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.

U.S. government aid for treating children and adults with HIV and malaria in developing countries has done more than expand access to lifesaving interventions: It has changed how people around the world view the United States, according to a new study by researchers at the School of Medicine.

Compared with other types of foreign aid, investing in health is uniquely associated with a better opinion of the United States, improving its “soft power” and standing in the world, the study said.  

Favorability ratings of the United States increased in proportion to health aid from 2002 to 2016 and rose sharply after the implementation of the President’s Emergency Plan for AIDS Relief in 2003 and the launch of the President’s Malaria Initiative in 2005, the researchers report.

Their findings were published this week in the American Journal of Public Health. The lead author is postdoctoral scholar Aleksandra Jakubowski, PhD, MPH. The senior author is Eran Bendavid, MD, associate professor of medicine and a core faculty member at Stanford Health Policy.

“Using data on aid and opinions of the United States, we found that investments in health offer a unique opportunity to promote the perceptions of the United States abroad, in addition to disease burden relief,” the authors wrote. “Our study provides new evidence to support the notion that health diplomacy is a net win for the United States and recipient countries alike.”

The Trump administration, however, has proposed a 23% cut in foreign aid in its 2020 budget, including large reductions to programs that fight AIDS and malaria overseas.

The Stanford researchers believe their study is the first to add heft to the argument that U.S. health aid boosts the “soft power” that wins the hearts and minds of foreign friends and foes.

“Our study shows that investing in health aid improves our nation’s standing abroad, which could have important downstream diplomatic benefits to the United States,” Jakubowskisaid. “Investments in health aid help the United States accumulate soft power. Allowing the U.S. reputation to falter would be contrary to our own interests.” 

A Policy Debate

Many politicians and economists consider spending U.S. tax dollars on foreign aid as an ineffective, and possibly harmful, enterprise that goes unappreciated and leads to accusations of American meddling in other countries’ national affairs.

The U.S. government, for the past 15 years, has contributed more foreign health aid than any other country, significantly reducing disease burden, increasing life expectancy and improving employment in recipient countries, the authors wrote. Still, this generosity has historically constituted less than 1% of the U.S. gross domestic product.

“Our results suggest that the dollars invested in health aid offer good value for money,” the researchers wrote. “That is, the relatively low investment in health aid (in terms of GDP) has provided the United States with large returns in the form of improved public perceptions, which may advance the U.S. government’s ability to negotiate international policies that are aligned with American priorities and preferences.”

The researchers used 258 Global Attitudes Surveys, based on interviews with more than 260,000 respondents, conducted by the Pew Research Center in 45 low- to middle-income countries between 2002 and 2016.

Their analysis focused on the health sector, which includes several large programs for infectious disease control, but also support for nutrition, child health and reproductive health programs. They compared health aid to other major areas of U.S. investment: governance, infrastructure, humanitarian aid and military aid. They also constructed a database of news stories that mentioned the President’s Emergency Plan for AIDS Relief or the President’s Malaria Initiative by crawling through the online archives of the top three newspapers by circulation in each of the 45 countries.

They found that the probability of populations holding a very favorable opinion of the United States was 19 percentage points higher in the countries where and years when U.S. donations for health care were highest, compared with countries where and years when health aid donations were lowest. Using another metric, the researchers found that every additional $100 million in health aid was associated with a nearly 6 percentage-point increase in the probability of respondents indicating they had a “very favorable” opinion of the United States. 

In contrast, the researchers found, aid for governance, infrastructure, humanitarian and military purposes was not associated with a better opinion of the United States.

Bendavid, an infectious diseases physician and core faculty member of Stanford Health Policy, said that when he set out to conduct this research, he believed it would result “in a resounding thud” — that the “soft power” of health aid would have no impact on public opinion.

“For me, the notion that this program — hatched and headquartered in D.C. — would have impacts among millions in Nairobi and Dakar, seemed farfetched,” Bendavid said. “I was incredulous until all the pieces were in place.”

The ‘America First’ Agenda

The Trump administration’s “America First” agenda is calling for significant cuts to global health aid, particularly to the highly successful AIDS relief program, which was established by President George W. Bush. The administration’s budget, released in March, proposed a $860 million cut to the program; the President’s Malaria Initiative is facing a $331 million reduction in federal funding. That’s a decline of 18% and 44%, respectively.

The U.S. contribution to the Global Fund to Fight AIDS, Tuberculosis and Malaria would also decline by 17%, or $225 million, according to the Kaiser Family Foundation.

Yet beyond the reputational damage to the United States, such cuts could be a major setback to improving health outcomes in developing countries, the researchers said. After all, HIV knows no borders, and having more resilient health care systems is instrumental when facing public health crises, such as the Ebola outbreak in the Democratic Republic of Congo, Jakubowski said.

“The most direct impact of cutting the United States’ health aid allocations is the potential to undermine or reverse the progress that has been enabled by U.S. aid in curbing mortality and the spread of disease,” Bendavid said. “However, this study suggests there are also repercussions to the United States: the relationships the U.S. has built with recipient nations could also be undermined.”            

Other Stanford co-authors are Steven Asch, MD, MPH, professor of medicine, and former graduate student Don Mai.

Stanford’s Department of Medicine supported the work.

Structural vs. Cosmetic Changes

Allen was far less confident, however, about the prospects of addressing structural issues with China, that is, areas where the Chinese economy is an outlier to the global economy, violates WTO rules, and greatly differs from OECD norms. This is because these core dimensions touch on the role of the Chinese Communist Party (CCP) in the government and in the economy.

He counted among these structural issues the enormous role of state-owned enterprises (SOEs); the scale of subsidies going to the technology sector and their lack of transparency; prohibitions on foreign investment in sensitive industries like telecommunications and media; the unequal treatment of foreign companies; discriminatory implementation of regulations and the lack of an appeals process; uneven implementation of IP rights; the outsized role of the CCP in the economy; the dominant role of industrial policy; Xi Jinping government’s aggressive techno-nationalism, which is manifested in its calls for indigenous innovation and for self-reliance; and its excessive control over the information space.

“China is willing to make cosmetic changes to these problems,” said Allen, “even muscular changes, but no changes to the skeleton, the core, the system under which the CCP has complete control.”

A trade deal might remove the immediate threat of tariffs as a source of friction between the United States and China, noted Allen, but the essence of the conflict is not about trade: rather, it has to do with technology. “The trade war will morph into a technology war,” he predicted, and 2019 will mark a change in that direction, making life much more complicated for both American—especially Silicon Valley—and Chinese companies.

A Security Dilemma

Both the United States and China are now locked in a “security dilemma,” noted Allen. “One side takes defensive measures which the other side perceives as aggressive measures,” and “we are ratcheting up on national security.” The U.S. Department of Commerce, for instance, is looking to change the ways of dealing with Chinese companies and to expand export controls, extending their scope to a whole new category of “emerging technologies,” regarding whose definition there is intensive debate in Washington. Depending on its scope, a broad definition could jeopardize hundreds of thousands of projects and disrupt investment and global supply chains.

On the Chinese side, Allen noted, there is a parallel process going on. In 2019, we should expect China to similarly impose tightened export controls, he cautioned, cybersecurity law, personal identification information law, data localization requirements, and a strengthened national security law that, among other requirements, will ratchet up audit requirements of American companies seeking market access and the type of companies allowed to have only Chinese-origin equipment.

Both countries have given in to exaggerated security concerns that threaten the global commons, argued Allen. “American and Chinese companies have worked together in the innovation space for years in a beautiful manner. It has been a remarkably productive exercise over the last four decades that brought tremendous benefit for everyone. You can't imagine a company like Apple without China, and you can't imagine China without a company like Apple. Now all this is being put into question.”

The heightened security measures on both sides are fraught with threats to research institutions, businesses, and the innovation ecosystem at large. Academic exchanges, students, and professors will be deemed exports of knowledge subject to technology licensing laws, cautioned Allen. He asked: “How many thousands of collaborative research ventures will be impacted?”

We are entering the technology war at the wrong time, said Allen, just as China is becoming a middle-income country with hundreds of millions of middle-class citizens who want to buy American-made goods and services that U.S. companies want to sell to them. Now is the time to take advantage of China’s transitioning to a consumption-led economy, he claimed, and “become a good friend of Chinese middle-class consumers.”

China is also forging ahead with its innovative economy, particularly in areas such as AI, 5G, and aspects of the life sciences. “This isn’t a one-way street,” emphasized Allen. “We need their brains as much as they need ours […] China will remain an innovative country, and we need to deal with that.”

“This is not a time to panic,” he pointed out, “but a time to reset and ask: ‘What are the rules of the road for technology cooperation and competition? What are the rules for enforcement and how do we enforce the new rules fairly?”

“If China follows its WTO obligations then we would get there,” Allen claimed. “But if President Xi is going to be single-minded about self-reliance and cutting foreign influence on the Chinese economy, then we’re up for rough sledding and 2019 will be a definitive year in determining the course forward.”

Trade deal or no deal, in the U.S.-China race for technology supremacy, he concluded, trust is a commodity in short supply.