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21. Hard Cash and Soft Power: When Chinese Firms Win EU Contracts

Author:
Allison Carragher
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
The European Union is a committed defender of open markets. This extends to its public procurement mechanisms, which remain open to all bidders. EU policymakers have developed tools intended to defend the bloc’s interests in the face of increased economic and strategic competition from the People’s Republic of China (PRC), but few policymakers understand how the European public views the debate. As the first major EU-funded, China-built infrastructure project, the Pelješac Bridge in Croatia provides a unique opportunity to conduct a thorough analysis of European public opinion toward EU tendering policy and Chinese companies. Brussels has labelled the PRC a partner for cooperation and negotiation, an economic competitor, and a systemic rival,1 but the nuances of this policy remain difficult to ascertain. Projects and policies presented by China as “cooperation” often contain elements of economic competition or are leveraged by the PRC for strategic gain. However, this dichotomy has not filtered down to citizens. Extensive polling reveals that Croatians share very few of the concerns of EU policymakers. Furthermore, the PRC state-owned construction firm enjoys more visibility than the EU, which provided hundreds of millions of euros for the project. In terms of soft power, which is here defined as the ability of a country to shape the narrative, the Pelješac Bridge has been a resounding success for the PRC. The Croatian public has largely embraced the PRC’s preferred image of itself as a reliable and trustworthy economic partner and a benign power that does not interfere in domestic affairs. This opinion diverges from official EU policy and glosses over evidence of the PRC’s unfair economic practices, environmental and labor shortcomings, and interference in European democracies. Notably, the PRC’s soft-power gains were achieved on the EU’s own dime. It is not in the EU’s interest to bankroll the economic and soft-power ambitions of its systemic rival. As a democratic institution, the EU has a responsibility to both respond to public opinion and educate its citizenry when EU interests are at stake. In this case, the EU should recalibrate its tendering policy to be fairer and better aligned with its own economic and strategic interests. This process is currently underway, but it should also be extended to co-financing arrangements like the Team Europe approach, which combines traditional EU assistance with support from individual EU member states and international financial institutions. These policies must also be paired with renewed efforts at visibility and branding. Lastly, there is a need to collect and publish better data on the end users of EU funds in order to evaluate successes and identify future issues.
Topic:
Infrastructure, European Union, Economy, Business, Soft Power, and Strategic Competition
Political Geography:
China and Asia

22. How the Chinese government is financing its way to becoming a techno-superpower

Author:
Ngor Luong
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
On October 7, the Biden administration announced a new rule to control exports of advanced-computing semiconductor chips to China. As the United States works to cut off technology and capital flows to China, Beijing’s desire to achieve technological self-sufficiency is greater than ever. In fact, during the 20th Party Congress in the following week, Xi Jinping further pledged self-reliance in technology to gain a competitive edge in the tech competition with the United States. Under Xi Jinping’s leadership, China has sought technology-focused securitization to build an innovation system that supports its broader economic, societal, and geostrategic goals. In response to the economic impact ranging from the ongoing COVID-19 pandemic to the US-China trade and technology war, the Chinese Politburo unveiled the new “dual circulation” strategy at a Central Financial and Economic Commission meeting in 2020. At its core, dual circulation aims to reduce China’s vulnerability to external shocks, and to increase the country’s self-reliance to better guard against global volatility. The Chinese government works to improve China’s innovation-building capacity by attracting foreign capital and technology know-how in order to maximize their benefits while retaining overall control of the system. Beijing is committed to becoming a state-led and self-sufficient techno-superpower. In doing so, the Chinese government is consolidating its influence in both the domestic market and overseas markets where Chinese firms are active, while simultaneously mobilizing public, private, and public-private investment vehicles to support these tech ambitions. A number of its financial mechanisms have already spanned decades, but others have emerged recently. The decade-long mechanisms have yielded mixed results, while the successes of the new ones remain to be seen. It can thus be expected that the Chinese government will continue to further assert itself in all aspects of the innovation system by providing financial support and political guidance for critical and strategic industries. Within this context, this paper examines the various forms of financing vehicles that involve a range of diverse actors to support China’s whole-of-nation approach in an effort to achieve self-reliance in technology. To conclude, this paper assesses the mechanisms’ successes and shortcomings as well as areas to monitor going forward.
Topic:
Science and Technology, Economy, Business, and Innovation
Political Geography:
China and Asia

23. Negotiating Local Business Practices With China in Benin

Author:
Folashade Soule
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Commercial negotiations between Benin and China demonstrate how both sides navigate the dynamics of Africa-China business-to-business relationships. In Benin, Chinese and local Beninese officials engaged in drawn-out negotiations on a deal to construct a business center aimed at deepening business links between Chinese and Beninese merchants. Strategically located in Cotonou, Benin’s principal economic city, the center aims to promote investment and wholesale businesses by serving as a hub for China’s business-to-business relations not just in Benin but regionally in West Africa, especially in the large and growing neighboring market of Nigeria. This paper relies on original research and fieldwork conducted in Benin from 2015 to 2021 and the author’s access to draft and final contracts from the negotiations, which allow for a side-by-side comparative textual analysis, as well as initial field interviews and follow-up interviews with key negotiators, Beninese businessmen, and former Beninese students in China. The paper shows how Chinese and Beninese authorities negotiated the establishment of the center and, above all, how Beninese authorities made Chinese negotiators adapt to local Beninese labor, construction, and legal norms and put pressure on their Chinese counterparts. This strategy meant that negotiations took longer than usual to complete. China-Africa cooperation is often characterized by speedy negotiations, an approach that in some cases turns out to be harmful—since this can allow vague and unfair clauses to be featured in final contracts. The negotiations over the Chinese business center in Benin is a good example of how well-coordinated negotiators that take their time and work in coordination with various counterparts throughout the government can help facilitate better outcomes in terms of high-quality infrastructure and compliance with prevailing construction, labor, environmental, and business norms, while also preserving a good bilateral relationship with China.
Topic:
Foreign Policy, Development, Bilateral Relations, and Business
Political Geography:
Africa, China, Asia, and Benin

24. The private sector advances in China: The evolving ownership structures of the largest companies in the Xi Jinping era

Author:
Nicolas Véron and Tianlei Huang
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper documents recent structural changes in China’s corporate landscape, based on company level data, providing a complementary perspective to that of official Chinese statistics. We classify China’s largest companies by revenue since 2004 (based on Fortune Global 500 rankings), and largest listed companies by market capitalisation since 2010, into state and private-sector categories, using a conservative definition of the private sector. Among the largest companies by revenue, the private sector was non-existent in the mid-2000s but has grown steadily in the past decade, even though the state sector still dominates. The aggregate revenue of private-sector companies grew from zero in Fortune’s ranking in 2005 (based on 2004 revenue) to $104 billion in the 2011 ranking, or merely 3.8 percent of the $2.78 trillion in aggregate revenue for all Chinese companies in the ranking, and to $1.7 trillion in the latest 2021 ranking (based on 2020 revenue), or 19 percent of the Chinese companies’ aggregate revenue. As for market value of the largest listed firms, the private sector’s share in the top 100 listed Chinese companies was only 8 percent at end-2010 but crossed the 50 percent threshold in 2020 and retreated slightly in 2021 to 48 percent, following that year’s regulatory crackdown on several private-sector-dominated industries. These findings do not support a narrative of broad based rollback in recent years of previous private-sector expansion.
Topic:
Business, Private Sector, and Corporations
Political Geography:
China and Asia

25. Winning hearts and minds: the PRC’s efforts to attract scientific talent

Author:
Yun Jiang
Publication Date:
12-2022
Content Type:
Special Report
Institution:
Australian Institute of International Affairs
Abstract:
In her second policy research report, Ms Yun Jiang, AIIA China Matters Fellow, assesses efforts by the People’s Republic of China (PRC) to encourage the return of PRC-born scientists from abroad. Xi Jinping has made attracting returnee talent a priority to enable the PRC to achieve greater technological strength and self-reliance. Yun Jiang argues that these sometimes controversial programs have not met their objectives. Many top scientists are reluctant to return because of domestic policies in the PRC. At the same time, scientists of Chinese heritage in the United States face greater scrutiny and suspicion. Australia has an opportunity to attract some of this top scientific talent caught between the two countries.
Topic:
Science and Technology, Hegemony, Business, Strategic Competition, and Strategic Interests
Political Geography:
China and Asia

26. Investors beware: Europe’s top firms are highly exposed to China

Author:
Ties Dams and Xiaoxue Martin
Publication Date:
04-2022
Content Type:
Special Report
Institution:
Clingendael Netherlands Institute of International Relations
Abstract:
Europe’s top firms are highly exposed to China, and therefore to China-related geopolitical risk. This risk is only set to increase in the coming years, as geopolitical tensions between China, the US and the EU are not expected to decrease. Moreover, case studies of LVMH, HSBC, ASML and BMW show that some of Europe’s biggest listed firms could and should offer investors more transparency on their risk-management strategies. Intelligence on China and geopolitical risk exposure is key for investors, and investors that get ahead of the curve may have the edge in the long term. This report is aimed at investors in Europe’s biggest listed firms. It argues that investors have a growing need for transparency amongst European biggest companies with regard to their strategies in dealing with China-related geopolitical risk. Even investors without direct interests in China are or will be affected by China-related geopolitical risk due to the various forms of exposure of companies in the European home market. This means that investors may be increasingly exposed to the risks linked to great power competition, without having the knowledge necessary to anticipate geopolitical changes. As geopolitical tensions between China, the US and the EU are not expected to decrease, investors would be wise to seek greater transparency about European companies’ exposure to the Chinese market – and indeed get ahead of the curve and gain a competitive advantage by investing in those firms that have forward-looking geopolitical strategies in place. This report aims to put this point on investors’ strategic agenda by making the following three points: Europe’s top firms are highly exposed to China. China-related geopolitical risk is spreading. Case studies suggest that Europe’s top firms may not be sufficiently transparent about geopolitical risk management.
Topic:
Geopolitics, Business, Investment, and Risk
Political Geography:
China and Europe

27. Who wins and who loses from state subsidies?

Author:
Sourafel Girma, Holger Görg, and Ignat Stepanok
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
China is perceived to rely on subsidizing firms in targeted industries to improve their performance and stay competitive. We implement an approach that allows for the joint estimation of direct and indirect effects of subsidies on subsidized and non-subsidized firms. We find that firms that receive subsidies experience a boost for productivity. However, our approach highlights the importance of indirect effects, which are generally neglected in the literature. We find that, in general but not always, non-subsidized firms experience reductions in their productivity growth if they operate in a cluster where other firms are subsidized. These negative externalities depend on the share of firms that receive subsidies in the cluster. Aggregating direct and indirect effects into a (weighted) total effect shows that this negative indirect effect tends to dominate. We interpret our results in the light of a simple heterogenous firm type model, which highlights that subsidization, in a competitive environment of firms, may potentially harm non-subsidized firms.
Topic:
Governance, Business, Subsidies, and Competition
Political Geography:
China and Asia

28. Memo on an "Economic Article 5" to Counter Authoritarian Coercion

Author:
Ivo H. Daalder and Anders Fogh Rasmussen
Publication Date:
06-2022
Content Type:
Policy Brief
Institution:
Chicago Council on Global Affairs
Abstract:
The world's democracies need a way to fight back against coercive economic actions by authoritarian governments, argue Ivo Daalder and Anders Fogh Rasmussen. Increasingly, authoritarian countries are using economic coercion against democracies. In recent years, China’s economic coercion of Lithuania and Australia stands out as a prominent example. Russia uses economic levers to achieve geopolitical aims, notably by weaponizing its natural resources. The aim of such coercion is to bend the will of democratic countries. This is a test for the free world. In response, we propose an Economic Article 5 among democracies to counter authoritarian coercion.
Topic:
Foreign Policy, Authoritarianism, Economy, Business, and Trade
Political Geography:
Russia, China, Asia, North America, and United States of America

29. World Economy Winter 2022: Strong headwinds for global economic activity

Author:
Klaus-Jurgen Gern, Stefan Kooths, Ulrich Stolzenburg, Jan Reents, and Nils Sonnenberg
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Global growth has decelerated over the course of the year under the impact of high energy prices and great uncertainty. Monetary policy, which is being tightened very quickly in view of high inflationary pressure across the board, is now also putting a drag on economic activity. Overall, production remained on an upward trend into the fall, with impetus coming from easing supply bottlenecks and the continuing normalization of activity in those sectors of the economy particularly affected by the Covid-19 pandemic. Towards the end of the year, however, economic momentum weakened noticeably further. The major advanced economies in particular are currently facing a period of weak economic activity despite considerable fiscal support measures. At the same time, the problems for the Chinese economy remain significant. While global output (measured on a purchasing power parity basis) at 3.2 percent is expected to grow by 0.3 percentage points more this year than expected in September, we continue to forecast an increase of only 2.2 percent next year. For 2024, our expectation has even been reduced slightly to 3.2 percent, mainly because we do expect the US economy to recover slowly. Inflation is likely to have peaked and is expected to slow significantly over the forecast horizon thanks to lower commodity prices and easing economic tensions. However, underlying inflation is not likely to return to target levels until the end of the forecast period.
Topic:
Monetary Policy, Economy, Business, COVID-19, and Emerging Economies
Political Geography:
China, Europe, Asia, North America, and United States of America

30. World Economy Autumn 2022: Global growth falters

Author:
Klaus-Jurgen Gern, Stefan Kooths, Ulrich Stolzenburg, Jan Reents, and Nils Sonnenberg
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In spring 2022, world economic growth came to a standstill amid high inflation, persistent supply bottlenecks and elevated uncertainty. In many countries real wages are declining significantly dampening private consumption even though extra savings accumulated during the pandemic are still available to mitigate the adverse impact to some extent. At the same time financial conditions have also deteriorated as central banks tightened their policies. In China, the strict zero-covid policy and problems in the real estate sector are slowing economic activity. Against this backdrop, the outlook for the global economy has deteriorated further. We have, again, lowered our forecast and are now expecting global output to increase by only 2.9 percent this year and 2.2 percent next year (calculated on a purchasing power parity basis). The forecast assumes that commodity prices will gradually decline in line with forward prices, which will over time reduce the upward pressure on prices and provides the foundations for an economic upturn in 2024. However, the pass-through of higher commodity prices into consumer prices is probably not yet complete and wage increases are likely to intensify in many countries. Consequently, underlying inflation is likely to remain higher than in the years before the Covid crisis and remain above central bank targets over the forecast horizon.
Topic:
Monetary Policy, Business, COVID-19, Zero-COVID, Emerging Economies, and Advanced Economies
Political Geography:
China, Europe, Asia, North America, and United States of America