THE CHALLENGES OF CHINAS FOREIGN

ASSISTANCE-LED ECONOMIC INTEGRATION

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Under outdated 1994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The outdated government-government legal framework only only recognize SOEs as policy enforcers rather than stakeholder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