Mincing Words on Chinese FDI

China Invests (Somewhat) More in the World
Derek M. Scissors
American Enterprise Institute 
January 2014

In a deep-dive based on the data produced by the American Enterprise Institute and Heritage Foundation in their China Global Investment Tracker, Derek Scissors shows us how large China’s foreign direct investment effort has become and how fast it is growing. By the end of 2015, if all things go as expected, China will surpass $100 billion per year in funds invested overseas.

The numbers are large, but when measured against other capital flows in the past, not yet at a level which should concern average Americans. Indeed, there are significant benefits from such investments. Nonetheless, Scissors suggests, we should not assume all Chinese FDI is a good thing. He joins a growing chorus of voids suggesting that national security, the growing role of China’s state-owned enterprises, and genuine reciprocity should guide policymaker approaches to Chinese FDI as much as economic benefit.

Scissors does a superb job at laying out the key issues, and I especially liked his nuanced approach to SOEs. Disappointingly, he stops short of suggesting a framework that would allow us to distinguish Chinese investments that should be welcomed, and those that should be rejected. Reading between the lines (and in keeping with AEI’s economic approach), Scissors is more concerned about debating the laissez-faire end of the business community who would prefer that government simply got out of the business of regulating Chinese foreign investment.

A worthy roundup of the issue.

Measuring the Monsoon

“India Advances in Naval Arms Race With China”
Micha’el Tanchum
The Begin Sadat Center for Strategic Studies
January 14, 2014

Media in the west has been focused on China’s increasing assertiveness in the East China Sea and the South China Sea. Less visible in the west – but plainly evident to New Delhi – China has been moving to enhance its naval and maritime presence in the Indian Ocean for some time, being careful not to raise the stakes too quickly.

In this brief paper, Micha’el Tanchum offers a sobering, pithy explanation of how China is moving toward provoking a face-off in the IO, as the response from the subcontinent shifts from the diplomatic to the unequivocal.

India now sees China’s moves as zero-sum, as each step China makes in the region is perceived as undermining New Delhi’s strategic position in its own back yard. India does not yet seem ready for a showdown, but Tanchum’s paper leaves a concern that India is not prepared to allow China’s growing influence to continue unchecked for much longer.

 

Whither China’s Nukes

China’s Strategic Capabilities and Intent,” Rebeccah Heinrichs, Issue Brief, No. 4111, The Heritage Foundation, December 18, 2013. Heinrichs summarizes the changes taking place in China’s nuclear defense posture, noting that rather than engage in bursts of effort and spending, China has been slowly and steadily improving its offensive nuclear capabilities for years now. She also lays out a policy program that responds to these developments and reminds us that the US has ignored its own strategic forces for far too long.

India Looks at Xi

“Taking Stock of Chinese Leader Xi Jinping’s One Year Rule,” R.S. Kalha, IDSA Comment, December 20, 2013. Kalha, of the Institute of Defense Studies and Analysis in India, takes a look at the first year of Xi Jinping’s rule from a security policy perspective. His takeaway: by focusing on Japan, Xi picked the right nemesis, managing to demonstrate the real limits to the US commitment to the security of its allies in the region. More adventurism can be expected as a result.

North Korea: When Hope for Reform Died

“North Korean Regime Change”
Ralph A. Cossa
PacNet, #90
Pacific Forum CSIS
December 16, 2013

In a thought-provoking article, Ralph Cossa, who is president of the Pacific Forum at the Center for Strategic and International Studies and a noted Korea expert, comes up with a whopper of a revelation for those of us who don’t follow North Korean politics on a daily basis.

Apparently, when Kim Jong-un had his uncle eliminated in a gruesome execution last December, he was doing more than settling a family score. Korea watchers had pegged Jang Song-thack as North Korea’s best hope for a transition away from poverty-stricken kleptocracy to a functional, modern state. Chinese observers were even suggesting that Jang was Korea’s Deng Xiaoping.

Cossa’s conclusion is chilling and makes the entire report worth a read. “Imagine China’s fate if the Gang of Four had prevailed. This may have been what just happened in Pyongyang.”

To Fix China, Fix Her Cities

“The Urbanization Solution”
Lu Mai
Government Designed for New Times
McKinsey & Co.

2012

China is on the back end of the largest and most rapid urbanization in the history of mankind. In the past 30 years, the nation’s population has gone from being 80% rural to over 60% urban. Lu Mai, Secretary General of the China Development Research Foundation and an expert on rural affairs, pens a forthright essay saying that China should stay the course: the more people you move to the cities, the more manageable China’s problems will be.

At the same time, Lu doesn’t want forced relocations. The market is the best mechanism to drive the process, he says. The appropriate role for the government is to serve as an enabler, making the process of integration into the cities as smooth as possible, and ensuring that migrants are provided the necessary services and statuses to make their shift from the countryside as smooth as possible.

Lu is wise enough not to call for the outright elimination of China’s hukou household registration system. Doing so would touch politically sensitive nerves, come across as slightly wild-eyed, and anyway would miss the point. Lu’s focus is on outcomes: get people into the cities, and anticipate and address the challenges this is going to create for municipal governments and the migrants themselves.

A quick read, but a good one.

Is China a Revisionist Power?

“Understanding Chinese Revisionism in International Affairs”
Matthew Stinson
April 2, 2014

Whenever I start to think I know something about international relations (my major in school three decades ago, and my predilection ever since), I need only read something by Matthew Stinson to send me, humbled and chastened, back to the library.

Stinson, who is on the faculty at Tianjin Polytechnic University in China, is not a paid political scientist, but he writes like one, albeit rather more clearly than most. It pains me to note that much of his output is in the form of Facebook posts, a fine way to engage his friends, but not so much to give him the profile he deserves.

The most recent entry in his blog Like Cooking a Small Fish is a happy exception. In an wide-ranging and highly erudite article, Stinson explains in detail how China is changing the rules of international relations simply by refusing to play by those established by the U.S. and European powers over the last two centuries. He concludes:

In 1996, the popular Chinese nationalist book China Can Say No advanced the concept that China should no longer follow America’s lead in world affairs. Roughly twenty years later, we may be reaching a point where, thanks to Chinese power, authoritarian regimes of the Global South can also “say no” to the West and pay no penalties for it.

Thought-provoking, and for those of us who place value in the international system as it currently stands. What Stinson suggests that we face is not a future of bad actors, but one in which we will have two systems operating by separate rulesets operating side-by-side. It is the perfect recipe for global conflict.

The Other Side of the Pivot

“Economics and the Rebalance”
Matthew P. Goodman
Global Economics Monthly
Volume II, Issue 12
December 2013

To this point, discussion of Obama’s strategic pivot to East Asia has focused primarily on the military and political aspects of that shift. But as Matthew Goodman of CSIS notes, the administration has placed economics at the center of the rebalance, and has made its biggest bet on the Trans-Pacific Partnership (TPP), the trade agreement designed to link Asia and the Americas in a free-trade zone.

Goodman is emphatic: based on Obama’s approach, success of the economic end of the pivot – and of the pivot itself – depends on success of the TPP:

Without TPP, the rebalance would contain little of substance that is new and would be perceived in the region as driven primarily by military considerations.

What is more, success of the TPP depends, he notes, on Congress getting behind it. Thus, it stands to reason, the success of the pivot depends on Congress. Goodman offers recommendations for the Congress, but gently dodges the elephant in the room: will the Republicans in Congress support anything that is important to the President?

A thoughtful read, and one that offers persuasive food for thought on the administration’s Asia foreign policy.

A Cybersecurity Moment

Toward a Safer and More Secure Cyberspace
Seymour E. Goodman and Herbert S. Lin, Editors, 
Committee on Improving Cybersecurity Research in the United States
National Research Council
2007

On a day during which many of us are rushing about trying to secure our servers and our identities from the ravages of Heartbleed, we cannot help but wonder how the issue of cybersecurity can be addressed at a macro level.

The National Academies Press has just sent out a reminder that in 2007 it published Seymour Goodman, Herbert Lin’s and the National Research Council’s superb Toward a Safer and More Secure Cyberspace. The book, available free to download if you register, seems only a little dated: most of the fundamental concerns it identifies and addresses are more relevant now than they were seven years ago.

All of this is a bleak reminder that there are a lot of folks out there who are in a position to say “I told you so.” No doubt a few of them are probably having the busiest week of their lives.

Towards a New Model of Major Power Relations

Towards a New Model of Major Power Relations
John Podesta, C.H. Tung, Sandy Berger, Wang Jisi
CHINA US Focus
Center for American Progress

February 2014

Growing concern about the state of the US-China relationship is bringing the pundits out in force. Former Clinton Administration officials John Podesta and Sandy Berger got together with former Hong Kong Chief Executive C.H. Tung and Peking University’s Wang Jisi to try to figure out a new framework for the relationship.

In Towards a New Model of Major Power Relations, published by the Center for American Progress, they have produced a list of recommendations for US and Chinese diplomats to follow in an effort to stabilize the relationship.

The report makes for thoughtful reading, and offers hope for those who despair of the current state of play between the two countries. It will no doubt attract its share of criticism.

The most obvious problem is that the report gives but passing acknowledgement to the importance of domestic politics in both countries in setting the tone of the bi-lateral relationship. This is unrealistic What we need is a framework that is not based on domestic politics the way we wish they would be and that treats them as an afterthought, but that begins with our respective domestic challenges and mutual misperceptions and grows from there.

The second problem is that there seems to be an implicit assumption in the document that China actually wants a positive relationship with the US, and vice-versa. That remains unclear. China appears to be moving beyond the era of the “Peaceful Rise” to what I wild call “Assertive Breakout.” It is based in part on a perception of a declining US that recent US actions would appear to support.

As such, these recommendations are premature. Until both sides signal that they are really ready to sit down, we need a path to get to where Podesta, Tung, Berger, and Wang seem to think we are.

The NSA, Snowden, and the Elephant in the Room

Recent revelations from the Snowden-Industrial Complex (SIC) appear to offer evidence that the U.S. National Security Agency hacked into one or more corporate computer systems at Chinese telephone giant Huawei. This was done, ostensibly, to search for evidence to support the suspicion that Huawei was operating in cahoots with the Chinese government to the detriment of US interests.

All of these revelations are fascinating, but there is an elephant in the room that we’re missing amid the outrage. What, if anything, did the NSA find in Huawei’s computers? Was the US, in retrospect, looking for a chimera, or did they find evidence of the complicity for which they were searching?

The fact that the latter has not been addressed suggests that the SIC is being selective about its disclosures, either because of an implicit agenda, or, perhaps, because Snowden has new masters.

China and the Money Diversion

China After Tian’anmen
Perry Link
The New York Review of Books
31 March 2014

Those among us who watch these sorts of things, but who don’t talk about them, share a quiet understanding that 2014 is one of those little anniversary years in China.

The fourth of May marks the 95th anniversary of the May Fourth Movement, a 1919 grassroots nationalist campaign protesting the Chinese government’s handling of the Versailles treaty, a key event in the history of the Chinese revolution. The first of October marks the 65th anniversary of the founding of the People’s Republic of China; and the fourth of June marks the 25th anniversary of the incident in Beijing’s main public square in 1989.

It is perhaps this latter milestone that inspired Rowena He to pen her new Tiananmen Exilesand that inspired Perry Link to write the foreword to that book. The foreword is excerpted in Link’s NYRB essay.

In his article, Link takes us through the background of China’s modern social contract: the shock of the June 4th incident was followed by a concerted effort on the part of the Party to shift the nation’s focus away from politics and toward prosperity. Commerce, opportunity, rising living standards and the social stability that made all of them possible absorbed the attention of the nation for the next two decades. The quid pro quo, of course, was that the people would not ask hard questions of their leaders.

For a generation, this approach has yielded great success as China’s economy continued to rise on the back of consistent and high economic growth. But the number of people enjoying consistently rising standards of living is falling, and the nation faces simultaneous crises in both the environment and ethics. As Link notes:

At a deeper level, though, Chinese people (like any) do not feel secure in a system built on lies. The wealthy send their money abroad—and their children, too, for education. In 2013 several surveys and reports showed sharp increases in the plans of whole families, especially among the wealthy, to emigrate, and there is no reason to think that poorer people would not follow this trend if they had the means.

The nation’s most prosperous are turning into a quiet flood of refugees to societies with rule of law, strong ethical systems, and who place limits on opportunity in favor of a better lifestyle.

Link summarizes a narrative familiar to many of us. It does more than simply justify the current silent exodus: it sets the stage for the next act in China’s economic and political evolution.

China is Not Ready for a Short, Sharp War

“Is China Preparing for a “Short, Sharp War” Against Japan?” Brookings Institution. Jonathan Pollack and Dennis Blasko name the elephant in the room in Asia. Their call: the alarm bells sounding at the US Pacific Fleet are premature because China lacks either the doctrine or preparedness to conduct such an operation. The conclusion is debatable, but it is interesting to note that the issue in debate is neither motive nor opportunity, but capability.

Op/Ed: Our Ally in Tokyo

“Stand With Our Ally in Tokyo”
Rep. Randy Forbes

The Diplomat
18 February 2014

Representative J. Randy Forbes, (R-VA), writes this editorial in The Diplomat urging us to stand behind our ally in Tokyo. He makes some good points.

But this is a piece of political advocacy, not a balanced treatise. Forbes needs to be both the political leader and the strong diplomat. While we should stand behind all of our alliances, we should also make clear to our allies that there are conditions.

If Japan provokes China, we will not back them. If Japan fails to negotiate settlements with China in good faith, we will not back them.

And if Japan seeks our backing, they must publicly own up to, and apologize to the Chinese people for the atrocities committed against them in the name of the Chrysanthemum Throne prior to 1945. Failure to do any of that undermines our legitimacy in the eyes of not just the people of China, but of the people in Asia as a whole.

There are no white hats in Northeast Asia. We cannot ignore China’s creeping hegemony, but we cannot ignore the slow-motion effort of Japan’s militant right wing to rewrite history, either. Before we decide to throw our full weight behind one side or the other in this conflict, let us make certain we are acting in accordance with all of our values, not just one.

CIGI: East Asia Wants Into the Arctic

East Asia-Arctic Relations: Boundary, Security and International Politics
Centre for International Governance Innovation

This is a superb recent series of papers from CIGI about the evolving geopolitics of the arctic, this article focuses on the ambitions of East Asian nations like Japan, Korea, and China in the Arctic.

Sovereignty in the Arctic has been a latent issue, and international practice has been that the countries that have lands in the Arctic have essentially divided the region among them. Climate change, and the alterations that it is making to Arctic geography, are turning the region from a frozen wasteland to a shipping channel and a storehouse of natural resources seemingly begging for exploitation.

That change is also changing the attitudes of nations outside the club of countries with Arctic lands, and the countries of East Asia are making a more assertive case that they have interests in the arctica as well.

The entire series is superb, but Kai Sun’s “China and the Arctic: China’s Interests and Participation in the Region” will be of particular interest to Peking Review readers.

 

Korea Goes Rogue on China’s ADIZ

Korea’s Mistake on China’s ADIZ Controversy | Center for Strategic and International Studies – Dr. Victor Cha of the CSIS calls the government of South Korea to the carpet for allowing China to play “divide-an-conquer” on the ADIZ issue. Korea had apparently quietly and unilaterally approached China on redrawing its ADIZ to eliminate overlaps with Korea’s ADIZ. Cha says the ROK broke faith with its allies in the region when it did so.

China and the New African Great Game

A Trilateral Dialogue on the United States, China, and Africa
Conference Papers
May 13, 2013

There is a massive literature on China in Africa, and over the next few weeks I am going to be posting links to some of the better, more interesting resources in that regard. This particular Brookings conference paper, which frames a “trilateral” dialogue between the US, China, and Africa, is thought-provoking piece. Africa’s challenges are certainly large enough that they must be addressed by the locals and the world’s two largest powers, and even then, there is no guarantee that they would be addressed.

Despite points of light like South Africa, the continent seems to have fallen into something of a holding pattern. Progress remains, well, moderately paced. Poverty, AIDS, environmental degradation, and politics that put Byzantium to shame offer China a fertile field for political and commercial engagement, but the problems that hold the continent down remain intractable.

You could start a good fight at a cocktail party in Beijing by suggesting that China is just the latest boot on the collective neck of the people in Africa. Yes, the assertion is hyperbolic, but it raise the question of whether Beijing’s engagement has been any better for the people of Africa than colonial exploitation or the misguided foreign aid regime promulgated by the US since the 1960s. Indeed, a read through this paper offers the unappealing suggestion that just as we in the west are questioning the value of aid, China is doubling down on handouts. China, it seems, has not learned much about what works in Africa since its own ill-fated ventures there in the 1960s. If what China is practicing in Africa is not some variety of mercantilist neocolonialism, I would be pleased to know what to call it.

And the US is no white hat, here. In fact, it is starting to look like we have already passed the high-water mark of engagement with Africa beyond the ongoing terrorist hunt. The Obama-Hegel review of defense spending makes it apparent that the Department of Defense will gut the Africa Command (AFRICOM) in the coming years, and I would bet on the DoD standing down the command before 2020. As it must be: given the resources available the US is arguably best off returning to a hemispheric strategy, allowing Beijing (and possibly Delhi) to fall into the Imperial Overreach trap.

As recent events in Libya and Mali demonstrate, Europe remains better positioned historically and otherwise to engage in Africa than the US. But ongoing economic issues – and Russia’s growing adventurism – means that the focus of European defense will most likely shift east again, even if the economies of Europe and Africa become increasingly interlocked through immigration and trade.

The real story for Africa will be how to balance the growing influence of China with that of India. The Middle East, while the destination of many African exports, is (as Europe) set on its own Via Dolorosa as the politics of the region evolve. India and China, with robust economies and growing competition, look to be the next players in the African Great Game.

The question now is what form that great game will take. Brookings is appropriately concerned that the continent will become increasingly dependent on its emerging market trading partners. The nations of Africa need political stability, economic growth, and a population able to spend money. Those things will not happen if Africa once again finds itself on the wrong end of a mercantile economy, in particular if corrupt elites and bureaucracies can lean on their opportunistic Chinese and Indian patrons for support.

Understanding China’s NSC

Decoding China’s New “National Security Commission”
Joel Wuthnow, Ph.D.
CNA

November 27, 2013

In the wake of the meetings of the Congress of the Chinese Communist Party in November, the government announced the creation of a new body to unify and oversee China’s national security apparatus.

At first blush, the body looks a lot like the US National Security Council. Even though details are scant, dissection of the announcement by CNA’s China specialists suggest that there are subtle yet important differences, and some real bureaucratic challenges. CNA’s Joel Wuthnow pulls together those opinions to begin to add some clarity to the enigma that is China’s NSC.

This is a great read, if for no other reason than to get a glimpse at the birth of a body that will become an important force in global politics going forward.

On November 12, 2013, the People’s Republic of China (PRC) announced the creation of a new “National Security Commission.” Although few details were offered, PRC official sources and commentary by senior PRC security experts provide insight into its purpose and expected achievements. – See more at: http://www.cna.org/research/2013/decoding-chinas-new-national-security-commission#sthash.3D22PgnL.dpuf
On November 12, 2013, the People’s Republic of China (PRC) announced the creation of a new “National Security Commission.” Although few details were offered, PRC official sources and commentary by senior PRC security experts provide insight into its purpose and expected achievements. – See more at: http://www.cna.org/research/2013/decoding-chinas-new-national-security-commission#sthash.3D22PgnL.dpuf

Pharma’s Next Billion Patients

bcg.perspectives – Pharma’s Next-Billion Patients

BCG offers a fascinating look at what is at stake for big pharma in China. For that reason alone it is worth reading if you have even the least interest in healthcare in the PRC.

The report’s omissions are glaring, however. Perhaps because it would be impolitic to mention, the report avoids the really tricky questions around pharma in China today. One glaring example: it fails to mention the industry’s long-standing dependence on unsavory practices to get drugs prescribed, and how such behavior places the entire pharmaceuticals industry at risk of heavy-handed government intervention.

As the GSK case proved last summer, the growing focus on healthcare at the highest levels in China’s policy-making apparatus means that the pharma business needs to clean up its act, lest it become a victim of China’s healthcare boom rather than a beneficiary.

BCG’s researchers and consultants almost certainly knew this was a danger long before the GSK case came to light. That they did not bring this out in the report – that they pulled their punches – reduces what deserves to be an industry primer to the level of little more than marketing collateral.

BCG’s report is an essential piece in understanding the pharmaceutical business in China today. It should be read with an ample dip into the news that has come out since its publication.

Figuring Out Chinese Travelers

Winning the Next Billion Asian Travelers—Starting with China
Frank Budde, et al.
bcg.perspectives
December 5, 2013

We are not shy to criticize the conclusions of the major consulting houses when they get it wrong on China, so it is only fair that when we catch them doing something right, we say as much. Such is the case with the Boston Consulting Group’s report on China’s outbound travelers.

The report gets it right in some important areas, most notably on the importance of segmenting the market. Not all Chinese tourists are created equal, and those segments will evolve as more tourists spend more time overseas. Mr. Budde and his fellows then go one better: they offer nine strategies for companies to follow when chasing the Chinese consumer.

As with all general prescriptions, it is easy to quibble on particulars, but in our experience the BCG report provides a great starting point for building 1-3 year strategies for addresing this evolving – and lucrative – market.

On Chen Guangbiao

While we all make merry at the antics of Chinese scrap metal merchant Chen Guangbiao, who has come to America to buy a major national newspaper, we would do well to remember that of such characters history is made. Georges Danton, the great French revolutionary, once said, “il nous faut de l’audace, et encore de l’audace, et toujours de l’audace” (“we need audacity, and yet more audacity, and always audacity.”) Or, as my grandmother said, “you gotta have chutzpah.” He is the harbinger of more such Chinese personalities who will seek to own the great media outlets of the west, and many of them are likely to be better funded and more subtle in approach.

China’s Assertiveness: Seven Years in the Making (At least)

Imperialism with Chinese Characteristics? Reading and Re-Reading China’s 2006 Defense White Paper
Mike Metcalf
NI Press
September 2011

Flag ~ China - People's Liberation Army

Flag ~ China – People’s Liberation Army (Photo credit: e r j k p r u n c z y k)

Mike Metcalf, a member of the faculty at the National Intelligence University in the US, has spent a lot of time parsing China’s seminal 2006 Defense White Paper. China has issued such signalling documents in the past. What distinguishes this one, according to Metcalf, is that it points Beijing toward a national security posture that goes beyond territorial defense.

In the publication, Metcalf provides his own overview of the white paper, then offers two translations of the analysis of the paper by the man considered its pricipal drafter, Dr. Chen Zhou of the PLA Academy of Military Sciences, as well as Metcalf’s own analyses of Dr. Chen’s point of view.

It is a rare treat to have an informed and scholarly discussion on Chinese source material made available in a format the rest of us can digest. All the more so given that the import of this book is to prove that China’s assertive nationalism is not a product of Xi Jinping’s making, but something that has been in the works for nearly a decade. As such, it is hard to expect this direction to be fleeting: we are looking at what is likely to be a lasting trend in Chinese international relations.

Prospects for the Shanghai FTZ

The Role of Economic Development Zones in National Development Strategies: The Case of China by Wang Xiao is a doctoral dissertation submitted to the Pardee Rand Graduate School. The author takes a methodical, data-driven approach to determine the extent to which economic development zones actually helped China’s development, when they did so, when they were less helpful, and what makes for more effective zones. The conclusions offer a hint as to the prospects for Shanghai’s much-ballyhooed Free Trade Zone to help in China’s search for an economic second wind.