By Xiao’ou Zhu – Monterey Institute of International Studies Graduate Student/ UN Global Compact external researcher
Presented at the 13th Annual Symposium of CEPA
1-3 September 2014
Original Title
The Challenges of China’s Foreign Assistance-led Economics Integration – Sri Lanka as a Case Study –
By Xiao’ou Zhu – Monterey Institute of International Studies Graduate Student/ UN Global Compact external researcher
Presented at the 13th Annual Symposium of CEPA
1-3 September 2014
By Xiao’ou Zhu – Monterey Institute of International Studies Graduate Student/ UN Global Compact external researcher
Presented at the 13th Annual Symposium of CEPA
1-3 September 2014
SRI LANKA AS CASE STUDY Zhu Xiaoou- Monterey Institute of International Studies INTRODUCTION: THE MISSING LENS OF COMMERCIAL ACTOR Conventional Lens: State- Directed Activities Missing Lens: The Role of Profit- Seeking State-Owned-Enterprises in Decision Making Process Under outdated 1994 regulation SOEs: Bridging the gap betweens two states for policies serving own commercial needs THE 1994 PARADIGM A state-centered top down structure Stakeholder Analysis and Process Host Country Factor: Need Investment than Aid;Propose Projects to Beijing China Factor: Non-Intervention Principle only Accept Proposals from Host Country, Rather Than Exert Influence. Globalization Factor: Pressure of Self-Financing, Newly Reformed SOEs Take Competitive Bidding for Overseas Humanitarian Aid or BOT THE NEW PARADIGM: SOES EVOLVING INTO ECONOMIC INTERVENTIONIST Globalization Factor + China Factor + Host Country Factor = New Paradigm Aid Policy Enforcer under Planned Economy => Expansionist Commercial Actor Enterprise Exploit and Governme nt Convoy Non- Political Intervention in 1994 Paradigm + Promoting Development Model Mahinda Chintana Needs Financing THE NEW PARADIGM: STEPS BASED ON CASE OF CHEG ONE: Through 1994 Paradigm, SOEs and Chinese Global Champions undertook cash-based humanitarian aid projects to Sri Lanka, thereby establishing ties with host government and propose post-war development plan TWO: SOEs and Host Government explore areas where development priorities and investment interest intersect. Difference from 1994 Paradigm: Proposal is jointly developed by host government and Chinese business, rather than host government solely as non-intervention implies THREE: Due to the constraint of 1994 paradigm, Host Government propose low interest rate projects to Beijing, thereby obtaining financial and policy support. SOEs who participated in proposal development usually won the bid in the 1994 paradigm process. The profit margin of BOT is higher than humanitarian aid. FOUR: SOEs enter host country market and further undertake more profitable commercial projects, thus climb up the value chain of international service market. THE NEW PARADIGM: IMPLICATIONS Non-Intervention or Economic Intervention? Profit-Driven SOEs export infrastructure investment-driven development model into host countrys development plan. Serving the comparative advantage of SOEs Lack of Multi-Stakeholder Engagement: The outdated government-government legal framework only only recognize SOEs as policy enforcers rather than stakeholder in decision making, therefore doesn't encourage the inclusion of local actors in the back door decision making between business and host government. Bilateral Aid as a Fast Lane for SOEs to Climb up Value Chain into a Competitive International Market Actor THE NEW PARADIGM: IMPLICATIONS The Universality of Such Public-Private Relation In Myanmar, Sudan and Russia The Manipulation of Security Narrative for Commercial Purpose Competition between CNPC and SINOPEC in Myanmar and the Creation of Malacca Strait Conundrum The Trend of Untied Aid The Reform will Further Push SOEs to be more Efficiency-focused with any possible means, including untied aid and support from multilateral banks SUGGESTION Policy Gap: Lack of Inclusiveness Without the Participation of The Unregulated Back Door Diplomacy between Chinese Business and Host Government Might not Generate Most Inclusive Development Policy Reason: Contraction between Government-Government based Aid Scheme Profit Seeking Business using Aid Channel to Generate Policy Outcomes Serving Commercial Interests Way Forward: Horizontally Connecting SOEs, Host Government and Civil Society As Chinese business increasingly seeking international financing, imposing multi-stakeholder engagement as condition: Twin-Track under OECD DAC: Respecting the Pattern of South Donors: Creating Social Values and Investment Interest at the same time Non-State Actors Actively Engage into the Dialogue with Chinese Business