Studies 7, no. 6 (2013), http://​ies.cass.cn/​webpic/​web/​ies2/​en/​UploadFiles_​8765/​201311/​ 2013111510002690.pdf. 9. Interview, Warsaw (June 4, 2016). 10. All 16 websites are available here: http://​www.china-​ceec.org/​eng/​zdogjxty_​1/​. 11. Dragan Pavlićević, “‘China Threat’ and ‘China Opportunity’: Politics of Dreams and Fears in China–​Central and Eastern European Relations,” Journal of Contemporary China 27, no. 113 (2018): pp. 688–​702. 12. Anastas Vangeli, “Global China and Symbolic Power: The Case of 16 + 1 Cooperation,” Journal of Contemporary China 27, no. 113 (2018): pp. 674–​687. 13. Jakóbowski, “Chinese-​Led,” p. 660. 14. “Introduction of the Secretariat for Cooperation between China and Central and Eastern European Countries,” n.d., http://​www.china-​ceec.org/​eng/​msc_​1/​mscjj/​ t1411097.htm. 15. “CEEC Regional Tourism Centre,” n.d., http://​ceec-​china.travel.

Notes  207 16. Li Keqiang, “Forging.” 17. “Bulgarian–​China Business Development Association,” n.d., http://​new.bg-​china-​ partners.com/​проекти/​euro-​china-​economic-​development-​zone/​. 18. “Documents Signed During the Signing Ceremony at the 5th Meeting of Heads of Governments of Central and Eastern European Countries and China (16+1) in Riga Latvia, 5 November 2016,” http://​www.mfa.gov.lv/​en/​news/​latest-​news/​ 56130-​documents-​signed-​ . . . european-​countries-​and-​china-​16-​1-​in-​riga-​latvia-​5-​ november-​2016. 19. “The Sofia Guidelines for Cooperation between China and Central and Eastern European Countries” (July 16, 2018), http://​english.www.gov.cn/​news/​international_​ exchanges/​2018/​07/​16/​content_​281476224693086.htm. 20. “SZ-​CEE Fair to be Held Sept. 27,” Shenzhen Daily (September 9, 2016), http://​english.sz.gov.cn/​ln/​201609/​t20160909_​4863675.htm. 21. Hongfei Gu, “Subnational Actors in the Relations Between China and Central and Eastern European Countries,” Eastern Review 8 (2019):  p.  108, http://​dx.doi.org/​ 10.18778/​1427-​9657.08.10. 22. Haiyan Zhang, Zhi Yang and Daniël Van Den Bulcke, “Chinese Owned Enterprises in Europe: A Study of Corporate and Entrepreneurial Firms and the Role of Sister City Relationships,” Antwerp Management School (2013), http://​www.thinkchina. ku.dk/​documents/​Executive-​Summary-​Euro-​China-​investment-​report-​2013-​2014_​ 20131001090252.pdf. 23. “China–​CEEC Investment and Trade Expo,” http://​www.cceecexpo.org/​site_​en/​tzqt/​ tagId/​4614.html. 24. “The 2nd China–​Central and Eastern European Countries’ Trade and Economic Promotion Ministerial Conference,” Ningbo (June 14, 2016), http://​si2.mofcom.gov. cn/​article/​bilateralvisits/​201606/​20160601338158.shtml. 25. Jakóbowski, “A Partial Success.” 26. Interview, Lodz, June 6, 2016. 27. Li Yu, Peng Chao and Liu Baijia, “A Train of Events to Boost Trade,” China Daily (July 21, 2013), http://​www.chinadaily.com.cn/​regional/​2014-​07/​21/​content_​17873349. htm. 28. Li et al., “A Train.” 29. Interview, Lotz (June 6, 2016). 30. Li et al., “A Train.” 31. 章华维、高红霞，“王东明率中共代表团赴捷克共和国中捷克州进行友好访 问”四川日报 [Zhang Huawei and Gao Hongxia, “Wang Dongming Leads the CPC Delegation Friendly Visit to the Central Bohemian Region of the Czech Republic,” Sichuan Daily] (May 3, 2016), http://​sc.people.com.cn/​n2/​2016/​0503/​c345454-​ 28259984.html. 32. “Estonia Joins Chinese ‘New Silk Road’ Plan,” (April 28, 2018), https://​eadaily.com/​ en/​news/​2018/​04/​28/​estonia-​joins-​chinese-​new-​silk-​road-​plan. 33. Kong Tianping, “16+1 Cooperation.” 34. Wu Jiao and Mo Jingxi, “Beijing and Sofia Vow New Initiatives,” China Daily (January 14, 2014), http://​usa.chinadaily.com.cn/​china/​2014-​01/​14/​content_​17233424.htm.

208 Notes 35. “Bulgaria  Open.” 36. Jakub Jakóbowski, “China’s Foreign Direct Investments Within the ‘16+1’ Cooperation Formula: Strategy, Institutions, Results,” OSW Commentary (March 12, 2015), http://​www.osw.waw.pl/​en/​publikacje/​osw-​commentary/​2015-​12-​03/​chinas-​ foreign-​direct-​investments-​within-​161-​cooperation, citing MOFCOM’s 2011 advice, available at: http://​hzs.mofcom.gov.cn/​accessory/​201109/​1315379855245.pdf. 37. 刘作奎，“中东欧在丝绸之路经济带建设中的作用”国际问题研究 [Liu Zuokui, “Role of Central and Eastern Europe in Construction of the Silk Road Economic Belt,” International Studies] 4 (2014): pp. 72–​82. 38. Liu Zuokui, “The Pragmatic Cooperation,” p. 7. 39. Simona R. Soare, “Mapping Europe–​China Relations, Romania and China: Rekindling the Special,” in Mapping Europe–​China Relations. A Bottom-​Up Approach, edited by Mikko Huotari, Miguel Otero-​Iglesias, John Seaman and Alice Ekman (Berlin: The European Network of China, 2015): pp. 66–​73. 40. Jakóbowski, “China’s Foreign.” 41. Kratz, “The Best.” 42. Christian Dreger, Yun Schüler-​ Zhou and Margot Schüller, “Chinese Foreign Direct Investment in Europe Follows Conventional Models,” DIW Economic Bulletin 14/​ 15 (2017), https://​www.giga-​hamburg.de/​en/​publication/​chinese​foreign-​direct-​investment-​in-​europe-​follows-​conventional-​models. 43. Marta Golonka, Partners or Rivals: Chinese Investment in Central and Eastern Europe, CEED Institute (2012): p. 30, http://​ceedinstitute.org/​upload/​files/​c994d506d9c2600 e1d96efa04d22b03a.pdf. 44. Golonka, Partners, p. 30. 45. Li Keqiang, “Work Together to Enhance Practical Cooperation,” speech at the 4th China and Central and Eastern European Countries Economic and Trade Forum (Belgrade), (December 20, 2014), http://​www.chinadaily.com.cn/​world/​ 2014livisitkst/​2014-​12/​20/​content_​19131210.htm. 46. András Zsámboki, “The Beijing-​Belgrade-​Budapest Axis,” Budapest Business Journal (March 31, 2014) https://​bbj.hu/​politics/​the-​beijing-​belgrade-​budapest-​axis_​77786. 47. “Hungary, China Consult on Budapest Ring Rail Line Financing,” Budapest Business Journal (April 19, 2013), https://​bbj.hu/​economy/​hungary-​china-​consult-​on-​ budapest-​ring-​rail-​line-​financing_​65553. 48. “Bosnia Faces Legal Action over Chinese-​Backed Coal Dash,” Climate Change News (October 28, 2016), http://​www.climatechangenews.com/​2016/​10/​28/​bosnia-​faces-​ legal-​action-​over-​chinese-​backed-​coal-​dash/​. 49. “Bosnia Faces.” 50. “China and Bosnia and Herzegovina,” Ministry of Foreign Affairs website, n.d., http://​ www.fmprc.gov.cn/​mfa_​eng/​wjb_​663304/​zzjg_​663340/​xos_​664404/​gjlb_​664408/​ 3145_​664450/​. 51. Adnan Prekic, “Montenegro:  Chinese Exim Bank Approves Loan for Bar-​Boljare Highway’s Priority Section,” IBNA (September 19, 2014), http://​www.balkaneu.com/​ montenegro-​chinese-​exim-​bank-​approves-​loan-​bar-​b oljare-​highways-​priority-​ section/​.

Notes  209 52. “China’s Exim Bank to Fund Two New Macedonia Highways,” WorldHighways. com, (November 22, 2013), http://​www.worldhighways.com/​categories/​road-​ highway-​ s tructures/​ n ews/​ c hinas-​ e xim-​ b ank-​ t o-​ f und-​ t wo-​ n ew-​ m acedonia-​ highways/​. Interestingly, after three years of ‘discussions,’ on November 12, 2015, Sinohydro signed an agreement with local labor unions. “SGIP Macedonia Signs New Agreement with Sinohydro to Improve Working Conditions,” Building and Wood Workers International, n.d., https://​www.bwint.org/​cms/​sgip-​macedonia-​signs-​new-​ agreement-​with-​sinohydro-​to-​improve-​working-​conditions-​168. 53. “Kostolac power station,” Sourcewatch, n.d., http://​www.sourcewatch.org/​index.php/​ Kostolac_​power_​station. 54. “Work Together to Enhance Practical Cooperation,” China Daily, (December 20, 2014), http://​www.chinadaily.com.cn/​world/​2014livisitkst/​2014-​12/​20/​content_​ 19131210.htm. The China-​Africa Development Fund faced similar challenges. The CADF’s original investment target was $5 billion, but mid-​2015, CADF had only managed to spend $2.4 billion. See: Arthur Kroeber, “Financing China’s Global Dreams,” China Economic Quarterly (November 2015), https://​chinaeconomybookdotcom. files.wordpress.com/​2016/​02/​ceq_​2015q34_​kroeber_​financingglobaldreams.pdf. 55. Jakóbowski, “Chinese-​Led.” 56. Dragan Pavlićević, “Chinese Infrastructure Investments in Serbia: Between Politics and Profit,” CritCom, (December 14, 2015), http://​critcom.councilforeuropeanstudies. org/​chinese-​infrastructure-​investments-​in-​serbia-​between-​politics-​and-​profit/​. 57. Xieshu Wang, Joel Ruet and Xavier Richer, “One Belt One Road and the Reconfiguration of China-​EU relations,” ISPI Report (2017), https://​hal.archives-​ ouvertes.fr/​hal-​01499020/​document. 58. Tomasz Kamiński and Tomasz Jurczyk, “Untapped Instrument:  Sovereign Wealth Funds and Chinese Policy toward the Central and Eastern European Countries,” in Political Players? Sovereign Wealth Funds’ Investments in Central and Eastern Europe, edited by Tomasz Kamiński (Lodz:  Wydawnictwo University, 2017):  pp. 69–​91, https://​papers.ssrn.com/​sol3/​papers.cfm?abstract_​id=2918554. 59. China–​CEEC Investment Cooperation Fund website, n.d., http://​china-​ceefund. com. 60. “China Exim Bank Earmarks $1 Bln. to Spend in Eastern Europe,” Reuters (December 19, 2014), http://​www.reuters.com/​article/​china-​china-​exim-​bank-​investment-​ idUSL6N0U31DD20141219. These additional funds appear to have only arrived, however, in April 2018. See:  the China–​CEE Fund homepage, at:  http://​china-​ ceefund.com/​Template/​news.aspx?page=ContentPage&nodeid=12&contentid=165 (as of November 13, 2019). 61. Li Keqiang, “Forging.” 62. “Sino-​CEEF Holding Company officially founded,” Xinhua (November 7, 2016), http://​www.china.org.cn/​business/​2016-​11/​07/​content_​39649966.htm. 63. Company websites are:  https://​www.chinalife.com.cn/​publish/​yw/​index.html; https://​www.fosun.com/​language/​en/​p/​14754.html;http://​www.rgei.com/​about/​our-​ company.

210 Notes 64. “ERICEE Inaugurated in Shanghai,” CEFC China website, n.d., http://​en.cefc.co/​detail/​news/​734?lang=cn. 65. Dragan Pavlićević, “China in Central and Eastern Europe: 4 Myths,” The Diplomat (June 16, 2016). A more skeptical (and typical) analysis is: Astrid Pepermans, “China’s 16+1 and Belt and Road Initiative in Central and Eastern Europe:  Economic and Political Influence at a Cheap Price,” Journal of Contemporary Central and Eastern Europe 26, no. 2–​3 (2018): pp. 181–​203. 66. Li Keqiang, “Forging.” 67. “The Medium-​Term Agenda for Cooperation Between China and Central and Eastern European Countries,” China Ministry of Foreign Affairs website (November 24, 2015), http://​www.fmprc.gov.cn/​mfa_​eng/​zxxx_​662805/​t1318038.shtml. 68. Jakóbowski, “A Partial Success.” 69. “China, Poland Ink Agricultural Cooperation Agreement,” China Ministry of Agriculture and Rural Affairs website (September 23, 2015), http://​english.agri.gov. cn/​news/​dqnf/​201509/​t20150923_​26545.htm. 70. “Association for Promotion of Agricultural Cooperation between China and CEE Countries,” Bulgarian Ministry of Agriculture, Food, and Forestry, http://​china2ceec. org/​en/​CEE-​Countries. 71. Jakóbowski, “A Partial Success.” 72. “The Suzhou Guidelines for Cooperation between China and Central and Eastern European Countries,” November 24, 2015, http://​www.fmprc.gov.cn/​mfa_​eng/​zxxx_​ 662805/​t1318039.shtml. 73. In China’s 2018 government restructuring, AQSIQ was re-​ named the State Administration for Market Regulation. See:  http://​www.aqsiq.gov.cn.For example, see: “Exporting Meat Products to China,” EU SME Centre (2013), http://​ccilc.pt/​wp-​ content/​uploads/​2017/​07/​eu_​sme_​centre_​guideline_​exporting_​meat_​products_​to_​ china.pdf. 74. “The Suzhou Guidelines.” 75. “Bulgaria, China Sign Protocol on Export of Bulgarian Dairy Products,” China Daily (September 19, 2016), http://​www.chinadaily.com.cn/​business/​2016-​09/​18/​content_​ 26816528.htm. 76. Jakub Jakóbowski, “A Partial Success of Trade Cooperation Within the ‘16+1’ Formula: The Case of Food Exports to China,” OSW Commentary (October 29, 2015), https://​w ww.osw.waw.pl/​en/​publikacje/​osw-​commentary/​2015-​10-​29/​a-​partial-​ success-​trade-​cooperation-​within-​161-​formula-​case. 77. “Trade Between Bulgaria and China Doubles,” Desislava Taneva (November 23, 2015), no longer available online. 78. Rafał Tuszyński, “Polish Perspectives On Cee-​ China 16+1 Cooperation:  The Unexpected Ukrainian Factor,” Europolity 9, no. 1 (2015), http://​16plus1-​thinktank. com/​u/​cms/​cepzh/​201708/​07083210aepf.pdf. 79. “7th Working Group Meeting on China–​Poland Agricultural Cooperation opens in Beijing,” MOA Information Office (May 16, 2017), http://​asianagribusinessconsulting. com/​en/​homepage/​84-​english-​structure/​news/​1025-​7th-​working-​group-​meeting-​ on-​china-​poland-​agricultural-​cooperation-​opens-​in-​beijing.html.

Notes  211 80. Picture available at:  https://​www.gettyimages.ie/​detail/​news-​photo/​chinese-​ president-​xi-​jinping-​and-​polish-​president-​andrzej-​news-​photo/​541766292?. 81. Jakóbowski, “A Partial Success.” 82. Tuszyński, “Polish Perspectives.” 83. Jakóbowski, “A Partial Success.” 84. “Agricultural Trades between China, CEEC on the Rise,” Xinhua (November 7, 2016), http://​www.xinhuanet.com/​english/​2016-​11/​07/​c_​135811931.htm. 85. From 2007 to 2013, export increases (in percentages) were: Romania: 328, Poland: 100.6, Bulgaria 505, the Czech Republic:  214, Hungary:  124, Macedonia:  998.3, and Serbia: 1,272. See: George Cornel Dumitrescu, “Central and Eastern European Countries Focus on the Silk Road Economic Belt,” (2015), http://​www.globeco.ro/​ wp-​content/​uploads/​vol/​split/​vol_​3_​no_​1/​geo_​2015_​vol3_​no1_​art_​018.pdf. 86. Kratz, “The Best.” 87. Andrea Éltető and Ágnes Szunomár, “Chinese Investment And Trade: Strengthening Ties With Central And Eastern Europe,” International Journal of Business and Management 4, no. 1 (2016), http://​iises.net/​international-​journal-​of-​business-​ management/​publication-​detail-​434. 88. Jakóbowski, “A Partial Success.” 89. Jakóbowski, “A Partial Success.” 90. “Dalai Lama’s visit to Estonia Closed Chinese Market to Estonian Milk,” The Baltic Course (November 27, 2014), http://​www.baltic-​course.com/​eng/​markets_​and_​ companies/​?doc=99410. 91. “China:  Relations with Estonia Have Been Normalised Again,” The Baltic Course (September 29, 2014), http://​www.baltic-​course.com/​eng/​legislation/​?doc=96920. 92. Jim Cornall, “China and Estonia Sign agreement for Dairy Products to be Exported to China,” The Dairy Reporter (May 19, 2016), http://​www.dairyreporter.com/​Markets/​ China-​and-​Estonia-​sign-​dairy-​products-​export-​agreement. 93. “China, Lithuania Agree to Advance Relations,” Xinhua (October 2, 2015), http://​ news.xinhuanet.com/​english/​china/​2015-​02/​10/​c_​133984131.htm. 94. “China has Approved the Permission for Export of Lithuanian Dairy Products,” State Food and Veterinary Services, Lithuania (August 30, 2016), http://​ vmvt.lt/ ​ n aujienos/​ c hina-​ h as-​ approved-​ p ermission- ​ e xport- ​ l ithuanian- ​ d airy-​ products?language=en. 95. Richard Martyn-​Hemphill and Etienne Morisseau, “Small Step for China, Giant Leap for the Baltics?” Baltic Times (February 5, 2015), http://​www.baltictimes.com/​small_​ step_​for_​china_​-​_​giant_​leap_​for_​the_​baltics_​/​ 96. Amrutha Gayathri, “Smithfield Foods Shareholders Approve $4.7 Billion Acquisition By China’s Shuanghui,” International Business Times (September 25, 2013), http://​ www.ibtimes.com/​smithfield-​foods-​shareholders-​approve-​47-​billion-​acquisition-​ chinas-​shuanghui-​1410564. 97. Éltető and Szunomár, “Chinese Investment.” 98. “China’s CEFC Leads Deal to Buy Majority of Czech Brewer Lobkowicz,” Reuters (September 5, 2015), http://​www.reuters.com/​article/​czech-​lobkowicz-​cefc-​ idUSL5N11B03I20150905.

212 Notes 99. “农业银行积极支持中国企业‘走出去’ ”界面 [“Agricultural Bank actively supports Chinese enterprises ‘going out’,” Jiemian] (March 12, 2015), http://​www. jiemian.com/​article/​245114.html. 100. 刘作奎，“塞尔维亚国内形势、外交政策走向与中塞关系”当代世界 [Liu Zuokui, “Serbia’s Domestic Trends, Foreign Policy Direction and China-​Serbian Relations,” Contemporary World] 9 (2016):  pp. 32–​35. On Beijing’s targeting of Serbia and other ‘pivot states’ in the region, see: Weiqing Song, “China’s Long March to Central and Eastern Europe,” European Review 26, no. 4 (2018): pp. 755–​766. 101. Gatien Du Bois and Magdi Birtha, “Hungary:  The Flagship of China in Europe?” Nouvelle-​Europe (June 29, 2015), http://​www.nouvelle-​europe.eu/​en/​ hungary-​flagship-​china-​europe. 102. Liu, “The Pragmatic Cooperation.” 103. “Beijing Considers Hungary a Flagship in Chinese-​ European Relations,” Hungary Ministry of Foreign Affairs and Trade website (October 30, 2014), http://​ w ww.kormany.hu/ ​ e n/ ​ m inistry- ​ o f- ​ f oreign-​ a ffairs-​ a nd-​ t rade/​ n ews/​ beijing-​considers-​hungary-​a-​bridgehead-​in-​chinese-​european-​relations. 104. “China Signs Cooperation Document with Hungary over Belt and Road Initiative,” Xinhua (June 7, 2015), http://​www.xinhuanet.com/​english/​2015-​06/​07/​c_​ 134303729.htm. 105. “The 19th Meeting of China–​ Hungary Economic Joint Committee Held in Budapest,” MOFCOM website (March 24, 2016), http://​english.mofcom.gov.cn/​article/​newsrelease/​significantnews/​201603/​20160301282080.shtml. 106. Du Bois and Birtha, “Hungary.” 107. Russell Hsiao and Matthew Czekaj, “Is Hungary Becoming China’s Hub in Central Europe?” Jamestown Foundation (July 15, 2011), https://​jamestown.org/​program/​ is-​hungary-​becoming-​chinas-​hub-​in-​central-​europe/​. 108. Guo Rong, “Hungary, China to Further Cooperation Within 16+1 Framework,” Xinhua (June 10, 2016), http://​www.chinadaily.com.cn/​world/​2016-​06/​10/​content_​25667467.htm. 109. Jakóbowski, “A Partial Success.” 110. Previously posted on Budapest Airport website at:  http://​www.bud.hu/​english/​ business-​and-​partners/​aviation/​route_​development/​budapest-​airport-​resurrects-​ links-​to-​beijing-​as-​it-​celebrates-​air-​china’s-​inaugural-​flight-​17441.html (no longer available online). 111. Du Bois and Birtha, “Hungary.” 112. “Beijing Considers.” 113. Zhuan Ti, “Hungary: Encouraging Opportunities in the Heart of Europe,” China Daily (May 14, 2017). 114. “Eastern Opening: China,” The Orange Files (June 10, 2016), https://​theorangefiles. hu/​eastern-​opening-​china/​. 115. “China and Hungary,” China Ministry of Foreign Affairs, n.d., http://​www.fmprc. gov.cn/ ​ m fa_ ​ e ng/ ​ w jb_ ​ 6 63304/ ​ z zjg_ ​ 6 63340/​ x os_ ​ 6 64404/ ​ g jlb_ ​ 6 64408/ ​3 175_​ 664570/​.

Notes  213 116. “China Investment Promotion Agency Opens in Budapest,” Budapest Business Journal (April 15, 2010), https://​bbj.hu/​business/​china-​investment-​promotion-​ agency-​opens-​in-​budapest_​52399. 117. Previous points from: Hsiao and Czekaj, “Is Hungary.” 118. The quote is from a Wanhua lawyer, cited in: Matthew Miller, “Chinese Companies Step up to the Global Game,’ Institutional Investor (April 20, 2012), http://​www. institutionalinvestor.com/​article.aspx?articleID=3008190#.WUcbIzOB2V4. See also:  http://​www.borsodchem-​group.com/​News-​-​media/​News/​Wanhua-​acquires-​ full-​control-​of-​BorsodChem.aspx. 119. Andrea Éltető and Ágnes Szunomár, “Ties of Visegrad Countries with East Asia,” IWE Working Paper (Budapest), (2015), http://​real.mtak.hu/​26014/​. 120. Website is: http://​konfuciusz.uni-​miskolc.hu/​EN. 121. “MFB Signs EUR 79 Mln Credit Pact with Chinese Peer,” Budapest Business Journal (May 16, 2017), https://​bbj.hu/​business/​mfb-​signs-​eur-​79-​mln-​credit-​pact-​with-​ chinese-​peer_​132934. 122. Du Bois and Birtha, “Hungary.” 123. Éltető and Szunomár, “Chinese Investment.” 124. Guo Rong, “Hungary, China.” 125. “China and Hungary,” China Ministry of Foreign Affairs.” 126. “About Confucius Institute/​ Classroom [sic],” http://​english.hanban.org/​node_​ 10971.htm. 127. “China and Hungary Sign Cooperation Document on Belt and Road,” China Ministry of Foreign Affairs (June 7, 2015), http://​www.fmprc.gov.cn/​mfa_​eng/​ zxxx_​662805/​t1272109.shtml. 128. Zhuan Ti, “Hungary.” 129. “Hungary’s Foreign Minister: EU Should Declare China Market Economy,” Daily News (June 10, 2016), https://​dailynewshungary.com/​hungarys-​foreign-​minister-​ eu-​should-​declare-​china-​market-​economy/​. 130. “China, Hungary Establish Comprehensive Strategic Partnership,” Xinhua (May 13, 2017), http://​news.xinhuanet.com/​english/​2017-​05/​13/​c_​136279592.htm. 131. “Cooperation between China and East-​Central Europe is in the Best Interests of the Whole of Europe,” Hungarian Prime Minister website (November 6, 2016), http://​ www.kormany.hu/​en/​the-​prime-​minister/​news/​cooperation-​between-​china-​and-​ east-​central-​europe-​is-​in-​the-​best-​interests-​of-​the-​whole-​of-​europe. 132. Georgi Gotev, “EU Unable To Adopt Statement Upholding South China Sea Ruling,” Euroactiv (July 14, 2016), http://​www.euractiv.com/​section/​global-​europe/​news/​ eu-​unable-​to-​adopt-​statement-​upholding-​south-​china-​sea-​ruling/​. 133. Liu Zuokui, “The Pragmatic.” 134. Dariusz Kałan, “Is China Picking Off Individual EU Members?” Euobserver.com (July 10, 2012), http://​www.euobserver.com/​china/​116926. 135. Tamás Matura, “Hungary and China:  Hopes and Realities,” in Mapping Europe-​ China Relations. A Bottom-​Up Approach, edited by Mikko Huotari, Miguel Otero-​ Iglesias, John Seaman and Alice Ekman (Berlin: The European Network of China, 2015): pp.  41–​43.

214 Notes 136. “EU Sets Collision Course with China over ‘Silk Road’ Rail Project,” Financial Times (February 19, 2017), https://​www.ft.com/​content/​003bad14-​f52f-​11e6-​95ee-​ f14e55513608?mhq5j=e2. However, Pavlićević suggests that the EU investigations might have been intended “as a deterrence strategy for further Chinese economic activities in the region.” Pavlićević, “ ‘China Threat’.” 137. Olga Lomová, “Czech-​Chinese Honeymoon I: Will it Bring Economic Advantage or End in Security Risk?” Revue (February 9, 2016), http://​visegradrevue.eu/​ czech-​chinese-​honeymoon-​p art-​i-​will-​it-​bring-​e conomic-​advantage-​or-​end-​ in-​security-​risk/​. See also:  Bartosz Kowalski, “China’s Foreign Policy Towards Central and Eastern Europe: The ‘16+1’ Format in the South–​South Cooperation Perspective. Cases of the Czech Republic and Hungary,” Cambridge Journal of Eurasian Studies 1 (2017), https://​doi.org/​10.22261/​7R65ZH. 138. Bill Wirtz, “Why The Czech Republic Is Turning Against the EU,” Foundation for Economic Education (November 11, 2016), https://​fee.org/​articles/​why-​the-​czech-​ republic-​is-​turning-​against-​the-​eu/​. 139. All quotes from: Robert Muller and Jan Lopatka, “Czech Courtship Pays Off with Landmark Visit from Chinese leader,” Reuters (March 28, 2016), http://​www.reuters.com/​article/​us-​czech-​china-​idUSKCN0WU01J. 140. Thilo Hanemann and Mikko Huotari, “A New Record Year for Chinese Outbound Investment in Europe MERICS Report (February 2016): p. 7, http://​www.merics. org/​fileadmin/​user_​upload/​downloads/​COFDI_​2016/​A_​New_​Record_​Year_​for_​ Chinese_​Outbound_​Investment_​in_​Europe.pdf. 141. Vojtěch Stehel and Petr Šuleř “Foreign Trade Between China and the Czech Republic,”Littera Scripta 9, no. 3 (2016), http://​journals.vstecb.cz/​wp-​content/​ uploads/​2017/​02/​Foreign-​trade-​between-​China-​and-​the-​Czech-​Republic-​1.pdf. 142. Dumitrescu, “Central and Eastern;” Jakóbowski, “A partial success.” 143. Lomová, “Czech-​Chinese.” 144. “中国华信董事局主席叶简明任捷克总统经济顾问”人民网（2015年4月30日） [“Ye Jianming, Chairman of China’s Board of Directors, Was Appointed Economic Adviser to President of Czech,” People’s Network] (April 30, 2015), http://​news. qq.com/​a/​20150502/​023935.htm. Usefully, the Czech Republic was responsible for promoting ‘local government partnerships’ under the CEEC. 145. Andrew Chubb and John Garnaut, “The Enigma of CEFC’s Chairman Ye,” South South Conversations (June 7, 2013), https://​southseaconversations.wordpress.com/​ 2013/​06/​07/​the-​enigma-​of-​cefcs-​chairman-​ye/​. 146. Lomová, “Czech-​Chinese.” 147. Preceding points from: Scott Cendrowski, “The Unusual Journey of China’s Newest Oil Baron,” Fortune (September 28, 2016), http://​fortune.com/​2016/​09/​28/​cefc-​ye-​ jianming-​40-​under-​40/​. 148. These points were emphasized by China’s EU Ambassador Yang Yanyi. See: “Interview: Xi’s Czech Visit to Open New Chapter of China-​EU Ties,” Xinhua (March 29, 2016), http://​news.xinhuanet.com/​english/​2016-​03/​29/​c_​135232636. htm.

Notes  215 149. Anton Spisak, “EU Uneasy Over China’s Efforts to Woo Central and Eastern European States,” Financial Times (May 8, 2017), https://​www.ft.com/​content/​ 2e98f6f4-​089d-​11e7-​ac5a-​903b21361b43. 150. Runya T. Qiaoan, “Xi Jinping’s ‘Acupuncture Style’ Visit to the Czech Republic,” Institute of Asian Studies (March 31, 2016), http://​www.asian.sk/​xi-​jinpings-​ acupuncture-​style-​visit-​to-​the-​czech-​republic/​. 151. As usual, Xinhua paraphrased Zeman. See: “Xi Meets Zeman at Czech President’s Country Home on State Visit,” Xinhua (March 29, 2016), http://​news.xinhuanet. com/​english/​2016-​03/​29/​c_​135232959.htm. 152. “Statement by the Czech and Chinese Foreign Ministries,” (April 29, 2014), https://​ www.vlada.cz/​en/​media-​centrum/​aktualne/​statement-​by-​the-​czech-​and-​chinese-​ foreign-​ministries-​118929/​. 153. “Prague to Become Sister City to Shanghai,” Prague TV (May 2, 2017), https://​ prague.tv/ ​ e n/ ​ s 72/ ​ D irectory/ ​ c 214- ​ Business/ ​ n 9316- ​ Prague- ​ to- ​ b ecome- ​ s ister-​ city-​to-​Shanghai. 154. Michal Thim, “Xi Jinping’s Prague trip highlighted the limits to China’s soft power,” South China Morning Post (April 4, 2016), http://​www.scmp.com/​comment/ ​ i nsight-​ opinion/​ article/​ 1 933551/​ x i-​ j inpings- ​ prague- ​ t rip- ​ h ighlighted-​ limits-​chinas-​soft-​power. 155. “Interview:  Xi’s Czech Visit to Open New Chapter of China-​EU Ties—​Chinese Ambassador,” Xinhua (March 29, 2016), http://​news.xinhuanet.com/​english/​2016-​ 03/​29/​c_​135232636.htm. 156. “Chinese Investment in Czech Republic Comes Under the Spotlight,” Radio Prague (November 2, 2016), http://​www.czech.cz/​en/​Podnikani/​Chinese-​ investment-​in-​Czech-​Republic-​comes-​under-​t. 157. Chen Aizhu and Jan Lopatka, “China’s CEFC Has Big Ambitions, but Little Known about Ownership, Funding,” Reuters (January 13, 2017), http://​www.reuters.com/​ article/​us-​cefc-​china-​idUSKBN14X0B5. 158. “Chinese Investment.” 159. “HN:  No Big Wave of Chinese Investment Comes to Czech Republic,” ČTK (April 4, 2017), http://​praguemonitor.com/​2017/​04/​04/​hn-​no-​big-​wave-​chinese-​ investment-​comes-​czech-​republic. 160. “Chinese Investment.” 161. Hřib had also angered Beijing by visiting Taiwan and meeting with President Tsai Ing-​wen in March 2019. Manuel Eckert and Richard Q. Turcsányi, “Prague vs. Beijing:  Estranged Sister Cities,” The Diplomat (October 08, 2019), https://​ thediplomat.com/​2019/​10/​prague-​vs-​beijing-​estranged-​sister-​cities/​. 162. Jeremy Garlick, “China’s Principal–​Agent Problem in The Czech Republic:  The Curious Case of CEFC,” Asia Europe Journal 17 (2019): pp. 437–​451. 163. “Czech Signs Memorandum of Understanding with China’s CITIC Group,” Xinhua (April 20, 2018), http://​www.xinhuanet.com/​english/​2018-​04/​20/​c_​137123566. htm. 164. Graham Hollinshead, “Deconstructing the Sino-​Serbian ‘Bridge of Friendship’,” CritCom (December 14, 2015), http://​councilforeuropeanstudies.org/​critcom/​

216 Notes deconstructing-​t he-​sino-​s erbian-​bridge-​of-​f riendship-​discerning-​dominant-​ chinese-​logics-​and-​geopolitical-​implications/​. 165. Paul Coyer, “China’s Expanding Reach and Growing Influence in Central And Eastern Europe,” Forbes (August 2, 2015), http://​www.forbes.com/​sites/​paulcoyer/​ 2015/​08/​02/​chinas-​expanding-​reach-​and-​growing-​influence-​in-​central-​eastern-​ europe/​2/​#65cdc52f6678. 166. Interview, Brussels, February 4, 2016. 167. European Commission, “217 Million Euros to be Invested in Key Trans-​European Energy Infrastructure Projects,” (January 19, 2016), https://​ec.europa.eu/​energy/​ en/​news/​energy-​eu-​invests-​217-​million-​euros-​energy-​infrastructure.

Chapter 5 1. 鸣鹤，“如何看待朝鲜近期的经济改善”世界知识 [Ming He, “How to Understand North Korea’s Recent Economic Improvement,” World Affairs] (March 2015): pp.  26–​27. 2. The following section draws upon:  James Reilly, “Chinese Sunshine:  Beijing’s Influence on Economic Change in North Korea,” in Evelyn Goh (ed.), Rising China’s Influence in Developing Asia (Oxford: Oxford University Press, 2016): pp. 193–​216. Used with permission. 3. 林今淑、全哲男，现代朝鲜经济 (延边：延边大学出版社) [Lin Jinshu and Quan Zhenan, Modern North Korea Economy, Yanbian: Yanbian University Press] (2011): p. 319. 4. Mingjiang Li, “Local Liberalism: China’s Provincial Approaches to Relations with Southeast Asia,” Journal of Contemporary China 23, no. 86 (2014): pp. 275–​293. 5. Interview, Beijing (October 10, 2012). 6. 江迅, “中朝开局投资蜜月” 新民周刊 [Jiang Xun, “Are China and North Korea on an ‘Investment Honeymoon’?” Xinmin Weekly] 39 (2012), http://​www.cnki.com.cn/​ Article/​CJFDTotal-​XMZK201239013.htm. 7. Kevin Gray, “Sanctions Haven’t Transformed North Korea –​But Trade with China Might,” The Conversation (November 29, 2016), https://​theconversation.com/​ sanctions-​havent-​transformed-​north-​korea-​but-​trade-​with-​china-​might-​68945. 8. I  count as ‘leaders’ central-​level military, Party, or government officials in the Politburo, Ministers, or a personal envoy of the top leader. These figures exclude meetings of the Six Party Talks or its working groups. For a timeline of diplomatic interactions since 1953, see: http://​kp.china-​embassy.org/​chn/​zcgx/​gchf/​. 9. “驻朝鲜大使称中朝高层交往平凡经济合作潜力巨大” [“China’s Ambassador in DPRK Declares High-​Level Interactions Are Frequent and Potential for Economic Cooperation Is Great”], Sina.com (October 22, 2011), http://​news.sina.com.cn/​c/​ 2011-​10-​22/​223723346572.shtml. 10. The CCTV webpage with extensive coverage of Wen’s visit is here: http://​news.cctv. com/​special/​wenjiabao2009/​01/​index.shtml. 11. “杨洁篪谈温家宝访问朝鲜取得两大成果” [“Yang Jiechi Discusses the Two Great Accomplishments of Wen Jiaobao’s DPRK Visit”] (October 6, 2009), http://​ kp.china-​embassy.org/​chn/​zt/​ztmore/​wzlfc/​t618476.htm.

Notes  217 12. 中国国际贸易促进委员会，“对外投资合作国别指南：朝鲜”北京：商务部 [China Council for the Promotion of International Trade, “Guidance on Overseas Investment and Cooperation:  North Korea,” Beijing:  Ministry of Commerce] (2011): pp. 4, 50. 13. “中国释放支持朝鲜经济改革信号”中国评论新闻网 [“China Sends a Signal of Support For DPRK Economic Reform,” China Review News] (August 15, 2012). 14. “我国一家社会团体将向朝鲜投资30亿元”新京报 [“Chinese Social Organization Will Invest 3 Billion RMB in DPRK,” Beijing News] (September 24, 2012), http://​ news.sina.com.cn/​c/​2012-​09-​24/​023925236400.shtml. 15. See: http://​www.coipn.cn/​. 16. “朝鲜密集赴华招商” 光明网 [“DPRK’s concerted China trip to attract investors,” Guangmingwang] (September 29, 2012), http://​business.sohu.com/​20120929/​ n354170078.shtml. 17. Interview with former embassy staff member, Beijing, October 2012. 18. For instance, “驻朝鲜大使馆和中国贸促会共同主办招待会” [“Chinese Embassy and Trade Promotion Association Hold Joint Reception”] (May 18, 2011), http://​ kp.china-​embassy.org/​chn/​zcgx/​jmhz/​t823934.htm. 19. “中驻朝总领事拜会罗县领导” [“China’s Consul Visits Rason Leaders”] (June 20, 2012), http://​www.idprkorea.com/​news/​news/​view.asp?id=2355. No longer available online. 20. Sinocham website, no longer available online. 21. “探秘中朝黄金坪经济特区”中国经济周刊 [“Secrets behind China–​ DPRK Huangjinping Special Economic Zone,” China Economic Weekly] (November 27, 2012)], http://​news.sina.com.cn/​c/​2012-​11-​27/​074925670604.shtml. 22. “ ‘中朝博览会’ 经贸合作签约于 12 亿美元” [“Economic Agreements Signed at ‘China–​DPRK Expo’ Exceed 1.2 Billion USD”], China News Net (October 14, 2010), http://​www.chinanews.com/​cj/​2012/​10-​14/​4246190.shtml. 23. “Secrets behind China-​DPRK.” 24. 邬梅, “2009, 朝鲜经济新气象,” 警容警纪 [Wu Mei, “2009:  North Korea’s New Economic Atmosphere,” Finance and Economics] 3, no. 321 (2009): pp. 50–​51. 25. “丹东与朝鲜就劳务合作达成五项共识,” 丹东日报 [“Dandong City Reaches Five-​Point Agreement With North Korea On Labor Cooperation,” Dandong Daily] (October 15, 2012), http://​www.ciwork.net/​news/​view.asp?id=6566. 26. Interview, Dandong (December 2012). 27. “吉林省 ‘不朝游’产品成体系” [Jilin Provinces’ Tourist Packages to North Korea Form a Full System], Special Commissioners’ Office, Ministry of Commerce, Dalian, no longer available online. 28. 张晓彤 “罗先:  中朝合作的放大镜,” 中国报道 [Rason:  The Magnifying Glass of China-​DPRK Cooperation, China Report] 107 (January 2013), pp.  66–​67, http://​ xueshu.baidu.com/​usercenter/​paper/​show?paperid=182fac4f9609ccfad9cbb34cc53 0a834&site=xueshu_​se. 29. Abrahamian, “A Convergence.” 30. “罗先与打造‘朝鲜的深圳’,” 新京报 [“Rason City Officials Wish To Build ‘North Korea’s Shenzhen’,” Beijing News (November 20, 2012), http://​news.sina.com.cn/​o/​ 2012-​11-​20/​023925614512.shtml.

218 Notes 31. “在罗先细看朝鲜变化：市场活跃 中国商人站住脚跟,” 环球时报 [“Closely Watching North Korea’s Changes in Rason: Lively Markets, Chinese Businesspeople Standing on their Heels,” Global Times] (July 27, 2010), http://​world.huanqiu.com/​ photo/​2010-​07/​949632.html. 32. 中国第一笔对朝鲜“出境加工”业务获签批 [“Approval of Visas for China’s First ‘Overseas Value-​Added’ Operations in North Korea”] MOFCOM Office, Dalian (February 1, 2013), http://​dltb.mofcom.gov.cn/​article/​g/​i/​201302/​20130200019456. shtml. 33. Emma Campbell, “‘Fieldwork’ North Korea:  Observations of Daily Life on the Ground Inside the Country,” The Asia-​Pacific Journal 12: 40, no. 2 (October 6, 2014). 34. “内贸货物可经珲春转朝鲜港口实现跨境运输至华东”图们江报社 [“Domestic Shipments Can Pass Hunchun through DPRK Port; Achieving Cross-​ border Shipments to Southern China,” Tumen River Times] (August 17, 2010). 35. 贾琦，“大连区域公司成功完成经由罗津港运输珲春出产煤炭至上海租船 运输项目”中远物流 [Jia Qi, “Dalian Area Companies Succeed in Renting Boats and Shipping Hunchun’s Coal via Rason Port to Shanghai,” COSCO Logistics] (July 6, 2012). 36. “珲春开拓国际陆海联运新通道取得重大突破”中国机经网 [“Hunchun Opens International Road–​Ocean Shipping Route, Achieving Major Breakthrough,” China Economic Web] (January 12, 2011), no longer available online. 37. “面向朝鲜俄罗斯吉林珲春国际合作区获批”东方早报 [“Hunchun’s International Economic Cooperation Zone Facing DPRK and Russia Receives Approval,” Oriental Morning Post] (April 25, 2012), http://​news.sina.com.cn/​o/​2012-​04-​25/​ 061024325523.shtml. 38. “China in Huge Infrastructure Projects Near N. Korean Border,” Chosun Ilbo (July 12, 2012). 39. 李伟，“中国企业投资朝鲜观察：低调系投资成功关键”东方早报 [Li Wei, “Observing Chinese Companies’ Investments In North Korea: Low-​Key Investments Key To Success,” Oriental Morning Post] (April 18, 2012), http://​news.sina.com.cn/​c/​ 2012-​04-​18/​101324290684.shtml. 40. “China in Huge Infrastructure Projects Near N. Korean Border,” Chosun Ilbo, July 12, 2012, http://​english.chosun.com/​site/​data/​html_​dir/​2012/​07/​12/​2012071201118. html; “中朝将建100亿美元基金协助中国公司在朝鲜建设”环球网 [“China and DPRK Establish a $10 Billion Fund to Support Chinese Companies Establishing in DPRK,” Global Times Online] (November 13, 2007). 41. Li Wei, “Observing Chinese companies.” 42. “通钢70亿拿下朝鲜茂山铁矿”九台市网 [“Tonggang Gains DPRK’s Maoshan Mine for 7 Billion,” Jiutai Network] (November 2, 2005). 43. “浙江万向集团否认撤资朝鲜，称合作项目正在推进”中国新闻网 [“Zhejiang’s Wanxiang Group Denies Withdrawal From DPRK and Declares that the Cooperative Project Is Advancing,” ChinaNews] (July 2, 2010), http://​www.chinanews.com/​ny/​ 2010/​07-​02/​2378430.shtml. 44. Li Wei, “Observing Chinese Companies.”

Notes  219 45. Carla Freeman and Drew Thompson, The Real Bridge to Nowhere:  China’s Foiled North Korea Strategy, Washington, DC, US Institute of Peace Working Paper (April 2009): p. 23. 46. In 2006, China’s private firms provided 73 percent of imports from North Korea and 59 percent of exports; SOEs imported only 18 percent and exported 17 percent. Ran Jing and Mary E. Lovely, “A View through the Trade Window: North Korean Exports as an Indicator of Economic Capabilities,” The World Economy 38, no. 1 (2015): pp. 1–​20 (table 7). 47. Based on data in: Open Source Center, North Korea: Characteristics of Joint Ventures With Foreign Partners, 2004-​2011 (March 1, 2012), https://​info.publicintelligence. net/​OSC-​NorthKorea-​ForeignJointVentures.pdf. 48. Sourced from MOFCOM website search engine on December 10, 2012; no longer available online. Original search results available from author. 49. 周宇，“中国商人在朝投资受损调查”财经博客 [Zhou Yu, “Research Into the Investment Losses Of Chinese Companies in DPRK,” Caijing Blog] (July 12, 2012)], no longer available online. 50. “探秘中朝黄金坪经济特区”中国经济周刊 [“Secrets Behind China–​ DPRK Huangjinping Special Economic Zone,” China Economic Weekly] (November 27, 2012), http://​news.sina.com.cn/​c/​2012-​11-​27/​074925670604.shtml. 51. Personal visit, January 2017. 52. “驻朝大使与中资机构座谈” [“China’s DPRK Ambassador Talks with Resident Chinese Enterprises,”] (May 20, 2010), http://​www.fmprc.gov.cn/​ce/​cekp/​chn/​zcgx/​ jmhz/​t696141.htm. 53. “中国公民赴朝鲜工作须知” [“Necessary Knowledge For Chinese Citizens Working in DPRK,”] (March 14, 2011), http://​kp.china-​embassy.org/​chn/​jmxx/​jmxx1/​ t806166.htm. 54. China Council, Guidance on Overseas Investment, p. 57. 55. “中国船员遭朝鲜军人殴打洗劫”东方早报 [“Chinese Seamen Face Beatings and Looting by DPRK Soldiers,” Oriental Morning Post] (May 22, 2012). 56. Comments at: http://​stock.jrj.com.cn/​hotstock/​2012/​05/​17172213166714.shtml; http://​bbs1.people.com.cn/​postDetail.do?view=2&pageNo=1&treeView=0&id=119 171990&boardId=2. 57. “西洋集团称不应鼓励中国企业投资朝鲜” [“Xiyang Group Declares that There Should Not Be Encouragement of Chinese Companies to Invest in DPRK”] Reuters (September 5, 2012), http://​cn.reuters.com/​article/​cnMoneyNews/​idCNSB17615022 0120905?pageNumber=2&virtualBrandChannel=0. 58. Interview, Beijing (October 23, 2012). 59. Aden, “North Korean Trade,” p. 252. 60. Stephan Haggard, Euijin Jung, and Alex Melton, “Is China Subsidizing the DPRK? Part One: Food,” (May 29, 2013), http://​www.piie.com/​blogs/​nk/​?p=10488. 61. Stephan Haggard and Euijin Jung, “Is China Subsidizing the DPRK? Part Two: Fuel,” June 5, 2013, http://​www.piie.com/​blogs/​nk/​?p=10533. 62. Stephan Haggard and Euijin Jung, “Is China Subsidizing the DPRK? The Pricing of North Korean Exports,” (June 19, 2013), http://​www.piie.com/​blogs/​nk/​?p=10645.

220 Notes 63. “朝鲜出口矿物资源对中贸易依赖度呈增加态势,” 中国对外贸12 [North Korean Exports Of Mineral Resources Show Increasing Dependence On China Trade,” China Foreign Trade]12 (2011): p. 13. 64. Aden, “North Korean Trade,” p. 253. 65. Zhihua Shen and Yafeng Xia, “China and the Post-​War Reconstruction,” p. 18. This section draws from: James Reilly, “The Curious Case of China’s Aid to North Korea,” Asian Survey 54, no. 6 (2014): pp. 1158–​1183. 66. Haggard and Noland, Famine in North Korea, p. 32. 67. Lin Jinshu and Quan Zhenan, Xiandai Chaoxian, p. 304–​305. 68. Interviews with MOFCOM officials, Beijing (October 22, 2012). 69. Interview, Beijing (October 22, 2012). 70. Vice Commerce Minister Fu Ziying declared this at the press conference announcing the release of Beijing’s White Paper on foreign aid. “China Finds no Corruption in its Aid to Foreign Countries: Vice Minister,” People’s Daily (April 26, 2011), http://​english.people.com.cn/​90001/​90776/​90883/​7361979.html. 71. Export subsidies are excluded from China’s definition of foreign aid. See: “China’s Foreign Aid: Information Office of the State Council (April 2011), part III, Forms of Foreign Aid, http://​news.xinhuanet.com/​english2010/​china/​2011-​04/​21/​c_​ 13839683_​6.htm. 72. 商务部关于请承担援助朝鲜一万吨柴油项目任务的通知 [“MOFCOM Notifi­ cation of the Approval for the Project to Deliver 10,000 Tons of Diesel Fuel to DPRK”], No. 383 (September 25, 2006), http://​www.pkulaw.cn/​fulltext_​form. aspx?Gid=93201. 73. “朝鲜真实内幕:  中国粮食援助是朝鲜的生命补给线 [“Inside Scoop on North Korea: China’s Food Aid Is North Korea’s Supply Lifeline,” Fuxingwang] (April 18, 2012), no longer available online. 74. “朝鲜密集赴华招商 高利润背后隐藏高风险” [“North Korea’s Concerted Pursuit of Chinese Investors; Behind High Profits Is Concealed High Risk”], (September 29, 2012), . 94. Blog posted on May 20, 2012, no longer available online. 95. Blog posted on July 14, 2012, no longer available online. 96. Blog posted on May 7, 2012, no longer available online. 97. Quote from:  Noam N. Levey, “U.S. Lawmakers Seek China’s Help with North Korea,” Los Angeles Times, (November 28, 2010), http://​articles.latimes.com/​2010/​ nov/​28/​nation/​la-​na-​lawmakers-​korea-​20101129. 98. Shi Yinhong, “China and the North Korean Nuclear Issue:  Competing Interests and Persistent Policy Dilemmas,” The Korean Journal of Defense Analysis 21, no. 1 (2009): pp.  33–​47. 99. International Crisis Group, “Shades of Red,” p. 13. 100. International Crisis Group, Fire on City Gate: Why China Keeps North Korea Close, (December 9, 2013), https://​www.crisisgroup.org/​asia/​north-​east-​asia/​china/​fire​city-​gate-​why-​china-​keeps-​north-​korea-​close. 101. “中国罕见要求严格执行朝鲜制裁决议” [“In Rare Event, China Demands Strict Enforcement of DPRK Sanctions,”] (April 28, 2013), http://​news.sohu.com/​ 20130428/​n374393969.shtml. 102. “朝鲜行记：IT荒漠中的数字暗流”电脑报 [“North Korean Chronicle:  Digital Undercurrent in an IT Desert,” Computer Times] (May 14, 2013), http://​tech.sina. com.cn/​it/​2013-​05-​14/​09428337881.shtml. 103. “中国银行关闭朝鲜外贸银行账户”扬子晚报 [“Bank of China Closes Accounts of DPRK’s Foreign Trade Bank,” Yangzi Evening News] (May 7, 2013), http://​news. ifeng.com/​world/​special/​chaoxianzhanzhengzhuangtai/​content3/​detail_​2013_​05/​ 07/​25031954_​0.shtml.

222 Notes 104. 林今淑、金美花，“评估安理会制裁对朝鲜经济的影响”现代国际关系 [Lin Jinshu and Jin Meihua, “The Trend and Impact of UN Sanctions on North Korea’s Economy,” Contemporary International Relations] (May 20, 2016): pp. 17–​22. 105. 李振福、王梦颖，“泛东北亚经济贸易合作的动力与前景”通化师范学院学报 [Li Zhenfu and Wang Mengying, “Motivation and Prospects in Economic and Trade Cooperation in Northeast Asia,” Tonghua Normal College Journal] 11 (November 2016): pp.  67–​75. 106. 金花，“以‘黄金坪’为契机推动中朝贸易发展的对策研究”辽宁经济职业技术 学院学报（2016年2月15日01期） [Jin Hua, “A Study on Policies for Promoting the Development of China -​DPRK using the Opportunity of ‘Huangjinping’,” Journal of Liaoning Economic Vocational & Technical College] 1 (February 15, 2016):  pp. 17–​19; 孙泽华，“新时期朝鲜经济动态与中朝贸易发展的路径选择”现代经 济信息（2016年6月5日11期） [Sun Zehua, “North Korea’s Economic Trends in the New Period and Choosing a Path for Sino-​DPRK Trade Development,” Modern Economic Information] 11 (June 5, 2016): pp. 48–​49]. 107. 梁立昌，“ ‘一带一路’战略视野中的朝鲜因素评估与政策应对”济南大学学 报（社会科学版） [Liang Lichang, “DPRK Element Assessment and Measures in the ‘One Belt, One Road’ Strategic Vision,” Journal of University of Jinan (Social Science Edition)] 2 (2016): pp. 44–​50. 108. 陈 耀 辉 、 谢 晓 林 、 杨 华 ， “ 沿 边 通 海 ， 一 马 当 先 — ​—​ 延边州加快建设“一带一路”向北开放窗口走笔”吉林日报 [Chen Yaohui, Xie Xiaolin and Yang Hua, “Yanbian Accelerates the Construction of the North Window of ‘The Belt and Road’,” Jilin Daily] (September 20, 2016), http://​www.hunchunnet. com/​archives/​32931/​. 109. 方浩范，“朝鲜劳动党第七次党代会的召开与中国的对策”延边大学学报（ 社会科学版）（2016年3月20日02期） [Fang Haofan, “Convening of the Fourth Party Congress of the Workers’ Party of Korea and China’ s Countermeasures,” Yanbian University Journal (Social Sciences Edition] 2 (March 20, 2016): p. 10. 110. “Note Verbale Dated 3 August 2009 from the Permanent Mission of China to the United Nations addressed to the Committee,” S/​ AC.49/​ 2009/​ 23, http://​www. un.org/​ga/​search/​view_​doc.asp?symbol=S/​AC.49/​2009/​23. 111. UNSC Resolution 2270, S/​ RES/​ 2270, (March 2, 2016), http://​www. securitycouncilrep or t.org/​ a tf/​ c f/​ % 7B65BFCF9B- ​ 6 D27- ​ 4 E9C- ​ 8 CD3 CF6E4FF96FF9%7D/​s_​res_​2270.pdf, p. 7. 112. “常驻联合国代表刘结一大使在安理会通过朝鲜第五次核试验问题决议后 的发言” [“Permanent Representative to the UN Ambassador Liu Jieyi’s Speech Following the UNSC’s Passage of a Resolution Following the DPRL’s Fifth Nuclear Test,”] (November 30, 2016), https://​www.fmprc.gov.cn/​ce/​ceun/​chn/​gdxw/​ t1420266.htm. 113. 中华人民共和国交通运输部国际合作司，“关于执行联合国安理会第209 4号决议的通知” [PRC Ministry of Transportation, International Cooperation Department, “Communication Regarding Implementing UNSCR2094,”] (April 17, 2013), https://​china.huanqiu.com/​article/​9CaKrnJForO.

Notes  223 114. “禁止向朝鲜出口两用物项和技术清单” [“List of Dual Use Items and Technology Prohibited for Export to DPRK,” Ministry of Commerce] (September 24, 2013), no longer available online. 115. “商务部 海关总署公告2016年第11号 关于对朝鲜禁运部分矿产品清单公告” [“Announcement No. 11 (2016) on a List of Mineral Products Embargo against the DPPK,” MOFCOM Foreign Trade Department] (April 5, 2016), http://​www. mofcom.gov.cn/​article/​b/​e/​201604/​20160401289770.shtml. 116. “商务部等多部委发公告增列禁向朝鲜出口货物清单”环球网 [“MOFCOM and Other Departments Promulgate a List of Products Forbidden for Export to DPRK,” Global Times Online] (January 25, 2017), http://​www.kaixian.tv/​gd/​2017/​ 0125/​356541.html. 117. Nathan Vanderklippe, “Protests Break Out On China–​ North Korea Border Over New Sanctions,” The Globe and Mail (August 17, 2017), https://​ www.theglobeandmail.com/​ n ews/​ w orld/ ​ p rotests- ​ b reak- ​ o ut- ​ o n- ​ c hina-​ north- ​ k orea-​ b order-​ a fter-​ n ew-​ e conomic-​ s anctions/​ a rticle36015245/​ ; “社评：新制裁压向朝鲜，突破僵局不取决中国”环球网 [“Editorial:  New Sanctions Pressure DPRC, Breaking the Deadlock Does Not Depend On China,” Global Times Online (November 30, 2016)], http://​opinion.huanqiu.com/​editorial/​ 2016-​11/​9753906.html. 118. 吕明合，“朝鲜：6万亿宝藏，带刺的玫瑰” [Lu Minghe, “North Korea:  A 6 Trillion Treasure; a Thorny Rose,”] (December 10, 2013), https://​blog.dwnews.com/​ post-​247276.html. 119. Preceding quotes from:  “涉资助朝核项目商人马晓红：与朝鲜官方渊源极深” 中国经营网[“Businesswoman Mao Xiaohong Is Involved in the Korean Nuclear Project and Has Deep Official Roots in North Korea,” China Economic Web] (September 24, 2016), http://​news.ifeng.com/​a/​20160924/​50018180_​0.shtml. 120. “US Sanctions Chinese Company for Alleged Support of North Korea,” The Guardian (September 27, 2016), https://​www.theguardian.com/​us-​news/​2016/​sep/​ 26/​us-​sanctions-​china-​north-​korea-​dandong-​hongxiang; Woo Jung-​Yeop and Go Myong-​Hyun, In China’s Shadow (Seoul: Asan Institute for Policy Studies, August 2016), http://​en.asaninst.org/​contents/​in-​chinas-​shadow/​. 121. “Businesswoman Mao Xiaohong.” 122. “丹东鸿翔实业发展有限公司涉嫌严重经济犯罪的情况报道”辽宁省公安 厅 [“Report of Dandong Hongxiang Company Suspected Of Serious Economic Crimes,” Liaoning Public Security Bureau] (September 15, 2016), http://​xw.qq.com/​ news/​20160915031395/​NEW2016091503139500. 123. “Businesswoman Mao Xiaohong.” 124. Seol Song Ah, “Hongxiang Industrial Development Circumvented Sanctions Using Apple Boxes,” Daily NK, (September 21, 2016), http://​www.dailynk.com/​english/​ read.php?num=14089&cataId=nk01500. 125. Interview, Dandong (January 2017). 126. Interview, Dalian (January 2017).

224 Notes 127. “North Korean Trade, Flow of Workers into China Fall as Sanctions Start to Bite,” South China Morning Post (November 29, 2016), http://​www.scmp. com/ ​ n ews/ ​ c hina/ ​ d iplomacy- ​ d efence/ ​ a rticle/ ​ 2 050068/​ n orth-​ k orean-​ t rade​flow-​workers-​china-​fall-​sanctions. 128. Anna Fifield, “China Is Putting the Squeeze on North Korea. But for How Long?” Washington Post, (November 18, 2016), https://​www.washingtonpost.com/​ world/​asia_​pacific/​china-​is-​putting-​the-​squeeze-​on-​north-​korea-​but-​for-​how-​ long/​2 016/​1 1/​ 1 8/​ 7 52137a6-​ a 049-​ 1 1e6-​ 8 864-​ 6f892cad0865_​story.html?utm_​ term=.7790957b65fc. 129. Inhan Kim, “Trump Power: Maximum Pressure and China’s Sanctions Enforcement Against North Korea,” The Pacific Review 33, no. 1 (2020): pp. 96–​124. 130. Benjamin Katzeff Silberstein, China’s Sanctions Enforcement and Fuel Prices in North Korea: What the Data Tells Us, 38 North (February 1, 2019), https://​www.38north. org/​2019/​02/​bkatzeffsilberstein020119. 131. Interview, Dandong (January 2017). 132. Matt Rivers and Steven Jiang, “North Korea Sanctions Are Strangling This Chinese City,” CNNMoney (January 25, 2018), http://​money.cnn.com/​2018/​01/​25/​news/​ economy/​dandong-​china-​north-​korea-​sanctions/​index.html. 133. “Foreign Minister Wang Yi Meets the Press,” (March 8, 2017), http://​www.fmprc. gov.cn/​mfa_​eng/​zxxx_​662805/​t1444204.shtml 134. International Crisis Group, “The Korean Peninsula Crisis (II): From Fire and Fury to Freeze-​For-​Freeze,” Asia Report 294 (January 23, 2018): p. 13. 135. 鞠鹏摄 “习近平同金正恩在大连举行会晤” [Xie Huanchi, “Xi Jinping Holds Talks with Kim Jong-​Un In Dalian,”] Xinhua (May 9, 2018), http://​www.xinhuanet. com/​mrdx/​2018-​05/​09/​c_​137165441.htm. Kim’s pledge to suspend nuclear and ICBM tests, and to ‘abandon’ the nuclear test site near China, was only released after his March 26–​28, 2018 visit to Beijing and reiterated during his May 7–​8 meeting with Xi in Dalian. For enlightening Xinhua and CCTV coverage of the two visits, see:  http://​www.xinhuanet.com/​mrdx/​2018-​05/​09/​c_​137165441.htm and http://​ tv.cctv.com/​2018/​03/​28/​VIDEJjse30lioIzixFRGUlv6180328.shtml. 136. Nancy Cook, “Trump Pledges to End Military Exercises as Part of North Korea Talks,” Politico (June 12, 2018), https://​www.politico.com/​story/​2018/​06/​12/​ trump-​kim-​meeting-​press-​conference-​637544. 137. “Foreign Ministry Spokesperson Geng Shuang’s Regular Press Conference,” (June 12, 2018), https://​www.fmprc.gov.cn/​mfa_​eng/​xwfw_​665399/​s2510_​665401/​ t1568234.shtml. 138. “Xi Jinping, Kim Jong Un Hold Talks in Beijing,” Xinhua (June 20, 2018), http://​ www.xinhuanet.com/​english/​2018-​06/​20/​c_​137265846.htm. 139. Lee Kil-​seong, “China Doubles Oil Shipments To N.  Korea After Kim’s Visit,” Choson Ilbo (July 19, 2018), http://​english.chosun.com/​site/​data/​html_​dir/​2018/​ 07/​19/​2018071901286.html. 140. Scott Snyder and See-​Won Byun, “China-​Korea Relations:  Post-​Hanoi Hopes Trapped in a Sino-​Korean Smog,” Comparative Connections 21, no. 2 (2019): pp  87–​96.

Notes  225 141. The U.S.-​China Economic and Security Review Commission, 2018 Annual Report to Congress (Washington, DC). The section on North Korea is available here: https://​ www.uscc.gov/ ​ s ites/ ​ d efault/ ​ f iles/ ​ 2 019- ​ 0 9/​ C hapter%203%20Section%205-​ %20China’s%20Evolving%20North%20Korea%20Strategy_​0.pdf. 142. Snyder and Byun, “China-​Korea.” 143. Anna Fifield, “Traders in China Prepare for a Rush into North Korea, But Sanctions Still Stand in the Way,” Washington Post (August 8, 2019), https://​www. washingtonpost.com/​world/​asia_​pacific/​chinese-​traders-​prepare-​for-​rush-​into-​ north-​korea-​but-​sanctions-​still-​stand-​in-​the-​way/​2019/​08/​07/​5647021c-​a171-​ 11e9-​b7b4-​95e30869bd15_​story.html. 144. “金正恩要求推进与新义州建设:与辽宁丹东隔江相望” [“Kim Jong-​un Demands Advancement of Shinuju’s Construction: View from Across the River in Dandong, Liaoning”] Xinhua (November 16, 2018), http://​www.takungpao.com/​news/​ 232111/​2018/​1116/​206216.html. 145. Lee Jeong-​ho, “China’s Bridge to North Korea Opens 3 Years After It Was Built –​But Why Now?” South China Morning Post (April 9, 2019), https://​www. scmp.com/​news/​china/​diplomacy/​article/​3005335/​chinas-​bridge-​north-​korea-​ opens-​3-​years-​after-​it-​was-​built-​why. 146. “Planned NE China’s Free Trade Port Could Help Boost NK Economy,” Global Times (January 9, 2019), http://​www.globaltimes.cn/​content/​1135072.shtml. 147. Adam Taylor, “In North Korea, Yao Ming Becomes China’s Answer to Dennis Rodman,” Washington Post (October 11, 2018), https://​www.washingtonpost. com/​world/​2018/​10/​10/​north-​korea-​yao-​ming-​becomes-​chinas-​answer-​dennis-​ rodman/​. 148. Shannon Tiezzi, “Xi’s North Korea Visit: All Style, No Substance?” The Diplomat (June 22, 2019), https://​thediplomat.com/​2019/​06/​xis-​north-​korea-​visit-​all-​style-​ no-​substance/​. 149. Yoshikazu Hirai, “China to Fund Costs so Bridge to North Korea Can Open to Traffic,” Asahi Shimbun (July 29, 2019), http://​www.asahi.com/​ajw/​articles/​ AJ201907290040.html. 150. Fifield, “Traders in China.” 151. John Delury, “Triple-​Pronged Engagement:  China’s Approach to North Korea,” American Foreign Policy Interests:  The Journal of the National Committee on American Foreign Policy 34, no. 2 (2012): p. 72. 152. 王跃华、张嘉明，“朝鲜自由市场的发展与影响”神州 [Wang Yuehua and Zhang Jiaming, “The Development and Influence of the DPRK’s Free Market,” Divine] (2011): pp. 196–​197. 153. Benjamin Katzeff Silberstein, “Growth and Geography of Markets in North Korea: New Evidence from Satellite Imagery,” US-​Korea Institute (October 2015), http://​uskoreainstitute.org/​wp-​content/​uploads/​2015/​10/​USKI-​New-​Voices-​BKS-​ Markets-​Oct2015.pdf. 154. Yong-​Sueng Dong, “The Rise of North Korea’s Merchant Class,” SERI Quarterly (October 2013): pp. 67–​72, www.seriworld.org/​16/​qt_​PdfDown.html?mncd=0301 &pub=20130422&seq=341.

226 Notes 155. “FAO/​ WFP Crop and Food Security Assessment, Mission to the DPRK,” (November 12, 2012), http://​www.wfp.org/​food-​security/​assessments/​crop-​food-​ security-​assessment-​mission. 156. Benjamin Katzeff Silberstein, “Is North Korea’s Food Situation Really Getting Worse? The Markets Don’t Think So,” North Korean Economy Watch (July 22, 2016), http://​www.nkeconwatch.com/​2016/​07/​22/​is-​north-​koreas-​food-​situation-​really-​ getting-​worse-​the-​markets-​dont-​think-​so/​ . For the daily rice price data, see: http://​ www.dailynk.com/​english/​market.php. 157. Ming He, “How to Understand.” 158. 沈旭晖，“感悟朝鲜‘第二经济’ ”双周刊 [Shen Xuhui, “Sentiments on North Korea’s Second Economy,” Biweekly] (February 11, 2009), pp. 75–​77. 159. Christopher Green, “The Sino–​North Korean Border Economy: Money and Power Relations in North Korea,” Asian Perspective 40 (2016): pp. 415–​434. 160. “North Korean Markets Heavily Filled with Chinese Products and Currency,” Institute for Far Eastern Studies (April 25, 2013), http://​ifes.kyungnam.ac.kr/​eng/​ FRM/​FRM_​0101V.aspx?code=FRM130425_​0001. 161. “被逼出来的朝鲜‘市场经济’ ”南方周末 [“Forcing Exposure of North Korea’s ‘Market Economy’,” Southern Weekend] (March 23, 2012], http://​www.chinawriter. com.cn/​bk/​2012-​04-​03/​62534.html  . 162. Jack Kim and James Pearson, “Insight: Kim Jong-​Un, North Korea’s Master Builder,” Reuters (November 23, 2014). 163. “Illegal Trade in North Korean Homes Flourishes,” Radio Free Asia (May 7, 2013), http://​www.rfa.org/​english/​news/​korea/​housing-​05072013164432.html. 164. Ruediger Frank, “Why Now is a Good Time for Economic Engagement of North Korea,” The Asia-​Pacific Journal 11, no. 14 (1) (2013), http://​japanfocus.org/​-​ Ruediger-​Frank/​3923. 165. Gray, “Sanctions Haven’t Transformed.” 166. Interview, Shenyang, 2015. 167. “N. Korea’s Smartphone Imports from China Hit Record,” Yonhap News (January 30, 2015), http://​www.koreatimesus.com/​n-​koreas-​smartphone-​imports-​from-​china-​ hit-​record/​; Scott Thomas Bruce, “Information Technology and Social Controls in North Korea,” Korea Economic Institute, 2014, http://​www.keia.org/​sites/​default/​ files/​publications/​2014_​aps_​scottbruce.pdf. 168. “媒体称朝鲜官员承认正经济改革，担心开放风险大”观察者网 [“Media Reports North Korean Officials Acknowledge Economic Reforms, Worry About Big Risks of Opening Up,” Observer Online] (May 8, 2016), http://​mil.news.sina.com.cn/​china/​ 2016-​05-​08/​doc-​ifxryhhh1752591.shtml. 169. Park Hyeong-​jung, “North Korea’s ‘New Economic Management System’:  Main Features and Problems,” KDI Review of the North Korean Economy (October 2013), http://​www.koreafocus.or.kr/​design3/​essays/​view.asp?volume_​id=146&content_​ id=105094&category=G; “N. Korean Factories, Farmers Given Freer Hand to Make Business Decisions,” Asahi Shimbun (March 4, 2015), http://​ajw.asahi.com/​article/​ asia/​korean_​peninsula/​AJ201503040081.

Notes  227 170. Andrei Lankov, “Reforming North Korea,” Al Jazeera (November 30, 2014), http://​w ww.aljazeera.com/​indepth/​opinion/​2014/​11/​reforming-​north-​korea-​ 20141117121917871925.html. 171. Randall Ireson, “Why Headlines About DPRK Agricultural Production Miss the Point,” 38 North (May 6, 2016), http://​38north.org/​2016/​05/​ireson050616/​. 172. 李圣华、权哲男，“朝鲜农业改革探析”东疆学刊 [Li Shenghua and Quan Zhenan, “Analysis of North Korea’s Economic Reforms,” Dongjiang Journal] (July 15, 2016): pp. 61–​66. 173. Interview, Shenyang, 2015. 174. Susan L. Shirk, The Political Logic of Economic Reform in China (Berkeley: University of California Press, 1993). 175. 张慧智，“朝鲜经济增长的内生动力与外生变量研究”中国周边外交学刊 [Zhang Huizhi, “A Study of the DPRK’s Endogenous Power and Factors of Economic Growth,” China’s Regional Foreign Policy Journal] (June 30, 2016): pp. 181–​197. 176. Lin Jinsu, Jin Meihua, “Causes.” 177. Stephanie Kleine-​ Ahlbrandt, “Maximum Pressure Against North Korea, RIP,” 38 North (October 7, 2019), https://​www.38north.org/​2019/​10/​skleinea hlbrandt100719/​. 178. William Brown, “Sanctions, Useful Tools for Changing North Korea—​Lets Work Them, Carefully,” KEIA blog (March 21, 2019), http://​blog.keia.org/​2019/​03/​ sanctions-​useful-​tools-​changing-​north-​korea-​lets-​work-​carefully/​. 179. Ruediger Frank, “North Korea’s Economic Policy in 2018 and Beyond:  Reforms Inevitable, Delays Possible,” 38 North (August 8, 2018), https://​www.38north.org/​ 2018/​08/​rfrank080818/​. 180. Steve Hanke, “North Korea’s Economic Crisis—​What Crisis?” Forbes (April 24, 2018), https://​www.forbes.com/​sites/​stevehanke/​2018/​04/​24/​north-​koreas-​economic-​ crisis-​what-​crisis/​#7bbbcb2e437a. 181. 宫玉涛，“近年来朝鲜经济调整的基本态势、制约因素及对中国的影响” 当代世界与社会主义 [Gong Yutao, “North Korea’s Basic Situation, Restrictive Factors and the Influence on China in Recent Years,” Contemporary World and Socialism] (December 20, 2016): 68–​75. 182. “日媒称朝正寻求新贸易伙伴，避免‘过度依赖’中国”环球时报 [“Japanese Media Claims North Korea Is Seeking New Trading Partners to Avoid ‘Over-​ Reliance’ On China,” Global Times] (May 31, 2012), http://​world.huanqiu.com/​roll/​ 2012-​05/​2775256.html. 183. “North Korean Markets Heavily Filled with Chinese Products and Currency,” Institute for Far Eastern Studies (April 25, 2013), http://​www.nkeconwatch.com/​ 2013/​04/​25/​north-​korean-​markets-​heavily-​ffilled-​with-​chinese-​products-​and-​ currency/​. 184. “Total Development Plans Completed for Economic Development Zones,” Institute for Far Eastern Studies, February 27, 2015, available at: http://​www.nkeconwatch. com/ ​ 2 015/​ 0 2/​ 2 7/​ t otal-​ d evelopment-​ p lans- ​ c ompleted- ​ f or- ​ e conomic-​ development-​zones-​tenant-​companies-​to-​be-​put-​under-​selection-​process/​. Quote is by Kim Chon Il, the director of the (North) Korea Economic Development Association.

228 Notes 185. Ming He, “How to Understand.” 186. “DPRK-​Russia trade in 2014,” North Korean Economy Watch (March 18, 2015), http://​www.nkeconwatch.com/​2015/​03/​18/​dprk-​russia-​trade-​down-​this-​year/​. 187. “韩媒：朝鲜时隔18年重返达沃斯，为发展经济而吸引外资”环球时报 [“ROK Media: North Korea after 18 Years to Return to Davos for Economic Development and to Attract Foreign Investment,” Global Times] (January 6, 2016), http://​world. huanqiu.com/​exclusive/​2016-​01/​8323796.html.

Chapter 6 1. International Crisis Group, China’s Myanmar Dilemma, Asia Report 177 (September 14, 2009): p. 14. 2. Anthony Davis, quoted in: Antoni Slodkowski and Yimou Lee, “Through Reclusive Wa, China’s Reach Extends Into Suu Kyi’s Myanmar,” Reuters (December 29, 2016), http://​www.reuters.com/​article/​us-​myanmar-​wa-​china-​idUSKBN14H1V8. 3. 刘稚，“云南与东盟各国经贸合作的现状与发展思路”东南亚 [Liu Zhi, “The Current Situation And Development Thinking of Economic and Trade Cooperation Between Yunnan And ASEAN Countries,” Southeast Asia] (2003): pp. 5–​12. 4. Liu Zhi, “The Current Situation.” 5. “China-​Myanmar Bilateral Economic Trade Ties Get New Momentum,” Xinhua (March 22, 2004), http://​www.china.org.cn/​english/​international/​90905.htm. 6. “Current Development of Major Hydropower Projects,” Myanmar Times (August 20, 2012), https://​www.mmtimes.com/​special-​features/​151-​energy-​spotlight/​ 2943-​current-​development-​of-​major-​hydropower-​projects.html?start=1. 7. Sourced from AidData, “Global Chinese Official Finance Dataset,” 2020, https://​ china.aiddata.org/​projects/​35767. 8. Sourced from AidData, “Global Chinese Official Finance Dataset,” 2017, http://​ aiddata.org/​data/​chinese-​global-​official-​finance-​dataset. 9. Jonathan Holslag, China and India:  Prospects for Peace (New  York:  Columbia University Press, 2010): p. 203 (n. 62). 10. Li, “Local Liberalism,” p. 284. 11. “中国打造三大重点试验区，引领沿边开放开发”中国新闻网 [“China Builds Three Key Pilot Areas to Lead the Opening and Development of the Border Areas,” Chinanews] (August 17, 2012), http://​www.chinanews.com/​gn/​2012/​08-​17/​ 4116107.shtml. 12. “国务院关于同意设立云南勐腊（磨憨） 重点开发开放试验区的批复” [“Approval of the State Council on Agreeing to Set Up Yunnan Mengla (Mohan) Key Development Open Experimental Zone,”] (July 23, 2015). http://​www.gov.cn/​ zhengce/​content/​2015-​07/​23/​content_​10026.htm. 13. “云南省商务厅组织开展2014年云南省驻境外商务代表处工作检查”云南商务 [“Yunnan MOFCOM Holds 2014 Yunnan Overseas Commercial Representative Offices’ Work Inspection,” Yunnan MOFCOM 2014 Report] 4, no. 14 (2014): p. 9. 14. Xiaolin Guo, “Toward Resolution:  China in the Myanmar Issue,” Central Asia-​ Caucasus Institute and Silk Road Studies Program (Washington, 2007): p. 51, http://​ isdp.eu/​content/​uploads/​publications/​2007_​guo_​towards-​resolution.pdf.

Notes  229 15. Interview, Kunming, January 2014. 16. Nicholas Farrelly and Stephanie Olinga-​ Shannon, “Establishing Contemporary Chinese Life in Myanmar,” ISEAS Report 15 (2015): p. 2, https://​www.iseas.edu.sg/​ images/​pdf/​TRS15_​15.pdf. 17. Kevin Woods, “Ceasefire Capitalism:  Military–​ Private Partnerships, Resource Concessions and Military–​State Building in the Burma–​China Borderlands,” The Journal of Peasant Studies 38, no. 4 (2011): pp. 747–​770. 18. Interview, Nu River valley (China side), January 2014. 19. David Dapice, “Kachin State Development Prospects and Priorities,” May 2016, http://​ash.harvard.edu/​files/​ash/​files/​kachin_​state_​development_​prospects_​and_​ priorities_​5-​13-​16.pdf. 20. Jade: Myanmar’s “Big State Secret,” Global Witness (October 2015): p. 6, https://​www. globalwitness.org/​documents/​18112/​Jade_​full_​report_​online_​hi_​res_​twEcXTO. pdf. 21. Kevin Woods, “Commercial Agriculture Expansion in Myanmar:  Links to Deforestation, Conversion Timber, and Land Conflicts,” Forrest Trends Report Series (March 2015): p. 39, http://​forest-​trends.org/​releases/​uploads/​Conversion_​Timber_​ in_​Myanmar.pdf. 22. Interview, Yangon, June 2015. 23. Vanda Felbab-​Brown, Enabling War and Peace:  Drugs, Logs, Gems, and Wildlife in Thailand and Burma, Brookings Institution (December 2015), https://​www. brookings.edu/​wp-​content/​uploads/​2016/​07/​Policy-​paper-​7-​webv5-​1.pdf. 24. Interview, Kunming, March 2012. 25. Interview, Kunming, March 2012. 26. Dan Levin, “Searching for Burmese Jade, and Finding Misery,” New  York Times (December 1, 2014), https://​www.nytimes.com/​2014/​12/​02/​world/​searching-​for-​ burmese-​jade-​and-​finding-​misery.html. 27. 封顺、郑先武，“中缅跨境安全复合体及其治理”国际安全研究 [Feng Shun and Zheng Xianwu, “China-​ Myanmar Cross-​ border Security Complex and its Management,” International Security Studies] (2016): pp. 122–​145]. 28. “官员牵涉缅甸利益导致果敢冲突中方进退失据,” 博讯 [“Officials’ Interests in Myanmar Exacerbate the Kokang Conflict, Causing China to go Back and Forth in Failure”] Boxun (May 27, 2015), http://​www.boxun.com/​news/​gb/​china/​2015/​05/​ 201505270409.shtml#.VYuhKf4ViUk. 29. Farrelly and Olinga-​Shannon, “Establishing,” p. 10. 30. Li Chenyang and Lye Liang Fook, “China’s Policies Towards Myanmar: A Successful Model for Dealing with the Myanmar Issue?” China: An International Journal 7, no. 2 (2009): p. 272. 31. Preceding data from: David I. Steinberg and Hongwei Fan, Modern China-​Myanmar Relations: Dilemmas of Mutual Dependence (Copenhagen: NIAS Press, 2012): p. 244. 32. “Myanmar’s Remote Wa State Suffers as Fewer Chinese Come to Party,” South China Morning Post (January 22, 2017), http://​www.scmp.com/​news/​asia/​southeast-​asia/​ article/​2064398/​myanmars-​remote-​wa-​state-​suffers-​fewer-​chinese-​come-​party. 33. “缅北复杂形势滋生‘非法伐木’合同不受政府承认”环球网 [“The complicated situation in northern Myanmar is breeding, and the ‘illegal logging’ contract is not

230 Notes recognized by the government,” Global Times online] (January 8, 2015), http://​news. sohu.com/​20150108/​n407625519.shtml. 34. Environmental Investigation Agency, Appetite For Destruction:  China’s Trade In Illegal Timber (November 2012): p. 12. 35. Environmental Investigation Agency, Organised Chaos: The Illicit Overland Timber Trade Between Myanmar and China (September 2015): p. 7. 36. Cited in: Analysis of the China-​Myanmar Timber Trade, Forest Trends Policy Brief, n.d., https://​www.forest-​trends.org/​wp-​content/​uploads/​imported/​ch-​my-​policy-​ brief-​jan-​9-​2015_​rev-​pdf.pdf. 37. “The Han that Rock the Cradle: Myanmar and China,” The Economist (March 14, 2015), https://​www.economist.com/​news/​asia/​21646248-​kokang-​conflict-​causes-​ problems-​china-​too-​han-​rock-​cradle. 38. Analysis of the China-​Myanmar Timber Trade, Forrest Trends Policy Brief (2014): pp. 3–​4. 39. 宋国友，“中国周边经济外交：机制协调与策略选择”国际问题研究 [Song Guoyou, “China’s Peripheral Economic Diplomacy: Mechanism Coordination and Strategic Choice,” International Studies] 2 (2014): p. 43. 40. Southeast Asia Opium Survey 2015, UN Office on Drugs and Crime (UNODC): p. 33, https://​www.unodc.org/​documents/​crop-​monitoring/​sea/​Southeast_​Asia_​Opium_​ Survey_​2015_​web.pdf. 41. Transnational Institute, Downward Spiral:  Banning Opium in Afghanistan and Burma, TNI Briefing Paper 12 (June 2005):  p. 13, https://​www.tni.org/​files/​download/​debate12.pdf. 42. http://​www.reuters.com/​article/​us-​myanmar-​wa-​china-​idUSKBN14H1V8. 43. Ronald D. Renard, “Mainstreaming Alternative Development in Thailand, Lao PDR and Myanmar: A Process of Learning,” United Nations Office on Drugs and Crime, n.d., https://​www.unodc.org/​documents/​alternative-​development/​Final_​Published_​ version_​Mainstreaming_​AD.pdf. 44. Liu Jie, “China:  Facilitating Cooperation and Striving to Build a Brand New Harmonious Drugless Golden Triangle,” in Sustaining Opium Reduction in Southeast Asia: Sharing Experiences on Alternative Development and Beyond (UNODC, 2008): p. 27, https://​www.unodc.org/​documents/​alternative-​development/​UNODC_​Layout. pdf. 45. Li and Lye, “China’s Policies.” 46. TNI, Alternative Development or Business as Usual? China’s Opium Substitution Policy in Burma and Laos. (November 2010), https://​www.tni.org/​files/​download/​ brief33.pdf. 47. Michael B. Dwyer, Trying To Follow The Money: Possibilities and Limits of Investor Investor Transparency in Southeast Asia’s Rush for ‘Available’ Land, CIFOR Paper 177 (2015):  p. 35, http://​www.cifor.org/​publications/​pdf_​files/​WPapers/​WP177Dwyer. pdf. 48. “中缅两国将进一步加强罂粟替代种植合作” [“China and Myanmar to Further Strengthen Cooperation in Alternative Poppy Cultivation”] Sina.com (November 1, 2011), http://​news.sina.com.cn/​c/​2011-​11-​01/​220623398435.shtml.

Notes  231 49. “中缅两国将进一步加强罂粟替代种植合作”中国新闻网 [“China and Myanmar Will Further Strengthen the Cooperation of Poppy Alternative Planting,” Chinanews] (November 1, 2011), http://​news.sina.com.cn/​c/​2011-​11-​01/​220623398435.shtml. This description also draws upon interviews in Kunming, the Yunnan–​Myanmar border regions, and Yangon. 50. Interview, Kunming (June 2015). 51. Quotes from: Liu Jie, “China.” At time of publication, Liu Jie was Deputy Director of the Poppy Alternative Development Office in MOFCOM’s Yunnan office. 52. The Yunnan Alternative Development Association (YNADA, 云南省替代种植 发展行业协会) website: http://​www.ynada.org/​news/​1318321955786.html. 53. See, for instance:  云南替协通讯[“YNADA Report,”] (October 10, 2016), http://​ www.ynada.org/​upload/​20161111022739.pdf. 54. The description of the program is drawn from documentation from the Hongyu Group’s website, no longer available online. 55. Kevin Woods, Financing Dispossession:  China’s Opium Substitution Programme in Northern Burma (Amsterdam: Transnational Institute, 2012), n. 247, https://​www. tni.org/​files/​download/​tni-​financingdispossesion-​web.pdf. 56. See: http://​www.ynada.org/​news/​1318321955786.html. 57. http://​www.hongyugroup.com.cn/​index.jsp. 58. Interviews, Kunming. For examples, see: Woods, Financing Dispossession, p. 75. 59. “中缅两国将进一步加强罂粟替代种植合作”中国新闻网 [“China and Myanmar Will Further Strengthen the Cooperation of Poppy Alternative Planting,” Chinanews] (November 1, 2011), http://​news.sina.com.cn/​c/​2011-​11-​01/​220623398435.shtml. 60. Tim Summers, Yunnan—​A Chinese Bridgehead To Asia:  A Case Study Of China’s Political and Economic Relations with Its Neighbours (Oxford: Chandos, 2013). 61. Liu Jie, “China,” p. 29. 62. Southeast Asia Opium Survey, p. 97. 63. Working Paper: Reframing Alternative Development in the Greater Mekong Subregion (UNOCD, 2015): p. 4, https://​www.unodc.org/​documents/​southeastasiaandpacific//​ Publications/​2015/​Alternative_​Development_​Working_​Paper_​2015.pdf. 64. Felbab-​Brown, Enabling, p. 21. 65. “KIO Position Letter on Chinese Opium Substitution Projects,” issued November 28, 2010. Re-​printed in: Woods, Financing Dispossession, p. 55, https://​www.tni.org/​files/​ download/​tni-​financingdispossesion-​web.pdf. 66. Interview, Yangon, June 2015. 67. Kevin Woods, “Commercial Agriculture Expansion in Myanmar:  Links to Deforestation, Conversion Timber, and Land Conflicts,” March 2015 Forrest Trends, http://​forest trends.org/​releases/​uploads/​Conversion_​Timber_​in_​Myanmar.pdf. 68. Interview, Kunming, June 2015. 69. Woods, Financing, p. 79. 70. 王鹏，“中缅油气管道—​—第 ​ 四条能源通道动工在即”国研网 [Wang Peng, “China-​ Myanmar Pipeline:  Start of Construction on Fourth Resource Pipeline Imminent,” DRCNET] (June 25, 2009), no longer available online. 71. Steinberg and Fan, Modern China, p. 169.

232 Notes 72. The report was titled:  “于修建从缅甸实兑到昆明输油管道的建议” [“A Proposal to Construct an Oil Pipeline from Sittwe to Kunming”]. While no longer available online, it is referenced in numerous media accounts, including: “丝路新语：中缅油气管道破局‘马六甲之困’ ”中国新闻网 [“Silk Road New Words: China-​Myanmar Oil Pipeline Breaking ‘Malacca’s Difficulties’,” Chinanews] (June 1, 2014), http://​www.chinanews.com/​cj/​2014/​06-​01/​6234804.shtml. 73. 马敏，“兴建中缅油气管道的意义何在”中国化工报 [Ma Min, “The Significance of the New China-​Myanmar Oil Pipeline,” Chinese Chemical Industry Newspaper] (February 19, 2008), http://​www.ccin.com.cn/​ccin/​news/​2008/​02/​19/​32720.shtml. 74. Wang Peng, “China-​Myanmar Pipeline.” 75. 李毅、王宇、杨悦，中缅油气管道完成后的许多变数”中国矿业报 [Li Yi, Wang Yu, and Yang Yue, “Many Variables after the Completion of the China-​ Myanmar Pipeline,” China Mining] (June 25, 2013). 76. Quoted in: 朱贤佳，“中缅油气管道向中国供气，多方暗战西南能源市场”现代 物流报 [Zhu Xianjia, “China-​Myanmar Pipeline Serves China’s Gas And Multi-​Party Fighting in the Southwest Energy Market,” Xiandai Wuliubao] (August 16, 2013). 77. Li et al. “Many Variables.” 78. 刘务、贺圣达，“油气资源：缅甸多边外交的新手段”南亚研究 [Liu Wu and He Shengda, “Natural Gas Resources: Myanmar’s New Tool for Multilateral Diplomacy,” South Asia Research] (2012): pp. 15–​30. 79. Chris Nicholson, “Chinese Oil Company Gets $30 Billion Loan for Acquisition,” New York Times (September 9, 2009). 80. Hong Zhao, “China–​Myanmar Energy Cooperation and Its Regional Implications,” Journal of Current Southeast Asian Affairs 30, no. 4 (2011): pp. 89–​109. 81. “Burma: President Thein Sein’s Visit To China –​Analysis,” Eurasia Review (June 1, 2011), http://​www.eurasiareview.com/​01062011-​burma-​president-​thein-​sein%E2% 80%99s-​visit-​to-​china-​analysis/​. 82. 谢士法、杨蓓，“中缅特殊关系及其发展前景”河北经贸大学学报 [Xie Shifa and Yang Bei, “China-​Myanmar Special Relationship and Future Prospects,” Journal of Hebei University of Economics and Trade] (2011): p. 34. 83. Interview, Kunming, December 2013. 84. Du Juan, “Gas Imports To Rise By 19 percent,” China Daily (January 16, 2014), http://​ www.chinadailyasia.com/​business/​2014-​01/​16/​content_​15112682.html. 85. 薛力，“马六甲困境：内涵辨析与中国的应对”世界经济与政治 [Xue Li, “The Malacca Dilemma: Analysis of Implications and China’s Response,” World Economics and Politics] (2010): pp. 117–​140. 86. Chen Shaofeng, “Has China’s Foreign Energy Quest Enhanced Its Energy Security?” China Quarterly 207 (2011): p. 625. 87. 李毅、王宇、杨悦，“中缅油气管道完成后的许多变数”中国矿业报 [Li Yi, Wang Yu and Yang Yue, “Many Variables after the Completion of the China-​Myanmar Pipeline,” China Mining newspaper] (June 25, 2013). 88. 李晨阳、宋少军，“缅甸对‘一带一路’的认知和反应”南洋问题研究 [Li Chenyang and Song Shaojun, “Myanmar’s Perception of and Response to the ‘One Belt One Road’ Initiative,” Southeast Asian Affairs] 4 (2016): p. 22.

Notes  233 89. 曹海东、陈军吉，“海外‘三峡’搁置，中资折戟缅甸”南方周末 [Cao Haidong and Chen Junjie, “Overseas ‘Three Gorges Dam’ Shelved, Chinese Investment Crashes in Myanmar,” INFZM] (October 13, 2011). 90. David Dapice, “China and Yunnan Economic Relations with Myanmar and the Kachin State: Powering the Peace Process,” (September 20, 2012), https://​ash.harvard.edu/​files/​chinayunnan.pdf. 91. Li and Song, “Myanmar’s Perception.” 92. Liao Ruo, “Lessons from the Irrawaddy,” China Dialogue (October 10, 2011), http://​ www.chinadialogue.net/a​ rticle/s​ how/s​ ingle/e​ n/​4574-​Lessons-​from-​the-​Irrawaddy. 93. “Appendix: Chronology of the Myitsone Dam at the Confluence of Rivers above Myitkyina and Map of Kachin State Dams,” Journal of Current Southeast Asian Affairs 31, no. 1 (2012): pp. 141–​153. 94. “Joint Statement Between the Republic of the Union of Myanmar and the People’s Republic of China on Establishing a Comprehensive Strategic Cooperative Partnership” (May 28, 2011), http://​mm.china-​embassy.org/​eng/​xwdt/​t861106.htm. 95. Ba Kaung, “Burma Dam Decision ‘Bewildering’: CPI President,” The Irrawaddy (4 October 2011), http://​www.irrawaddy.org/​article.php?art_​id=22191. 96. Allison Jackson, “China Raps Myanmar Over Dam Project,” AFP (October 1, 2011), http://​ph.news.yahoo.com/​china-​raps-​myanmar-​over-​dam-​project-​085151191. html. 97. Yun Sun, “China’s Strategic Misjudgment on Myanmar,” Journal of Current Southeast Asian Affairs 31, no. 1 (2012): p. 86. 98. 汪时锋，“密松启示：关系是靠不住的”第一财经日报 [Wang Shifeng, “The Mekong’s Revelation:  The Relationship Is Unreliable,” CBN Daily] (August 21, 2013): p. C01. 99. “Drawing the Line:  The Case Against China’s Shwe Gas Project,” Shwe Gas Movement (September 28, 2013), http://​www.shwe.org/​drawing-​the-​line/​. 100. 周雷，“中缅油气管道的政治生态”南风窗 [Zhou Lei, “The Political Ecology of the China-​Myanmar Oil Pipeline,” Nanfengchaung] 8 (2012): p. 47. 101. 何珺，“央企的‘密松教训’ ” 机电商报 [He Jun, “The ‘Songmi Lesson’ for Central-​ level SOEs,” Jidian Shangbao] (March 19, 2012): p. 2. 102. Yang Meng, “Chinese Power, Burmese Politics,” China Dialogue (April 2, 2012), https://​www.chinadialogue.net/​article/​show/​single/​en/​4852. 103. “2010–​ 2012 Social Responsibility Report,” Upstream Ayeyawady Confluence Basic Hydropower Company (n.d):  p.  15, http://​eng.spic.com.cn/​2016SiteEn/​ Responsibility/​report/​201612/​P020161216528776592571.pdf. 104. 孙广勇、于景浩，“中缅油气管道：缅甸新机遇”人民日报海外版 [Sun Guangyong and Yu Jinghao, “China-​Myanmar Oil Pipeline: New Opportunity in Myanmar,” The Overseas Edition of the People’s Daily] (January 29, 2013): p. 2. 105. Interview, Yangon, June 2015. 106. Ei Toe Lwin, “China Vows to Respect Findings of Mine Probe,” The Myanmar Times (December 10-​16, 2012): p. 1, http://​www.burmalibrary.org/​docs14/​MT656-​op.pdf. 107. Report of Evidence Regarding Controversies at Letpadaung Hill Copper Mine Project, Lawyers Network and Justice Trust (February 14, 2013): p. 16, http://​statecrime.org/​ wp-​content/​uploads/​2013/​03/​Letpadaungreportforpublicrelease.pdf.

234 Notes 108. 孙广勇，“我们迫切希望重新开工”人民日报 [Sun Guangyong, “We Are Eager To Restart,” People’s Daily] (August 19, 2013): p. 21. 109. 于景浩，“ ‘双输’危险令人忧”人民日报 [Yu Jinghao, “The Risk of ‘Double Loss’ Is Worrying,” People’s Daily] (January 22, 2013): p. 3. 110. Yun Sun, “Chinese Investment in Myanmar: What Lies Ahead?” Stimson Center Issue Brief 1 (September 2013), https://​www.stimson.org/​sites/​default/​files/​ file-​attachments/​Yun_​Issue_​Brief1_​1.pdf. For a competing recommendation, see: Report of Evidence. 111. “Burma: Suu Kyi Stands Firm by Commission Report About Letpadaung Copper Mine,” Democratic Voice of Burma (March 13, 2013). 112. Jeremy Page, “Mine Chief Goes on Charm Offensive in Myanmar,” Wall Street Journal (March 26, 2013): p. 11. 113. Shibani Mahtani, “China Firm in Myanmar Begins Charm Offensive,” The Wall Street Journal Asia (October 10, 2013): p. 1. 114. Jane Perlez, “China Tries a Charm Offensive in Myanmar,” International Herald Tribune [Paris] (May 20, 2013): p. 1. 115. Mahtani, “China Firm.” 116. Fiona Macgregor, “Hostage To Resentment:  China’s Growing Image Problem In Myanmar,” Nikkei Asian Review (June 9, 2014). 117. Mahtani, “China Firm.” 118. Interview, Yangon, June 2015. 119. “Kyaukpyu-​Kunming Railway Cancelled Due To Public Opposition,” VOA (July 20, 2014), http://​www.voanews.com/​a/​china-​backed-​railway-​expansion-​stalls-​in-​ myanmar/​1969392.html. 120. Swan Ye Htut, “Tender Planned For $2b Yangon-​Mandalay Railway Upgrade,” Myanmar Times (May 24, 2016), http://​www.mmtimes.com/​index.php/​business/​ 20469-​tender-​planned-​for-​2b-​yangon-​mandalay-​railway-​upgrade.html. 121. “Power Project Rejects Chinese Loan,” Eleven Myanmar (July 30, 2016), http://​www. elevenmyanmar.com/​business/​5548. 122. Michael Peel, “Myanmar Opens Doors To Foreign Banks,” Financial Times (October 1, 2014), https://​www.ft.com/​content/​5bc39bb8–​494e-​11e4–​8d68–​ 00144feab7de; Aung Hla Tun, “Myanmar Grants Operating Licenses to Four More Asian Banks,” Reuters (March 5, 2016), http://​www.reuters.com/​article/​ us-​myanmar-​banks-​idUSKCN0W70B9. 123. Chun Han Wong and Shibani Mahtani, “Telenor and Qatar Telecom Win Myanmar Licenses,” Wall Street Journal (June 27, 2013), https://​www.wsj.com/​articles/​SB1000 1424127887323419604578570741168488134. 124. “China’s Engagement in Myanmar:  From Malacca Dilemma to Transition Dilemma” TNI Policy Briefing (July 19, 2016), https://​www.tni.org/​en/​publication/​ chinas-​engagement-​in-​myanmar-​from-​malacca-​dilemma-​to-​transition-​dilemma. 125. As of March 2016, the Mong Ton (Mai Tong) Dam and Ywathit Dam were both going ahead, backed by Chinese funding. See:  “Current Status of Dam Projects on the Salween River,” International Rivers Coalition (March 2016), https://​www. internationalrivers.org/​sites/​default/​files/​attached-​files/​salween_​factsheet_​2016.pdf.

Notes  235 126. “China’s CITIC Wins Projects To Develop Myanmar Economic Zone,” Reuters (December 31, 2015). 127. Guy Dinmore and Clare Hammond, “Doubts Raised Over Chinese Oil Refinery Plan,” Myanmar Times (April 8, 2016), http://​www.mmtimes.com/​index.php/​business/​19901-​doubts-​raised-​over-​chinese-​oil-​refinery-​plan.html. 128. Zay Yar Lin, “High Hopes For Business Zone On China-​ Myanmar Border,” Myanmar Times (January 25, 2016), http://​www.mmtimes.com/​index.php/​business/​18640-​high-​hopes-​for-​business-​zone-​on-​china-​myanmar-​border.html. 129. Myanmar’s Political Aspirations & Perceptions: 2015 Asian Barometer Survey Report (2015): p. 79, http://​www.eastasiabarometer.org/​pdf/​MyanmarReport2016.pdf. 130. Min Zin, “Burmese Attitudes toward Chinese:  Portrayal of the Chinese in Contemporary Cultural and Media Works,” Journal of Current Southeast Asian Affairs 31, no. 1 (2012): p. 128. 131. Macgregor, “Hostage.” 132. 卢光盛、李晨阳、金珍，“中国对缅甸的投资与援助：基于调查问卷结 果的分析”南亚研究 [Lu Guangsheng, Li Chenyang and Jin Zhen, “Chinese Aid and Investment in Myanmar: An Analysis of Survey Data,” South Asian Studies] (2014): pp.  17–​30. 133. Fan Hongwei, “Enmity in Myanmar Against China,” ISEAS Perspective 8 (February 17, 2014):  p. 7, https://​www.iseas.edu.sg/​images/​pdf/​ISEAS_​Perspective_​2014_​ 08.pdf. 134. 李灿松、葛岳静，“基于行为主体的缅甸排华思潮产生及其原因解析”世 界地理研究 [Li Cansong and Ge Yuejing, “An Analysis on the Actual Formation and Real Causes of anti-​China Sentiment in Myanmar,” World Regional Studies 24 (2015): pp.  20–​30. 135. Maung Aung Myoe, “Myanmar’s China Policy since 2011:  Determinants and Directions,” Journal of Current Southeast Asian Affairs 34, no. 2 (2015): p. 28. 136. Interview, Yangon, June 2015. 137. Min Zin, “Burmese Attitudes.” 138. Lu, Li, and Jin, “Chinese Aid.” 139. Fan Hongwei, “Enmity.” 140. Myoe, “Myanmar’s,” p. 50. 141. Li and Ge, “An Analysis,” p. 28. 142. Interview, Yangon, June 2015. 143. Interview, Yangon, June 2015. 144. Interview, Yangon, June 2015. 145. Li and Ge, “An Analysis.” 146. Interview, Yangon, January 2014. 147. Interview, Yangon, June 2015. 148. Li and Ge, “An Analysis.” 149. Interview, Yangon, June 2015. 150. Lu, Li, and Jin, “Chinese Aid,” p. 29. 151. “Chinese Ambassador to Myanmar:  The Complicated Transition of Myanmar Means Opportunities for China,” China Youth Daily (January 28, 2014).

236 Notes 152. Simon Montlake, “China’s Envoy Tacks with Winds of Change In Myanmar (Burma),” Forbes (May 28, 2013), https://​www.forbes.com/​sites/​simonmontlake/​ 2013/​ 05/​28/​chinas-​envoy-​t acks-​ w ith-​w inds-​of-​change-​in-​ myanmar-​burma/​ #672724b030db. 153. “云 南 省 商 务 厅 关 于 办 理 企 业 赴 缅 甸 投 资 推 荐 函 的 通 知 ”云 南 省 商 务 厅 （2013年5月6日） [“Notice of Yunnan Provincial Chamber of Commerce on the Recommendation of Enterprises to Invest in Myanmar,” Yunnan Department of Commerce] (May 6, 2013), http://​yunnan.mofcom.gov.cn/​article/​sjdixiansw/​ 201305/​20130500112705.shtml. 154. Interview, Kunming, June 2015. 155. 陈保江，“投资缅甸这些问题请注意”云南日报 [Chen Baojiang, “Please Pay Attention to the Problems of Investing in Burma,” Yunnan Daily] (January 17, 2014), http://​roll.sohu.com/​20140117/​n393669597.shtml. 156. Interview, Kunming, June 2015. 157. Interview, Kunming, June 2015. 158. “China Pushes Myanmar to Sign Kachin Cease-​Fire,” Radio Free Asia (June 24, 2013), https://​www.rfa.org/​english/​news/​myanmar/​kachin-​06242013185539.html. 159. “China To Sign Trade Deals Worth US$8 Billion With Myanmar,” South China Morning Post (November 14, 2014), http://​www.scmp.com/​news/​china/​article/​ 1639883/​china-​sign-​trade-​deals-​worth-​us8-​billion-​myanmar. 160. “Chinese Ambassador to Myanmar.” 161. “China’s Deputy Minister Visits NLD,” The Irrawaddy (February 27, 2014), http://​ www.irrawaddy.org/​burma/​chinas-​deputy-​minister-​visits-​nld.html 162. China’s Deputy Minister,” 163. Wai Moe, “Beijing Seems to Be Warming Toward Aung San Suu Kyi,” New  York Times blog (May 26, 2014), https://​sinosphere.blogs.nytimes.com/​2014/​05/​26/​ beijing-​seems-​to-​be-​warming-​toward-​aung-​san-​suu-​kyi/​. 164. Interview, Kunming, June 2015. 165. Wai Moe, “Beijing.” 166. Jürgen Haacke, “Why Did Myanmar’s Opposition Leader Just Visit China?” The Diplomat (June 15, 2015), http://​thediplomat.com/​2015/​06/​why-​did-​myanmars-​ opposition-​leader-​just-​visit-​china/​. 167. Doug Bandow, “America is Winning Burma’s ‘Great Game’ Between the U.S.  and China,” Cato Institute (December 1, 2016), https://​www.cato.org/​blog/​ america-​winning-​burmas-​great-​game-​between-​us-​china. 168. Jürgen Haacke, “Myanmar’s Foreign Policy under President U Thein Sein:  Non-​ aligned and Diversified,” ISEAS, Trends in Southeast Asia 4 (2016), https://​www. iseas.edu.sg/​images/​pdf/​TRS4_​16%20(003).pdf. 169. Interview, Yangon, June 2015. 170. Interview, Yangon, June 2015. 171. ASEAN Foreign Ministers’ Statement on the Current Developments In The South China Sea (May 10, 2014), Nay Pyi Taw, http://​www.asean.org/​storage/​images/​documents/​ 24thASEANSummit/​ASEAN%20Foreign%20Ministers%20Statement%20on%20 the%20current%20developments%20in%20the%20south%20china%20sea.pdf.

Notes  237 172. “Southeast Asian Nations Concerned By Increased South China Sea Tensions,” Reuters (August 11, 2014), https://​www.scmp.com/​news/​asia/​article/​1570914/​ southeast-​asian-​nations-​concerned-​increased-​south-​china-​sea-​tensions. 173. “China and Myanmar’s Sensible Approach Bodes Well For Future Ties,” South China Morning Post (August 24, 2016), http://​www.scmp.com/​comment/​insight-​opinion/​ article/​2008591/​china-​and-​myanmars-​sensible-​approach-​bodes-​well-​future-​ties. 174. “Xi Jinping Meets with State Counsellor Aung San Suu Kyi of Myanmar,” MOFA website (August 19, 2016), http://​www.fmprc.gov.cn/​mfa_​eng/​zxxx_​662805/​ t1390888.shtml. 175. “昂山素季眼中的中国：没有做不成朋友的道理” 新华网 [“China in Aung San Suu Kyi’s Eyes: No Reason to Fail to Be Friends,” Xinhua Net] (March 3, 2016), http: /​ /​ news．xinhuanet．com/​world /​2016－03 /​03 /​c_​128768923.htm. 176. Aung Hla Tun Thu, “Myanmar’s Suu Kyi To Ink Deals On Two Hospitals, Bridge During China Trip,” Reuters (August 18, 2016), http://​www.reuters.com/​article/​ china-​myanmar-​idUSL3N1AZ24L. 177. “U Nyan Win: Myanmar Is Closely Related To China On Everything,” Global Times (February 7, 2014), http://​www.networkmyanmar.org/​images/​stories/​PDF16/​ Global-​Times-​NLD-​Interview.pdf. 178. Tang Xiaoyang, “Chinese Investment Is Key to Myanmar’s Reforms,” Carnegie-​ Tsinghua Centre (January 25, 2014), http://​www.carnegietsinghua.org/​2014/​01/​25/​ chinese-​investment-​is-​key-​to-​myanmar-​s-​reforms/​gzbk. 179. Interview, Yangon, June 2015.

Conclusion 1. Abbott, et al., “Two Logics,” pp. 719–​729. 2. Thorsten Benner et  al., Authoritarian Advance:  Responding to China’s Growing Political Influence in Europe, MERICS Report (February 2018), https://​www.merics. org/​sites/​default/​files/​2018-​02/​GPPi_​MERICS_​Authoritarian_​Advance_​2018_​ 1.pdf. 3. Reilly, “Leveraging Diversity.” 4. Edward N. Luttwak, “Geopolitics to Geo-​Economics: Logic of Conflict, Grammar of Commerce,” The National Interest 20 (Summer 1990): pp. 17–​23. 5. Hanns W. Maull, “Germany and Japan: The New Civilian Powers,” Foreign Affairs 69, no. 5 (1990): pp. 91–​106; Richard Rosecrance, Rise of the Trading State: Commerce and Conquest in the Modern World (New York: Basic Books, 1987). 6. For instance, Wigell’s four ‘ideal types’ of neo-​mercantilism, liberal-​institutionalism, neo-​ imperialism, and hegemony depends upon distinguishing countries based on their efforts to “perpetuate economic domination.” Mikael Wigell, “Conceptualizing Regional Powers’ Geoeconomic Strategies:  Neo-​Imperialism, Neo-​Mercantilism, Hegemony, and Liberal Institutionalism,” Asia Europe Journal 14 (2016): p. 140. 7. Armijo and Katada, “Theorizing.”

238 Notes 8. For a collective effort in this direction, see: Sören Scholvin, Mikael Wigell and Mika Aaltola, eds., Geo-​economics and Power Politics in the 21st Century: The Revival of Economic Statecraft (London: Routledge, 2019). 9. For instance, Mikael Mattlin and Mikael Wigell, “Geoeconomics in the Context of Restive Regional Powers,” Asia Europe Journal 14, no. 2 (2016): 125–​134. 10. Hans Kundnani, “Germany’s Liberal Geo-​economics:  Using Markets for Strategic Objectives,” in Scholvin et al. (eds.), Geo-​economics and Power, pp. 61–​74. 11. On this history see: Alan P. Dobson, US Economic Statecraft for Survival, 1933-​1991: Of Sanctions, Embargoes and Economic Warfare (London: Routledge, 2002); Blackwill and Harris, War by Other Means. 12. Another approach would be to compare different types of economic resources, such as ‘trade’ and ‘capital’ mechanisms of influence. For instance:  Darren J. Lim and Rohan Mukherjee, “What Money Can’t Buy: The Security Externalities of Chinese Economic Statecraft in Post-​War Sri Lanka,” Asian Security 15, no. 2 (2017): pp. 1–​20. 13. Daniel W. Drezner, “The Trouble with Carrots:  Transaction Costs, Conflict Expectations, and Economic Inducements,” in Jean-​Marc F. Blanchard, Edward D. Mansfield, Norrin M. Ripsman, eds. Power and the Purse:  Economic Statecraft, Interdependence and National Security (London: Cass, 2000): p. 189. 14. Miles Kahler and Scott L. Kastner, “Strategic Uses of Economic Inter­ dependence: Engagement Policies on the Korean Peninsula and Across the Taiwan Strait,” Journal of Peace Research 43, no. 5 (2006): p. 525. 15. Long, “Economic Incentives.” 16. On Germany, see:  Randall Newnham, “The Price of German Unity:  The Role of Economic Aid in the German-​Soviet Negotiations,” German Studies Review 22, no. 3 (1999): pp. 421–​446; Davis, The Art. 17. On Chinese sanctions, see Chapter 2; on the US, see: Rachel L. Loeffler, “Bank Shots: How the Financial System Can Isolate Rogues,” Foreign Affairs 88, no. 2 (2009): 101–​ 110; Jacob J. Lew and Richard Nephew, “The Use and Misuse of Economic Statecraft,” Foreign Affairs (November/​December 2018), https://​www.foreignaffairs.com/​articles/​world/​2018-​10-​15/​use-​and-​misuse-​economic-​statecraft. 18. On Japan’s aid program, see:  Margee M. Ensign, Japan’s Foreign Aid Program (New  York: Columbia University Press, 1992); Alan Rix, Japanese Economic Aid:  Policymaking and Politics (London:  Croom Helm, 1980); and Saori Katada, “Japan’s Two-​Track Aid Approach:  The Forces Behind Competing Triads,” Asian Survey 42, no. 2 (2002): p. 324. 19. On Germany’s reassurance efforts, see: Davis, The Art, p. 138.

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Index For the benefit of digital users, indexed terms that span two pages (e.g., 52–53) may, on occasion, appear on only one of those pages. Tables are indicated by t following the page number    Abbott, Kenneth, 7–​8, 9–​11 Bank of China (BOC), 43–​44, 48, 107 Africa, foreign aid from China, 23, 25, barter arrangements, 123, 124 32–​33,  43–​44 Beidou navigation system, 48 Africa White Paper (2006), 32–​33 Bell, Stephen, 7 agency slack, 5, 7 Belt and Road Initiative (BRI) Agricultural Bank of China (ABC), Chengdu–​Europe Plus railroad 43–​44,  105 initiative, 94 agricultural trade, 101–​5, 104t, development assistance and, 29–​30 106–​7,  148–​51 economic statecraft and, 46–​48, 170 Ai Ping, 159 Hungary and, 108 AIDS, 144, 147–​48 orchestration and, 2, 10–​11 Alcazar, Antonio Salvador, III, 8, 10 RMB internationalization and, 76 Alden, Chris, 6 Between Power and Plenty Alogoskoufis, George, 78 (Katzenstein), 4 anti-​China sentiment. See public attitudes bilateral swap agreements (BSAs), toward China 71–​73,  72t anti-​corruption campaign, 41, 44 Bo Xilai, 78 arms embargo, 81, 83–​85, 168 border relations Ashton, Catherine, 84–​85 Myanmar and, 138–​39, 141–​45, 160 Asia Development Bank (ADB), 155 North Korea and, 116, 118–​20, Asian Barometer Survey, 156 128–​30,  133 Asian Infrastructure Investment Borisov, Boyko, 95 Bank,  74–​75 Bosnia-​Herzegovina, Chinese Association of Southeast Asian Nations infrastructure investments (ASEAN), 46, 52, 159–​60 in,  97–​98 attraction economic power, 26 boycotts by consumers, 51 Aung Naing Oo, 155 Brands, Hal, 20–​21 Australia, foreign aid motivations of, 32 Bräutigam, Deborah, 24–​25 authoritarian capitalism, 133–​34 BRI. See Belt and Road Initiative   bribery, 15, 57–​58. See also corruption Babiš, Andrej, 112 bridge projects, 117, 133 Bai Enpei, 145, 148 Britain. See United Kingdom Balkan region. See Central and Brødsgaard, Kjeld Erik, 41 Eastern Europe Brown, William, 136 Baltic countries, 94–​95, 103–​5. See also BSAs (bilateral swap agreements), Central and Eastern Europe 71–​73,  72t

258 Index Bulgaria agriculture secretariat of 16+1 framework, 91 Euro-​China Economic Development Zone, 93 investment in, 95 trade with China, 102 bureaucratic restructuring, 35–​36   Calenda, Carlo, 85 Campbell, Emma, 119 Canada, exports to China, 51 capitalism, 4, 86, 133–​34 Casarini, Nicola, 76 CCB (China Construction Bank), 43–​44 CCDI (Central Commission for Discipline Inspection), 41 CDB. See China Development Bank CEFC China Energy, 110–​11, 112–​13 cell phones, 118–​19, 134 censorship, 20 Central and Eastern Europe (CEE), 12–​13,  89–​114 China–​CEE Partnership and, 91–​95,  164–​65 Chinese influence in, 105–​13 effectiveness of economic statecraft in, 167 EU support for infrastructure in,  113–​14 FDI from China, 93, 96, 108 investment in, 95–​100 trade deficits and, 100–​5, 104t Central Commission for Discipline Inspection (CCDI), 41 Central Committee of CCP, 41 Chang, Lulu, 26 Chang Cheng, 27 Chen Defang, 155 Chen Demin, 28–​29 Chen Deming, 29–​30, 62 Chen Jian, 64, 117–​18 Cheng, Zhimin, 26 China–​Africa Development Fund, 46 China–​ASEAN FTA, 52 China–​ASEAN Investment Cooperation Fund, 46 China Banking Regulatory Commission, 71

China–​CEEC (Central and Eastern European Countries) Partnership, 46, 89–​90, 91, 98, 100–​2 China–​CEE Investment Cooperation Fund,  98–​99 China Construction Bank (CCB), 43–​44 China Development Bank (CDB) BRI projects and, 48 CEE, investment in, 97 China–​Africa Development Fund and, 46 economic statecraft and, 43 Hungary, investment in, 107–​8 international stock market and, 43–​44 Myanmar, investment in, 152 North Korea, investment in, 120–​21 RMB internationalization and, 76 shipping industry in Greece and, 79–​80 China Europe International Exchange, 75 China Financial Futures Exchange, 75 China–​Hungary Economic Joint Committee, 106 China International Payment System,  71–​73 China International Trust and Investment Corporation,  155–​56 China Investment Corporation (CIC), 42–​44, 65–​66,  68–​69 China Minmetals Corporation (CMC), 120 China National Petroleum Corporation (CNPC), 152, 154 China Ocean Shipping (COSCO), 77–​81,  164–​65 China Overseas Investment Federation (COIF), 118 China Power Investment (CPI), 153–​54 China Tonghua Iron and Steel Group,  120–​21 Chinese Academy of Social Sciences, 92,  95–​96 Chinese Investment Promotion Agency, Budapest, 107 Choe Ryong-​hae, 137 CIC (China Investment Corporation), 42–​44, 65–​66,  68–​69 CITIC Group, 112–​13 CMC (China Minmetals Corporation), 120

Index  259 CNPC (China National Petroleum Corporation), 152, 154 COIF (China Overseas Investment Federation), 118 Cold War, 124, 172–​73 collective beliefs, 1, 12, 19–​20, 34, 162 comparative economic statecraft, 170–​73 competitive tournaments, 2, 10–​11, 12, 14, 46, 52, 97 Confucius Institutes, 108 consumer boycotts, 51 coordination challenges, 40–​41 Corkin, Lucy, 56 corruption anti-​corruption campaign, 41, 44 in Central and Eastern Europe, 95–​96 COVEC highway project and, 96–​97 in Myanmar, 144, 145 in North Korea, 126, 127 predatory business practices and, 15,  54–​55 principal–​agent problems and, 112–​13 COSCO (China Ocean Shipping), 77–​81,  164–​65 COVEC (China Overseas Engineering Group),  96–​97 CPI (China Power Investment), 153–​54 cross-​border relations. See border relations Crumm, Eileen M., 6–​7 Cuba, foreign aid from China, 23 Cui Shaozhong, 30 cultural realism, 20 currency manipulations, 3, 62 currency swap agreements, 101–​2, 107 Czech Republic government partnerships secretariat of 16+1 framework, 91 influence of China in EU through,  109–​13 public attitudes toward China, 168 trade with China, 89–​90, 103, 105, 110 transport of exports to China, 94–​95 Czekaj, Matthew, 106   Dahl, Robert, 2–​3 Dai Xianglong, 66 Dai Yulin, 93, 118–​19 Dalai Lama, 62, 103–​5, 109, 167 dam projects, 120, 153–​54, 160

Davis, Patricia A., 4–​5 deforestation, 146 delegation, 7, 8, 9–​10, 40–​41. See also principal–​agent framework Delury, John, 133–​34 Deng Xiaoping, 22, 25, 32–​33 Ding Shaobin, 32 Ding Xueliang, 29–​30 Ding Yifan, 30, 64, 80 diplomats, 118, 122–​23, 145 discrimination,  95–​96 Dong Xiucheng, 152 DPRK. See North Korea Drezner, Daniel W., 172 drug trade, 147–​51   EAGs (ethnic armed groups), 144, 147–​48, 150, 160 Eastern Europe. See Central and Eastern Europe Eaton, Sarah, 7, 42–​43 ECB (European Central Bank), 67, 71, 85–​86,  112 Economic and Commercial Counsellor (ECC), 39, 56–​57, 158 Economic and Trade Forum (2012), 89–​90 economic diplomacy, 27–​31, 35–​36 Economic Research Institute of Central and Eastern Europe (ERICEE), 99 economic statecraft, 12, 37–​59 Belt and Road Initiative and, 46–​48, 170 in Central and Eastern Europe, 89–​114 (see also Central and Eastern Europe) China and, 4–​7, 162–​67, 172–​73 comparative, research recommendations for, 170–​73 defined,  2–​3 delegation and, 40–​41 effectiveness of, 165, 166, 169–​70 history of, 19–​36 (see also history of economic statecraft) interest alignment and, 49–​52 military coercion vs., 162 in Myanmar, 138–​61 (see also Myanmar) nested orchestration and, 38–​46, 163 in North Korea, 115–​37 (see also North Korea) orchestration and, 2–​7, 42–​46, 163

260 Index economic statecraft (cont.) overview,  2–​4 problems with, 53–​59 reciprocity and, 172 in Western Europe, 60–​88 (see also Western Europe) EFSF (European Financial Stability Facility),  67–​68 EFSI (European Fund for Strategic Investments), 68, 85–​86 egalitarianism,  32–​33 electric grid projects, 119, 120, 123,  153–​54 embargoes, 21, 25, 81, 83–​85, 168 employment, 35, 89, 117–​19, 122–​23, 125, 127 energy projects, 97–​98, 138–​39, 141 engagement. See orchestration engagement economic statecraft, 172 enterprise malfeasance Central Europe, investment in, 100 comparisons,  165–​66 history of economic statecraft and,  34–​35 implementation coherence and, 15, 16, 53,  54–​55 Myanmar, investment in, 139–​40, 161, 168 North Korea, investment in, 122–​23,  128 remedies for, 169 Western Europe, investment in, 87–​88 environmental protection, 35, 146 ERICEE (Economic Research Institute of Central and Eastern Europe), 99 ESM (European Stability Mechanism),  67–​68 Estonia, trade with China, 103–​4 ethnic armed groups (EAGs), 144, 147–​48, 150, 160 ethnic groups, 141–​43 EU–​China Connectivity Platform, 85–​86 EU–​China Summit (2008), 62 EU–​China Summit (2010), 63–​64 Euro-​China Economic Development Zone, Bulgaria, 93 European Central Bank (ECB), 67, 71, 85–​86,  112

European Financial Stability Facility (EFSF),  67–​68 European Fund for Strategic Investments (EFSI), 68, 85–​86 European Stability Mechanism (ESM),  67–​68 European Union (EU). See also specific countries and regions China relations, 62 Chinese FDI in, 62–​65, 85 euro stabilization and financial statecraft,  65–​70 internationalization of RMB, 70–​77, 72t, 74t orchestration of, 8, 10 public attitudes toward China in, 82–​86, 83t, 110–​11,  168–​69 purchase of diplomacy in, 62–​65 regulations and Chinese investments, 95–​96,  97–​98 EU White Paper (2014), 83–​84 Export-​Import Bank (Ex-​Im Bank) CEE, investment in, 97–​99 China–​ASEAN Investment Cooperation Fund and, 46 economic statecraft and, 43 Hungary, investment in, 107 Myanmar, investment in, 141, 152, 155 North Korea, subsidies for, 125 shipping industry in Greece and, 79–​80 sub-​Saharan Africa, loans to, 43–​44   Fan Hongwei, 156, 157 Fang Yuanming, 96–​97 FDI. See foreign direct investment Feng, Hui, 7 Feng Shun, 144 financial institutions, orchestration and support for broad-​based initiatives,  10–​11 financial statecraft, 3, 27, 65–​70 Five Principles of Peaceful Coexistence (1954),  32–​33 foreign aid for China from Japan, 24, 25 national interests as motivations for,  31–​32 from Soviet Union, 21–​22

Index  261 foreign aid from China to Africa, 23, 25, 32–​33, 43–​44 to Cuba, 23 economic cooperation, promotion of,  29–​30 economic growth and, 33–​34 economic statecraft and, 3 enterprise malfeasance and, 34–​35 history of China’s use of, 23–​25 interest alignment and, 49 to North Korea, 22, 123–​28 to Vietnam, 22 foreign direct investment (FDI) in Central and Eastern Europe, 93, 96, 108 in Western Europe, 62–​65, 85 Fortune Global 500 list, 44 France Chinese FDI in, 63 foreign aid motivations of, 32 public attitudes toward China, 82–​83 RMB internationalization and, 75, 76 Frank, Ruediger, 136 fraud, 15. See also corruption Freeman, Carla P., 55, 121–​22 free markets, 134 free trade agreements. See trade agreements Fu Xiaoqiang, 29 Fukuyama, Francis, 6–​7   gambling, 138, 144, 145 Gao Xiqing, 66, 68–​69 Garlick, Jeremy, 112–​13 Geneva Accords (1954), 22 Germany Chinese exports to, 63–​64 economic statecraft of, 170, 171–​73 public attitudes toward China, 82–​83 purchase of diplomacy in, 62 RMB internationalization and, 75 Ghana, gold mining in, 57–​58 Gill, Bates, 6 global financial crisis (2009) Chinese purchase of diplomacy during,  62–​65 euro stabilization and financial statecraft,  65–​70

Greek shipping industry, investment in,  77–​81 internationalization of RMB and, 70–​77, 72t, 74t public attitudes toward China during, 82–​86,  83t Gong Yutao, 136 “go out” initiative, 27–​28, 90, 100, 115–​16,  154 governor’s dilemma, 7–​9, 41, 125, 163 Gramegna, Pierre, 74–​75 Gray, Kevin, 117, 134 Greece Chinese FDI in, 63–​64 Chinese purchase of government bonds, 66, 67, 68–​69 shipping industry, financing for, 60, 77–​81,  164–​65   Hanemann, Thilo, 63 Han Shumu, 64 Havel, Václav, 109 He Maocun, 35, 39 He Yafei, 66 Heep, Sandra, 42 Henriksen, Lasse Folke, 10, 38 highway projects, 96–​98, 120, 133 Hirschman, Albert O., 26 history of economic statecraft, 12, 19–​36 bureaucratic restructuring and, 35–​36 China as developing country, 32–​33 collective belief system about economic statecraft and, 19–​20, 33–​34 economic diplomacy and, 27–​30 enterprise malfeasance and, 34–​35 enterprises and, 30–​31 foreign aid and, 23–​25, 31–​32, 33–​34 geopolitics and, 21–​23 justifying economic statecraft, 31–​34 lessons from, 20–​26 mutual development and, 29–​30 HIV/​AIDS, 144,  147–​48 Hongxiang company, 130–​31 Hřib, Zdeněk,  112–​13 Hsiao, Russell, 106 Hu Jintao, 30, 63, 76, 77–​78, 141 Hu Zaiyong, 32 Hu Zucai, 30

262 Index Hua Chunbao, 84 Huang Meibo, 35 Huawei, 107 human rights, 62, 81, 90, 106, 109, 111 Hungarian Development Bank (MFB),  107–​8 Hungary Chinese infrastructure investments in, 97, 98 influence of China in EU through,  106–​9 RMB internationalization and, 75–​76 tourism secretariat of 16+1 framework, 91 trade with China, 89–​90, 101–​2, 103, 108 Huo Yuzhen, 92   ICBC (Industrial and Commercial Bank of China), 43–​44, 48, 99, 155 ILD (International Liaison Department of the CCP), 39 illicit trade and mining, 138–​39, 140,  143–​45 implementation coherence effectiveness, assessment of, 14–​16,  165–​66 enterprise malfeasance and, 15, 16, 53,  54–​55 moral hazard and, 15, 16, 53–​54 in Myanmar, 139–​40, 161 North Korea, foreign aid to, 126 policy stretching and, 15, 16, 53 indirect governance, 6–​7, 9–​10, 41, 163 Industrial and Commercial Bank of China (ICBC), 43–​44, 48, 99, 155 industrial overcapacity, 30 interest alignment, 2, 6–​7, 11–​12, 49–​52, 100, 105, 163 international cooperation experimental zones,  119–​20 International Crisis Group, 132 International Liaison Department of the CCP (ILD), 39 International Monetary Fund (IMF), 61, 70, 76–​77, 108, 167 international organizations, 6 international stock market, 43–​44

investment funds, 10, 38, 46, 98–​99, 100, 118, 163, 164, 166 Italy FDI from China, 85 MES of China and, 85 public attitudes toward China, 82–​83   Jakóbowski, Jakub, 90–​92, 95–​96 Japan Chinese relations, 27 economic statecraft of, 170, 171–​73 foreign aid from, 24, 25 Myanmar infrastructure projects, 155 postwar reparations, 29–​30 sanctions on, 51 tourism and, 50–​51 trade agreements with, 21, 24–​25 Jiang Jianqing, 99 Jinghan Zeng, 48 Johnston, Alastair Iain, 20 joint economic development zones, 117, 119, 125 Jones, Lee, 48 Juncker, Jean-​Claude, 68 Junhua Wu, 26   Karamanlis, Konstantinos, 77–​78 Katzenstein, Peter J., 4 Kim Il-​Sung, 22 Kim Jong-​il, 126 Kim Jong-​un, 132, 135–​36, 137, 168 Kim Young Nam, 136–​37 Kirshner, Jonathan, 3–​4 Kleine-​Ahlbrandt, Stephanie, 136 knowledge transfer, 124, 125 Koeber, Arthur, 70 Korean War, 20–​21 Kovanda, Lukas, 112 Krasner, Stephen D., 4–​5 Kroeber, Arthur, 48   Laffont, Jean-​Jacques, 5 Lagarde, Christine, 77 Lankov, Andrei, 135 Large, Daniel, 6 Latvia, trade with China, 104–​5 Leading Small Group (LSG) of BRI,  46–​47

Index  263 Levitt, Barbara, 20–​21 Li Chengnan, 120 Li Chenyang, 145, 152–​53 Li Daokui, 68 Li Guangcai, 122–​23 Li Guanghua, 154 Li, Hui, 27 Li Keqiang Central Europe, investment in, 89, 92, 97–​98, 100–​1,  107 Myanmar, investment in, 158–​59 on 16+1 operation, 90 Western Europe, investment in, 64, 66, 67, 78, 79–​80, 85 Li Mingjiang, 116 Li Rougu, 33 Li Wei, 25, 55 Li Xisheng, 123 Liao, Steven, 73 Lithuania, trade with China, 104 Liu Ailan, 35 Liu Hongcai, 118 Liu Jeiyi, 129–​30 Liu Xiaobo, 109 Liu Zhijun, 96–​97 lobbying, 15, 40–​41, 141, 149–​50 Lu Guanqiu, 120–​21 Lu Qizhou, 153–​54 Luo Ning, 64 Luttwak, Edward N., 170 Luxembourg, RMB internationalization and,  74–​75 Lye Liang Fook, 145   Ma Weihua, 68–​69 Ma Xiaohong, 130–​31 Macedonia, Chinese infrastructure investments in, 97–​98 MacMillan, Margaret, 19 Mao Xiaojing, 33 Mao Zedong, 20–​21, 22, 23–​24 March, James G., 20–​21 market economy status (MES), 84, 85–​86 Martimort, David, 5 Maull, Hanns W., 170 McDowell, Daniel, 73 Mekong River Association, 40 Meng Wanzhou, 51

Menghai model, 148 Merkel, Angela, 63–​64, 67, 70 MES (market economy status), 84,  85–​86 methamphetamine production, 150 MFB (Hungarian Development Bank),  107–​8 Mihajlo Pupi Bridge, Serbia, 89, 97–​98 military exercises, 51–​52, 132 military of China, 162 Min Zin, 156, 157 Ming He, 115, 134, 137 mining projects, 57–​58, 117–​18, 120–​21, 123, 143–​44,  154–​55 Ministry of Commerce (MOFCOM) BRI and, 46–​47 CEE investment and, 95–​96 economic goal prioritization, 55 EU statecraft, 64 foreign aid and interest alignment, 49 on Myanmar oil and gas pipelines,  152–​53 North Korea, investment in, 117–​18, 122–​23, 124–​27,  130 overseas lending and, 56 public opinion risk, 55–​56 RMB internationalization and, 71 role in economic statecraft, 39, 40, 42 SOEs and, 57 Ministry of Finance (MOF), 39, 40, 42–​44, 65–​66,  71 Ministry of Foreign Affairs (MOFA), 39, 40, 46–​47, 49, 55, 56, 92 mobile phones, 118–​19, 134 Montenegro, Chinese infrastructure investments in, 97–​98 Moon Jae-​in, 132 moral hazard comparisons,  165–​66 implementation coherence and, 15, 16,  53–​54 Myanmar, investment in, 139–​40, 161 North Korea, investment in, 122 SOEs and, 15, 55–​57, 65 Western Europe, investment in,  87–​88 Morganthau, Hans, 31 Multi-​Fibre Agreement (2005), 81

264 Index Myanmar, 12–​13,  138–​61 China aid, trade, and investment for, 140–​47, 142t, 143t effectiveness of economic statecraft in, 167 infrastructure projects in, 151–​56 opium substitution and, 147–​51, 168 problems and responses, 156–​60,  165–​66 Myitsone Dam project, Myanmar, 153–​54,  160 Myoe, Maung Aung, 156–​57   National Audit Office (NAO), 41 National Development and Reform Commission (NDRC), 39, 40, 46–​47, 55, 56, 93 National League for Democracy (NLD),  159–​60 National Social Security Fund (NSSF),  65–​66 Naughton, Barry, 44 neoclassical realism, 4 nested orchestration in Central and Eastern Europe, 90, 92, 113 economic statecraft and, 38–​46, 52, 163 in North Korea, 124 orchestration approach of China and, 2, 10 in Western Europe, 62 Netherlands, exports to China, 64 Nicolas, Françoise, 63 NLD (National League for Democracy),  159–​60 Norris, William, 6 North Korea (DPRK), 12–​13, 115–​37 effectiveness of economic statecraft in,  167–​68 famine in, 124 foreign aid from China, 22, 123–​28 nuclear testing and weapons, 115, 117, 127, 128–​30, 131, 132 policies of China encouraging investment in, 116–​23, 121t,  164–​65 reform, Chinese influence in, 133–​35 sanctions on, 128–​33 Norway, trade with China, 50

NSSF (National Social Security Fund),  65–​66 Nyan Win, 160 Nyein Thint, 159   Ocean Alliance, 79 oil and gas pipelines, 138–​39, 151–​53 One China policy, 51–​52, 111, 113–​14 Open Source Center, 122 opium substitution, 147–​51, 168 Orbán, Viktor, 106, 108–​9 orchestration,  1–​18 China’s strategy for, 10–​12, 163 competitive tournaments and, 2, 12, 14, 46, 52, 97 defined, 7–​8, 163 economic statecraft and, 2–​7 (see also economic statecraft) of engagement, 42–​46, 163 governor’s dilemma and, 7–​9 illustrative cases, 12–​13 (see also specific countries and regions interest alignment and, 2, 6–​7, 11–​12, 49–​52, 100, 105, 163 nested (see nested orchestration) overview,  7–​9 research methods for, 14–​17 orchestration theory, 2, 8 Osborne, George, 73–​74 Otero-​Iglesias, Miguel, 66, 69   patronage policy, 52 Pavlićević, Dragan, 91, 99–​100 People’s Bank of China (PBC) domestic financial system, control of, 42 economic goal prioritization, 55 euro stabilization and, 65–​66, 67 international stock market and,  43–​44 North Korea, investment in, 122 reciprocal alliance relationships and, 7 RMB internationalization and, 71–​73 role of, 39 Silk Road Fund and, 47 sovereign wealth fund of, 42–​43 Philippines, strategic leverage in, 29 Plevneliev, Rosen, 95

Index  265 Poland China Overseas Engineering Group in,  96–​97 trade and investment secretariat of 16+1 framework, 91 trade with China, 89–​90, 102–​3 transport of exports to China, 94–​95 Polar Silk Road, 48 policy stretching comparisons,  165–​66 implementation coherence and, 15, 16, 53 Myanmar, investment in, 139–​40, 147, 161 North Korea, investment in, 122 Western Europe, investment in, 87–​88 Political Bureau Standing Committee, 38,  46–​47 Ponte, Stefano, 10, 38 poppy alternative cultivation program,  147–​51 Portugal Chinese FDI in, 63 Chinese purchase of government bonds, 66 Poverty Alleviation Fund, 158–​59 power, defined, 2–​3 pragmatic realism, 27–​28 predatory business practices, 15, 54–​55,  96–​97 principal–​agent framework, 5–​6, 7–​8, 9, 15–​16, 112–​13, 166. See also governor’s dilemma private companies, 57–​58 protectionism, 65, 95–​96, 102 protesters, 25, 83–​84, 154 public attitudes toward China in Europe, 82–​86, 83t, 110–​11,  168–​69 in Myanmar, 141–​42, 153–​58, 168 public opinion in China, 51, 69, 127–​28 public opinion risk, 55–​56   Qin Guanrong, 145 Qualified Foreign Institutional Investor (QFII) Scheme, 71, 74–​76 quid pro quo, 172   railway projects, 79, 94–​95, 97, 98, 119–​20 Reagan, Ronald, 172

realism, 4, 20, 27–​28, 31 reciprocity economic statecraft, 172 Red Cross of China, 125 refugees, 124 Regling, Klaus, 67–​68 renminbi. See RMB research methods and sources, 14–​17 research recommendations, 170–​73 rewards and punishments systems, 5 Ri Su-​yong, 137 RMB exchange rates and, 27–​28 Hungary, clearing center in, 107 internationalization of, 48, 70–​77, 72t, 74t, 167 road projects, 96–​98, 120, 133 Romania energy secretariat of 16+1 framework, 91 trade with China, 89–​90 Rose, Gideon, 4 Rosecrance, Richard, 170 Rosen, Daniel H., 63   SAFE (State Administration of Foreign Exchange), 42–​43, 47, 65–​66, 69, 85 Samaras, Antonis, 78 Samuels, Richard J., 4–​5 sanctions economic statecraft and, 3–​5, 172–​73 indirect governance and, 6–​7 interest alignment and, 50–​52 North Korea and nuclear testing, 128–​33,  137 Tiananmen Square protests and, 25 Sarkozy, Nicolas, 62, 76–​77 SASAC (State-​owned Assets Supervision and Administration Commission), 39, 41, 55 Serbia Chinese infrastructure investments in,  97–​98 Mihajlo Pupi Bridge, 89, 97–​98 transportation and information secretariat of 16+1 framework, 91 SEZ (special economic zones), 93–​94 Shanghai Stock Exchange, 75 Shao Qiwei, 92

266 Index Shih, Victor, 43–​44 Silk Road Fund (SRF), 47 Sino-​CEE Fund, 99 Sinocham (China Chamber of Commerce in Pyongyang), 118, 125 Sinopec, 152 sister-​cities, 93, 111 16+1 operation. See Central and Eastern Europe Slovakia, trade with China, 89–​90 Small, Andrew, 69 Smith, Graeme, 49 Snidal, Duncan, 10–​11 Snyder, Jack, 20 social welfare funding, 35 SOEs. See state-​owned enterprises soft power, 28–​29, 162 Song Guoyu, 34–​35, 53, 147 Song Tao, 109 Soros, George, 66 South China Sea, 81, 108–​9, 138–​39,  159–​60 South Korea Chinese relations, 124 Kim Jong-​un’s visit to Panmunjom, 132 North Korean sanction enforcement in China, 131 sanctions on, 50 sovereign wealth funds, 7, 42–​44, 64,  65–​66 Soviet Union former Soviet states and trade with China, 90 influence on China, 20–​21 Spain Chinese exports to, 63–​64 Chinese purchase of government bonds, 66, 69 Special Drawing Rights of IMF, 61, 70, 76–​77, 108, 167 special economic zones (SEZ), 93–​94, 122 special interest groups, 34–​35 Standard Chartered Bank report, 67–​68 State Administration of Foreign Exchange (SAFE), 42–​43, 47, 65–​66, 69, 85 state capitalism, 4, 86 State Council, 40–​41

State-​owned Assets Supervision and Administration Commission (SASAC), 39, 41, 55 state-​owned enterprises (SOEs) anti-​corruption campaign and, 44 BRI projects and, 48 FDI in Western Europe and, 65 monitoring, 57 moral hazard and, 15, 55–​57 Myanmar, investment in, 156 National Audit Office inspections   of, 41 national policy implementation, 44–​45 North Korea, investment in, 116, 119,  120–​21 personnel control, 41 risky investments of, 15, 54 structured competition among, 44 strategic culture, 20 strategic engagement, 172 strategic leverage, 29 Strauss, Julia, 33 subsidies, 43, 49, 125 Suez Canal, 79 Sulling, Anne, 103–​4 Sun Luxi, 22 Sun Yi, 25 Suri, Jeremi, 20–​21 Suu Kyi, Aung San, 154–​55, 159, 160 Sweden, foreign aid motivations of, 32 Szijjártó, Péter,  106–​7   Taiwan criticism of China’s policies toward, 90, 106, 109 Czech Republic on, 111 economic marginalization of, 26 military exercises in, 51–​52 patronage policy, 52 public opinion on, 51 Tan Haojun, 35 Tang Xiaoyang, 160 tariffs, 50, 63–​64 technology transfers, 172 Than Shwe, 141 Thein Sein, 153 Thompson, Drew, 121–​22 Tian Dewen, 31

Index  267 Tiananmen Square protests (1989), 25,  83–​84 Tibet criticism of China’s policies toward, 90, 106, 111 Czech Republic on, 111, 112–​13 Estonian ambassador’s statement on,  103–​5 public opinion on, 51 timber trade, 145–​46 tourism China–​CEEC Partnership and, 92 economic statecraft and, 50–​51 Hungary and, 106–​7 Myanmar and, 138, 145 North Korea and, 128, 132–​33 US–​China trade war and, 51–​52 Western Europe and, 63–​64, 78–​79,  80–​81 tournament strategy. See competitive tournaments trade agreements enterprise malfeasance and, 34–​35 interest alignment and, 52 with Japan, 21, 24–​25 MOFCOM and, 40 with North Korea, 124 with US, 25 trade deficits, 62, 100–​5, 104t, 110, 132–​33 trade fairs, 101–​2 trade war with US, 50, 51–​52 Trump, Donald, 132   United Kingdom BSA with China, 71 Hinkley nuclear power station, 47 RMB internationalization and, 73–​74 trade with China, 21 United Nations (UN) China’s membership in, 23 Human Rights Council, 81 North Korea, sanctions for nuclear testing, 128–​30, 131 United Nations Security Council, 128 United States (US) economic statecraft of, 172–​73 embargo on China, 21, 25 Marshall Plan, 29–​30

Myanmar and, 159–​60 North Korean sanctions and, 131, 133 Smithfield Foods, Chinese purchase of, 105 trade with China, 25 US–​China trade war, 50, 51–​52 US–​ROK exercises, 132

  Vietnam, foreign aid from China, 22 

Wanbao Mining Corporation, 154–​55 Wang, Jesse, 68–​69 Wang Li, 26 Wang Lijuan, 29 Wang Peng, 152 Wang Qishan, 54, 73–​74 Wang Yi, 30, 33, 51, 106, 132 Wanhua group, 107–​8 Weber, Max., 2–​3 Wei Jiafu, 77–​79 Wen Jiabao Czech Republic, investment in, 109–​10 on economic diplomacy, 27 euro stabilization and, 66, 67 Hungary, investment in, 107 Japan, Chinese tourism in, 50–​51 market economy status and, 84 on moral hazard, 53–​54 on Myitsone Dam project, 153–​54 North Korea, investment dispute resolution,  120–​21 North Korea, visit to, 117 shipping industry in Greece and, 79–​80 Western Europe, investment in, 60, 62,  63–​64 Western Europe, 12–​13, 60–​88 Chinese FDI in, 62–​65 effectiveness of economic statecraft in, 167 euro stabilization and financial statecraft,  65–​70 Greek shipping industry, investments in, 77–​81,  164–​65 internationalization of RMB, 70–​77, 72t, 74t public attitudes toward China in, 82–​86, 83t, 168 purchase of diplomacy in, 62–​65

268 Index Wong, Audrye, 17 Woods, Kevin, 143–​44, 150 World Trade Organization (WTO), 84, 108–​9,  168 Wu Yi, 116, 122   Xanga Investment Group, 107 Xi Jinping anti-​corruption campaign, 41, 44, 145 BRI and, 46–​47 on China as developing country, 33 Czech Republic, visit to, 111–​12 EU statecraft and, 64 Kim Jong-​un’s visit to Beijing and, 132 Myanmar relations and, 160 North Korea, visit to, 133 Poland, visit to, 102–​3 shipping industry in Greece and, 78 SOEs’ policy role and, 44 Xiao Qian, 64 Xie Curen, 66 Xu Lirong, 80–​81 Xue Benhui, 26 Xue Lei, 31, 34 Xue Li, 152–​53   Yan Xuetong, 28 Yang Chao, 68, 70 Yang Houlan, 144, 158–​59 Yang Jiechi, 117, 158–​59 Yang Weilin, 32

Yang Yanyi, 85–​86 Yang Yi, 112 Ye Hao, 28 Ye Jianming, 110–​11, 112–​13 Ye Tan, 65 Yi Xianrong, 68 Yu Jie, 48 Yuan Zhibing, 159 Yunnan Machinery Export and Import Company (YMEC), 153   Zeman, Miloš, 109–​10, 111, 112–​13 Zhai Dongsheng, 33 Zhang, Denghua, 49 Zhang Cuizhen, 33 Zhang Huizhi, 135–​36 Zhang Jie, 159–​60 Zhang, Ming, 7, 42–​43 Zhang Ping, 62 Zhang Shuguang, 27–​28, 29, 34–​35 Zhang Xiangzhen, 26 Zhang Xiaotong, 34–​35, 52 Zhao Kejin, 27–​28 Zhao Ziyang, 32–​33 Zheng Xianwu, 144 Zheng Zhijie, 48 Zhou Enlai, 21, 23, 32–​33 Zhou Xiaochuan, 66, 67 Zhu Feng, 30 Zhu Rongji, 44 ZTE, 107