The Stanford Center at Peking University (SCPKU), the Center on Democracy, Development and the Rule of Law (CDDRL), and the APARC China Program jointly hosted a workshop on China’s Belt and Road Initiative (BRI) in early March. The workshop, held on March 2 and 3, welcomed researchers from around the world with expertise in the Initiative. Unfortunately, because of the rapidly developing health emergency related to the coronavirus, participants from not only China, but also Japan, were prevented from attending. As described by Professor Jean Oi, founding director of SCPKU and the China Program, and Professor Francis Fukuyama, director of CDDRL and the Ford Dorsey Master's in International Policy, who co-chaired the workshop, the meeting aimed to provide a global perspective on the BRI, consolidate knowledge on this opaque topic, and determine the best method and resources for future research.  

The workshop began with presentations from several of the invited guests. Dr. Atif Ansar from the University of Oxford’s Saïd Business School kicked off the first day by describing not only the tremendous opportunity that the BRI presents to developing economies, but also the serious pitfalls that often accompany colossal infrastructure projects. Pointing out the poor returns on investment of mega infrastructure projects, Ansar examined the frequest cost and schedule overruns, random disasters, and environmental degradation that outweigh the minimal benefits that they generally yield. China’s own track record from domestic infrastructure projects does little to mitigate fear of these risks, Ansar claimed. In response, he urged professional management of BRI investments, institutional reforms, and intensified deployment of technology in BRI projects. Dr. Ansar was followed by Dr. Xue Gong of the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. Dr. Gong’s analysis centered on the extent to which China’s geopolitical motivations influenced its outward foreign direct investments (OFDI). Although her research was still in the early stages, her empirical analysis of China’s OFDI inflows into fifty BRI recipient countries from 2007-2018 nevertheless revealed that geopolitical factors often outweigh economic factors when it comes to China’s OFDI destinations.

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Professor Curtis J. Milhaupt and Scholar-in-Residence Jeffrey Ball, both at Stanford Law School, followed with individual presentations on the role of State-Owned Enterprises (SOEs) in the BRI and the emissions impact of the BRI on climate change, respectively. Professor Milhaupt  characterized Chinese SOEs as both geopolitical and commercial actors, simultaneously charged with implementing Party policies and attaining corporate profits. Chinese SOEs are major undertakers of significant overseas BRI projects, acting not only as builders but also as investors, partners, and operators. This situation, Milhaupt asserted, carries significant risks for SOEs because these megaprojects often provide dismal returns, have high default rates, and can trigger political backlash in their localities. Milhaupt highlighted the importance of gathering firm-level data on businesses actually engaged in BRI projects to better infer geostrategic, financial, or other motivations. Jeffrey Ball turned the discussion to carbon emissions from BRI projects and presented preliminary findings from his four-country case studies. He concluded that, on aggregate, the emissions impact of the BRI is still “more brown than green.” Twenty-eight percent of global carbon emissions may be accounted for by BRI projects, Ball asserted, underscoring the importance of the BRI to the future of global climate change.

The day concluded with presentations by  Michael Bennon, Managing Director at the Stanford Global Projects Center, and Professor David M. Lampton, Oksenberg-Rohlen Fellow at the Freeman Spogli Institute for International Studies. Bennon first presented findings from two empirical case studies of BRI projects and then went on to describe how the BRI is now practically the “only game in town” for infrastructure funding for developing countries. Lengthy environmental review processes at Western multilateral banks have turned the World Bank, for example, from a lending bank into a “knowledge bank,” he argued. He also highlighted that, in general, economic returns on BRI projects for China are very poor, even though recipient countries may accrue macroeconomic benefits from these projects. Finally, Professor Lampton turned the discussion back to Southeast Asia, where China is currently undertaking massive cross-border high-speed rail projects through eight ASEAN countries. He described how each host country had varying capacity to negotiate against its giant neighbor, and how the sequential implementation of these cross-border rail projects also had varying impacts on the negotiating positions of these host countries. BRI played out differently in each country, in other words, eliciting different reactions, push-backs and negotiated terms.

The second day of the workshop was dedicated to working toward a collaborative approach to future BRI research. The group discussed the key gaps in the existing research, including how to know what China’s true intentions are, how to measure those intentions, who the main players and their interests in both China and the host countries are, and even what the BRI is, exactly. Some cautioned that high-profile projects may not be representative of the whole. Participants brainstormed about existing and future sources of data, and stressed the importance of diversifying studies and seeking empirical evidence.

President Xi Jinping’s tenure has been marked by growing state influence over all spheres of governance in China, including a marked tightening of control over the economy.

Curtis Milhaupt, the William F. Baxter-Visa International Professor of Law at Stanford Law School, addressed the hardening of Party controls over Chinese corporate governance. His lecture to the China Program on February 6 was based on research conducted by Milhaupt in collaboration with Yu-Hsin Lin of City University of Hong Kong, and examined the expanding role of the Chinese Communist Party (CCP) within both state-owned enterprises (SOEs) and privately-owned enterprises (POEs). The influence of the CCP within these enterprises, Milhaupt says, is not as straightforward as it might seem.

Milhaupt posits that the level of control exercised by the CCP on SOEs is lower than one might generally expect. At the same time, the CCP exercises a surprisingly higher level of control over POEs than we would typically assume. To draw these conclusions, Milhaupt uses a set of ten model provisions deemed to be dangjian, or “party-building,” measures that were developed and released by the Central Committee of the CCP. From data compiled between 2015 and 2018 from the charters of publicly-listed companies, Milhaupt shows that 10% of SOEs chose not to adopt any of the provisions distributed by the Central Committee. Meanwhile, 6% of POEs had at least a low level of adoption, despite the fact that the provisions were not directed at them. The reason for such variation, according to Milhaupt, can be explained by the characteristics of the provisions, the SOEs, and the POEs.

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Which enterprises adopted which provisions was highly correlated to those enterprises’ characteristics. SOEs were far more likely to amend their charters if they had direct state shareholding, but less likely to amend if they had large non-state shareholders, were further down in the state-ownership chain, or were cross-listed on international stock exchanges. POEs followed a similar structure, with enterprises being more likely to adopt provisions the more politically connected they were or the more direct state shareholding they had.

It remains unclear how the government can actually enforce the dangjian policy, and how these policies will affect the enterprises that adopt it. Despite the official rhetoric behind the dangjian policy, with claims that greater loyalty to the Party will lead to more economic success, Milhaupt expresses doubts:

“What’s [the danajian policy] going to mean for firm performance? Certainly, from a . . . straightforward economics or corporate governance perspective, one would not be optimistic that infiltrating corporations with political influence is going to do good things for firm performance.”

Milhaupt also has concerns about how the strategy will impact international investment, noting the already high levels of suspicion surrounding Chinese motivations: “This [emphasis on loyalty to the Party] would certainly seem to add fuel to the fire, and heighten concerns or suspicions with respect to Chinese outbound economic activity.” As SOEs and POEs continue to navigate both domestic and international markets with their amended charters, the future feasibility of the CCP’s reassertions over the economy is far from certain.

This is the second part of a series leading up to the publication of Fateful Decisions. You can read the first installment here.

In the last forty years, China has reemerged as a tremendous geopolitical, economic, and technological power on the world stage. But the easy phases of China’s quest for wealth and influence are over, argue Shorenstein APARC Fellow Thomas Fingar and China Program Director Jean Oi in a new article published by The Washington Quarterly.

In this piece, drawing on the findings and insights of contributors to their forthcoming edited volume Fateful Decisions: Choices That Will Shape China’s Future (Stanford University Press, available May 2020), Fingar and Oi outline the daunting array of difficult challenges China now faces and explain why its future depends on the policy choices its leaders make in what will be seen as a watershed moment.

An excerpt from their article is available below. For the full version, visit The Washington Quarterly and download the PDF.
 

From, “China’s Challenges: Now it Gets Much Harder”

Some years ago, one of us had a running partner who wanted a bigger challenge than the dozens of marathons he had completed. When asked to describe his first 50-mile race, he replied, “The first 30 miles weren’t bad, but after that it got really hard.” China is approaching the metaphorical 30-mile mark in its developmental marathon. The challenges it encountered and managed effectively during the past 40 years were not easy, but they pale in comparison to those looming on the horizon. The way ahead will be more difficult, less predictable, and highly contingent on the content and efficacy of complex policy choices. The easy phases of China’s quest for wealth and power are over.

We begin with this cautionary note because so much of the new narrative about China’s rise posits capabilities and evolutionary trajectories that we find implausible. That China has done well in the past does not assure that it will do equally well (or better) in the future. That the Leninist party-state system adopted in the 1950s has proven sufficiently agile to manage the easier phases of modernization does not assure that it will be equally adept at meeting the more difficult challenges of a country being transformed by past successes and demographic change. The number, magnitude, and complexity of these challenges do not foreordain that China will stagnate, fail, or fall apart, but they do raise serious questions about the putative inevitability of China’s continued rise and displacement of the United States. China’s future is neither inevitable nor immutable; its further evolution will be shaped by internal economic and social developments, the international system, and above all, the policy choices of party leaders facing a daunting array of difficult challenges.

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We refer to China’s current approach as “back to the future” because it seeks to resuscitate institutions, methods, and rationales adopted in the 1950s and shelved during the period of reform and rapid modernization. We do not know why party leaders decided that it is in their — and thus China’s — interest to curtail or reverse policies that facilitated sustained growth and rapid improvement of living standards and China’s international image, but speculate that they hope doing so will buy time before incurring the risks (and for the elite, the costs) of fundamental reform.

Beijing has announced a number of very ambitious goals such as moving into the ranks of highly-developed countries by the centenary of the PRC in 2049, achieving global preeminence in key technologies like robotics and artificial intelligence, providing urban social benefits to most citizens, and building a number of green megacities. The likelihood of achieving all of the proclaimed goals is nil, but China will make substantial progress on some of them. It is impossible to predict which will succeed, which will fail, and which will flounder, but we can anticipate a mix of all three outcomes. Whatever the precise mix, it is likely to produce a China that is less prosperous and less powerful than predicted by the predominant narrative about where China is headed. Whether China’s leaders will risk tackling the difficult reforms that remain or continue to embrace key and thus far counterproductive structures and methods from the past remains to be seen.  Whether the party-state system is able to maintain acceptable levels of growth and public satisfaction under the new conditions is also uncertain. The only certainty is that China can no longer ride the wave that helped along its economic growth and resultant capabilities for at least ten reasons.

Read the full text of this article via The Washington Quarterly.