China's rapid rise as a formidable investor and financier has aroused concern from Washington to Tokyo. William Norris's new book explores the limits, strategic potential and practice of Chinese economic statecraft as grand strategy. “Why,” he asks, “is China sometimes able to marshal its economic power for strategic objectives and sometimes not?” Under what conditions is Beijing likely to succeed? What follows is an exceptional book: theoretically informed, empirically grounded and analytically rich.
Norris develops a principal-agent theoretical framework built around five factors that create variation in the state's ability to control commercial actors: the degree of concentration of the market; the unity of the government; compatibility of goals; the nature of the reporting relationship; and the balance of relative resources (pp. 27–36). Seven case studies – each with its own chapter – provide a powerful range of variation. Starting with the reputational problems kicked up by China National Petroleum Corporation (CNPC)’s early investment in heavily-sanctioned Sudan, Norris moves to Australia, where China's leading aluminium firm, Chinalco, was chosen by the Chinese government to take a major stake in the Australian mining conglomerate Rio Tinto.
Two chapters then analyse shifts in Beijing's use of economic statecraft toward Taiwan, from coercive leverage to interest transformation. The Taiwan cases are two of the most careful and rigorous in the book. Norris employs process-tracing and disaggregated trade and election data to show convincingly how Beijing was able to directly (and positively) affect the fortunes of geographically clustered Taiwanese fruit farmers, and in the process, to undermine the ruling DPP in its electoral heartland.
In the final three chapters, Norris explores how China invests billions in state capital overseas through the China Investment Corporation (CIC), the State Administration of Foreign Exchange (SAFE), and the National Social Security Fund (NSSF). These organizations have enormous assets and they are secretive. Norris notes that while secrecy is justifiable for commercial reasons – leaks about their intentions could shake global markets – it can also enable non-commercial, strategic investments.
A tell-tale indicator of economic statecraft would be for funds like this to engage in unprofitable commercial activities – those that are likely directed by the state for political purposes. Norris finds such an investment employed in Beijing's use of SAFE to woo Costa Rica away from Taipei. He argues that a far thicker firewall (third party asset managers, including ten foreign companies) impedes the political use of NSSF funds. CIC is somewhere in-between, but the evidence so far suggests an increasingly professional management, trying to maximize commercial returns. While this could change, Norris concludes that it is “increasingly unlikely” that the CIC “can be used as an effective tool to realize Chinese foreign policy objectives” (p. 221).
Norris's authority rests not only on his ability to mine Chinese sources and interpret Chinese thinking, but his equal ease with theories of international political economy and international relations. He spent at least two years doing fieldwork in China and in Taiwan, and it shows. Original interviews and copious Chinese sources strengthen the Taiwan analysis, the three chapters on Chinese investment funds and the Chinalco–Rio Tinto case. On the other hand, Norris's analysis of China's search for energy security in Africa does not come up to the standard established by the other chapters.
Norris argues that Beijing was “initially unable to control” China National Petroleum Corporation (CNPC) in Sudan, but was later able to “reassert its control over CNPC” (p. 69). Yet CNPC only appears in this chapter as a key actor in the “early” case (in Sudan). In outlining Beijing's response to the criticism of China's role in Sudan, Norris recounts the significant shifts in Beijing's non-interference policy, but this is normal (not economic) statecraft. He then highlights the critically important role of China's policy banks, especially China Eximbank, in greasing the wheels of deals, including oil-secured infrastructure loans. As a policy bank, China Eximbank is clearly a tool of China's economic statecraft, but that is not the argument we started with. Nowhere does Norris provide any evidence that the Chinese state in fact reasserted control over CNPC (or any Chinese oil company). Furthermore, this chapter relies mainly on secondary sources, some of which are quite dated and subject to error. For example, Norris cites a 2006 source to describe China Eximbank's US$2 billion loan to Angola as an “aid package” with an interest rate of 1.5 per cent (pp. 79, 259), but later scholars realized that this was in fact an oil-secured commercial loan at LIBOR plus 1.5 per cent, with terms quite similar to loans offered to Angola by European banks. This has very different implications for economic statecraft.
Nonetheless, one unconvincing chapter is a minor flaw in a gem of a book that does such an excellent job of marrying theory and practice in ways that make it a profitable read for academics and policy makers. It should be the starting point for anyone seeking to understand when, how and why Beijing might employ its economic policy toolkit for strategic gain.
