The Cambodia Conundrum: The Belt and Road, private capital and China’s “non-interference” policy

How are China’s private companies shaping the contour of the Belt and Road Initiative? Cambodia provides an important example.

By Mark Grimsditch

Since the early 2000s, Chinese overseas investment has been driven by its formidable state machinery, financed by policy banks and developed in large part by state-owned enterprises (SOEs). China’s Belt and Road Initiative (BRI) continues this trend, and the export of a development formula dominated by state capital is a key feature of the initiative. However, China’s private capital, though historically much smaller in comparison to state players, is increasingly active overseas and is now participating in and shaping the BRI, influencing China’s diplomatic and economic involvement in those countries. In some countries, public perception of the BRI is heavily influenced by private investments from China. If state capital signals China’s strategic intentions for the Belt and Road, private capital points to its economic vitality and the complex motivations behind the controversial initiative.

Cambodia is a case in point.

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A Belt and Road poster in Phnom Penh, photo by Mark Grimsditch

Investment in Cambodia is increasing rapidly, with Chinese capital surging in recent years into the manufacturing, construction, real estate and tourism industries. This investment has generated employment and contributed to Cambodia’s continued rapid economic growth, while state-backed finance has strengthened the country’s previously fragile infrastructure. Yet this has also generated significant concern. Chinese companies have over the past decade been connected to a number of high-profile controversial projects, some of which have been linked to land conflicts, displacement of local communities and environmental harms. Over the past three years, a surge in the number of private Chinese investors has created unease among local people.

While the China-Cambodia diplomatic relationship has gone from strength to strength in recent years, Cambodia’s relations with the US and Europe became increasingly fraught in the aftermath of the controversial 2013 general elections. While China has unsurprisingly remained silent on these issues, the European Union is now in the process of considering the withdrawal of crucial trade preferences. A withdrawal is likely to have a massive impact on Cambodia’s garment industry, which is dominated by private Chinese actors and deeply intertwined with companies producing materials in China. As a result, China may now find itself in the uncomfortable position of maintaining adherence to the “non-interference” policy while also ensuring that the conditions stay in place for the industrial expansion that are a central focus of Chinese state and private capital flowing into the country.

The scale of Chinese investment in Cambodia

Chinese investment accounted for 23% of all foreign investment in Cambodia during the 2000-2017 period, making it by far the largest foreign investor. Statistics from China’s Ministry of Commerce (MOFCOM) illustrate the formidable influx of Chinese investment to Cambodia. Starting at less than US$30 million in 2003, officially recorded investment from mainland China exceeded US$744 million in 2017.

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Source: Ministry of Commerce of the People’s Republic of China (2018)

Even though Cambodia was an early backer of the BRI, announced by President Xi Jinping in 2013, Chinese investment in Cambodia has fluctuated since, due in part to uncertainty around the contested 2013 national elections, which were followed by almost a year of unrest. After stabilizing in around 2015, investment began to climb again in 2016, at a similar rate to that prior to the existence of the BRI. Concessional loans from China’s Eximbank, which mostly support public infrastructure works, also fell from 2013 and have since resumed pre-BRI rates of growth.

In Cambodia, there is a relatively clear distinction between where Chinese state funding and private investments are going. Concessional lending has supported major infrastructure works such as roads, bridges, power plants and irrigation projects, which are almost exclusively developed by Chinese SOEs. Private companies, on the other hand dominate the manufacturing, tourism and real estate sectors.

The tidal wave of Chinese private investment

In the late 2000s to early 2010s, much of China’s private investment was directed towards large-scale agriculture projects. This was facilitated by Cambodia’s investment-friendly economic land concession (ELC) mechanism, through which domestic and foreign investors could receive up to 10,000 hectares for agro-industrial plantations and processing facilities. Analysis of official documents shows that out of 273 concessions known to have been granted up to 2018, 15% were registered to Chinese companies, with Vietnamese companies holding 19%.

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Source: Licadho (2018)

The ELC system became notorious for its links to land conflict and deforestation, with villagers evicted from residential properties, agricultural lands seized and converted to private plantations, waterways diverted and polluted, and indigenous communities cut off from their ancestral lands. Various concession holders came into conflict with local people, including companies from China, such as Hengfu Group, a private company from Guangzhou, and holder of the largest sugar concession in Cambodia, which has been embroiled in conflict with local communities for over 5 years.

Conflicts around ELCs and the animosity that land encroachment and seizures created among the Cambodian population eventually led to a moratorium on the granting of new concessions in 2012 and a review of existing concessions found to be in breach of the law. This moratorium has held, and while a number of Chinese concessions have been developed, anecdotal evidence indicates that many investors abandoned or sold their concessions. Although many concessions were not developed as planned, communities were nonetheless impacted by the privatization of lands and forests that they previously utilized, as they were left cleared of forest, passed on to new investors, or reclaimed by the state.

The rapid rate at which Chinese private finance poured into these large-scale plantations, and the rate at which these concessions were then abandoned or sold is indicative of a key feature of this type of private capital: it is often speculative and sensitive to recipient country opportunities, risks and changing circumstances. Chinese investment is not unique in the sense that it responds to opportunities and risks in the same way as all private capital does. As the risks associated with these investments increased, large-scale agroindustry became a lower priority for Chinese companies. Instead of investing directly in plantations, Chinese companies are now focusing on smaller farm investments and trade in agricultural commodities, which removes investors somewhat from direct exposure to land conflicts with local communities. The bulk of Chinese private investment has now shifted from large land-intensive projects towards manufacturing, real estate, tourism and casinos, industries connected closely to a rising and more mobile Chinese middle class.

Hand in glove: The state-private nexus

China’s state capital often relies on the private sector to help achieve developmental goals such as creating manufacturing jobs in recipient countries, and SOEs also benefit from contracting work on private invested projects. Cambodia provides a useful example of how China’s state capital and private interests intertwine overseas. Although investment in real estate is driven by private investors, in many cases construction work is sub-contracted to some of China’s largest SOEs. For example, the logo of China State Construction Engineering Corporation (CSCEC), one of the largest construction companies in the world, is ubiquitous across Cambodia’s capital and Sihanoukville, where the company provides construction services for many private property developers.

Nowhere is the symbiotic relationship clearer than in the manufacturing sector of Preah Sihanouk Province. Sihanoukville, the provincial capital, has become a magnet for Chinese investors, and the sprawling property, tourism and casino projects have received extensive media coverage. However, the role of state-supported Chinese capital in the industrialization of the province has received much less attention.

Through China’s aid program, the Eximbank has provided hundreds of millions of dollars in concessional loans for a number of high-voltage transmission lines across Cambodia. Several of these projects were constructed by state-owned China National Heavy Machinery Corporation (CHMC), including new powerlines linking Phnom Penh to Sihanoukville, which pass by a number of Chinese invested power and manufacturing projects, including coal plants located along the coast.

One such coal plant is developed by a joint venture of Cambodia International Investment Development Group (CIIDG), a local company owned by a powerful ruling party senator, and Erdos Hongjun, a private company from Inner Mongolia. Once fully operational the plant will have a capacity of 700 MW and a dedicated line connecting to the Sihanoukville SEZ to ensure stable power to the factories there. This is the largest SEZ in the country, and once again, is a joint venture involving CIIDG and another private Chinese conglomerate, Hongdou Group, specialized in garment manufacturing. It began development in 2008, and despite pre-dating the Belt and Road by five years, it is referred to by the Cambodian and Chinese officials as a model cooperation project under the BRI.

Aside from this major SEZ, Chinese state-financed power and transport infrastructure runs by at least three other joint Cambodian-Chinese economic zones. This includes the Stung Hav SEZ, which in 2018 signed a cooperation agreement with state-owned Metallurgical Corporation of China. The recently commenced Eximbank financed Phnom Penh-Sihanoukville Expressway will also pass by this cluster of SEZs en route to Sihanoukville City. Beyond these specific projects, China has also supported the development of feasibility studies for new railways, and state-owned giant China Merchants Group has commenced a study to develop a masterplan for Cambodia’s port development.

This chain of projects illustrates how Chinese state and commercial interests can align, with expensive state-backed infrastructure investments opening opportunities to promote Chinese enterprises to go global, in the process exporting industrial capacity and taking advantage of lower operating costs. This serves Chinese commercial interests, as companies gain access to new markets and bases for global production at a time when domestic economic growth is slowing, but also potentially feeds into Cambodia’s industrialization process, which in the medium-term seeks to diversify away from low-tech manufacturing.

China and the “Everything But Arms” conundrum

A central motivation for private Chinese companies such as Hongdou Group to establish industrial bases in Cambodia is to access the preferential trade schemes that Cambodia benefits from as a lower income country.

Since the early 2000s, Cambodia has maintained annual GDP growth of around 7% (with the exception of the dip experienced during the 2007-2008 global financial crisis). This growth is fueled by Cambodia’s export economy, the backbone of which is Cambodia’s garment and footwear industry. In 2018 the sector employed an estimated 800,000 workers and accounted for 74% of the country’s exports. Chinese owners account for the largest share of Cambodia’s garment factories. Although exact figures are hard to come by, almost 70% of Garment Manufacturers Association in Cambodia (GMAC) members are from the Greater China region: 249 from mainland China, 111 from Taiwan and 60 from Hong Kong. Membership statistics from 2008 show how rapidly mainland Chinese companies have come to dominate the industry.

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Source: GMAC (2008, 2019)

The European Union’s Everything But Arms (EBA) and the U.S. Generalized System of Preferences (GSP) are two major trade schemes that Cambodia’s export oriented economy benefits from. Both provide tariff free market access to products made in Cambodia, and manufacturers of garments, footwear and accessories have been a major beneficiary. In 2017, Europe accounted for 46% of these exports, followed by the United States with 24%.

In October 2018, the European Trade Commissioner took the drastic step of announcing that it was sending an emergency high-level mission to review the situation in Cambodia with regards to what it termed “a clear deterioration of human rights and labour rights”. This followed on from EU missions to the country that observed “serious and systemic violations” of freedom of expression, labour rights and freedom of association, in addition to long-running concerns regarding workers’ rights and land-grabbing. In February 2019, the Commission announced it had commenced the temporary withdrawal of EBA status from Cambodia. Following on from this, the US Congress introduced the Cambodia Trade Act of 2019, which called for a review of Cambodia’s GSP status. Under the GSP, tariff free trade was introduced for luggage, backpacks, handbags and wallets, which contributed to a 25% increase in Cambodia’s trade with the U.S. in 2018.

Several of those interviewed for this article suggested that EBA withdrawal would benefit China by bringing Cambodia closer into its orbit. However, given the extent to which Chinese companies are embedded in Cambodia’s export-oriented manufacturing sector, these developments are likely to be a serious concern to China. A large percentage of Cambodian exports to Europe and the U.S. are produced by Chinese-owned companies. Moreover, companies in mainland China could also lose a lucrative export market. For the most part, Cambodian garment factories follow the “cut-make-trim” model, assembling products using materials, machines and designs that are imported from overseas. Mainland Chinese companies supply the textiles and other materials to producers based in Cambodia, and the bulk of China’s export to Cambodia is fabric and other materials destined for the garment industry.

To illustrate the extent to which this is likely to impact on Chinese investments in Cambodia, we can look again to the Sihanoukville SEZ case. At present the SEZ operators claim to employ over 22,000 workers in approximately 160 factories, aiming to increase this to 100,000 workers across 300 factories by 2020. The vast majority of tenants in the SEZ are private Chinese companies focusing on light-industry manufacturing, including garments, footwear, bags and leather goods. Among the “investment advantages” touted by the operators of the SEZ is Cambodia’s “favorable trade status”. Referring to European Union regulations, the SEZ operator states that “one of the most important conditions” is that there are no restrictions on the sources of materials, meaning that garments produced in Cambodia using fabrics from China can enjoy tariff-free preferential access to the EU market. This will end if the EU withdraws Cambodia’s EBA status.

The withdrawal process could take up to 18 months, and can be stopped, if the EU deems sufficient progress has been made in addressing the human rights concerns it has highlighted. In the meantime, it remains unclear how Beijing is responding, specifically, if it is adhering to the rhetoric of “non-interference” and observing as the situation plays out, or if it is making any behind the scenes interventions.

In April, Cambodian officials claimed they have the full support of China. On the sidelines of the second Belt and Road Forum in April, Prime Minister Hun Sen met with Chinese Premier Li Keqiang and claimed that the premier promised to support Cambodia should EBA status be withdrawn. Later that month, Hun Sen met politburo member Wang Huning, and Cambodian state media reported that Wang said China had studied the issue and found no serious impacts, and that it will find “different ways” to help Cambodia. China broke its silence on the issue in June, with a representative of the Ministry of Foreign Affairs emphasizing the principle of non-interference and stating that China would support Cambodia “in resisting any intimidation or force from the West”.

Despite these public statements and apparent attempts from Cambodia to play down the impacts of an EBA withdrawal, voices of concern are widespread. Cambodia’s National Bank, the World Bank, the Garment Manufacturing Association of Cambodia, the European, Nordic and British Chambers of Commerce, and major clothing brands that purchase products from Cambodia, have all warned of the potentially momentous impacts that EBA withdrawal could have on export-focused industries and the people they employ. The simple reality is that Chinese companies that have established production bases in Cambodia benefit hugely from these preferential trade schemes, and without them could face major losses. While China could provide additional loans and development assistance to Cambodia, it is not an alternative destination for Cambodian garment exports, and is unlikely to subsidize the over $650 million annual loss that the World Bank estimates could hit the sector if EBA is withdrawn.

In the midst of the US-China trade war, Cambodia’s strategic value as an overseas production base could become increasingly important to China. Given the massive investment that the Chinese state and state-owned entities have put into infrastructure supporting the development of Cambodia’s export-driven economy, these developments will surely be followed closely in Beijing.

If China is to continue to support the industrialization and expansion of Cambodia’s export economy, in which Chinese private interests are now deeply embedded, it may have difficult decisions to make in the coming years, and a more nuanced approach to the sacred non-interference policy may be in order – with potentially interesting implications for ongoing human rights concerns in Cambodia.

Mark Grimsditch is director of the China Global Program at Inclusive Development International. The program monitors trends in Chinese overseas investment and supports civil society groups and networks to develop the knowledge and tools necessary to increase social and environmental accountability of overseas projects.

Interview: What’s missing in the conversation about China’s expanding global presence?

Longtime Belt and Road observer Zhang Hong shares her insights about the historical evolution of China’s “Going Out”

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Former Caixin journalist and George Mason University PhD candidate Zhang Hong (Stella)shares her observations about China’s “Going Out”.

Within the Chinese journalistic community, a “foreign correspondent” is a rare species. Unlike their Western counterparts, Chinese media do not have a long history of dispatching reporters globally to cover events from where they are unfolding. Due to resource constraints and, more crucially, a lack of strong domestic demand for news thousands of kilometers away from home (with the exception of a handful of countries such as the United States), media organizations in China invest grudgingly into overseas operations. The situation differs between state-owned outlets (such as Xinhua News Agency and China Global Television Network), which in recent years have increased their global presence, and more independent outlets (such as Caixin). For the former group, the need to establish Chinese image overseas, more than the improvement of Chinese understanding of foreign affairs, has been the driving force of its global expansion. For the latter group, with all the intention of doing better international reporting, the lack of state support in setting up a stronger footing in foreign countries cripples its international ambition.

Zhang Hong (Stella) was, in her own words, one of the first-generation foreign correspondents working for a non-state Chinese media organization. Stationed in Europe and North America for Caixin Media between 2009 and 2014, she filed stories for Caixin’s readers on topics ranging from reforms in Poland to the Crimean crisis. She described her years in London and Washington as “drifting”, having to conduct journalism in a foreign land without much institutional support from home. While reporting from one country to another, she picked up an emerging theme that later became her research focus as a PhD candidate at George Mason University: the growing presence of China beyond its border and its political and economic implications.

In an interview with Panda Paw Dragon Claw, Stella shared her observations about China’s “Going Out” from both her standpoint as a journalist and a researcher. She believes a “China model” is indeed discernible from the practices of China’s state capital overseas, even though it doesn’t entirely fit the predatory image that Western media are accustomed of depicting lately.

Panda Paw Dragon Claw(PPDC): When you were a foreign correspondent for a Chinese media outlet, what was your mission?

Zhang Hong (Z): My intention was to write stories with more independence than what we usually saw in Chinese state media. I always believe that international news reporting should help our Chinese readership, citizens of a great power, to obtain an understanding of the world that matches China’s global status. A citizenry without empathy for its peers around the globe would become dangerously self-centered and hubristic.

But I found that I couldn’t do what I intended to do and was affected by a sense of powerlessness. Compared to Western foreign correspondents, we did not have the kind of institutional history and tradition that guide our operation overseas. Most non-state Chinese media only began to dispatch correspondents to other countries in the second half of the last decade, after a relatively liberalized period built up their coffer and ambition. When we were stationed in a foreign country, most of us did not have an office and had to build our sources and network from scratch. Since we were not part of China’s official media establishment, we were excluded from correspondence from Chinese embassies and consulates. We were largely “on our own.”

Situation of state media colleagues were slightly better, even though they were very much shaped (and constrained) by the nature of their outlets. Many of them couldn’t do reports that were at odds with the domestic and foreign policy agenda of the Party. And they were often stationed there to spread China’s own voices, more than they were required to do high-quality reporting about that country. For example, state media reporters were sometimes tasked to publish op-eds in local media, a not unimportant part of their job description.

PPDC: What kind of China “Going Out” stories did you cover when stationed overseas?

Z: I left journalism in 2014, and before that I was mainly based in Europe. It was before the Belt and Road Initiative (BRI) became an international spectacle. The pre-BRI stories about China’s “Going Out” that I ended up covering were mainly about Chinese companies shopping for European businesses and assets that were on sale after the debt crisis of 2009. The image of China around that time was that of a “nouveau riche” foreign investor. The Europeans were a bit skeptical of the Chinese’s ability to well manage what they had acquired. And that was the main discussion about China’s overseas adventures.

PPDC: Understandably, that story changed with the BRI…

Z: The BRI focuses very much on infrastructure building, with the Chinese state, not just Chinese companies, at the center of it. The level of Chinese overseas involvement (and the stake) is much higher now than when I was covering the space.

PPDC: With the BRI now so prominent on the global agenda, and popular narratives about it being reinforced by talks of “debt traps” and US-China arm wrestling, what do you think are elements missing in the current conversation?

Z: I think the first element that is not well understood and covered is the historical aspect. BRI should be viewed in the context of China’s multi-decade political and economic evolution. Modern China began its adventure into the global market in the 1990s, and not until 1999 was the concept of “Going Out” as a strategy first laid out. Major Chinese energy companies started to systematically move into other markets around that time. In preparation for the accession to WTO in 2001, a set of policies were also created to facilitate integration into the global market. The period laid the ground for an explosion of “Going Out” activities in the 2000s. On the one hand, China’s economic reform turned the country from a closed autarky to a world factory, driving up demand for resources from around the globe. On the other hand, Chinese companies, nurtured by strong domestic demand, ventured out for new markets and supplies. BRI is an extension to that two-decade journey. To some extent, China is almost driven by an urge to compensate for being absent from the global scene for too long. It is still retaking the globalization class.

Another aspect that’s worth emphasizing is that BRI reflects the “long view” that is embodied in the Chinese political system. China’s one-party system allows the ruling Communist Party to make long term plans and strategies. That’s why you find strong continuity from the “Going Out” strategy to BRI. This is not to say that Chinese leaders in the 1990s were particularly prescient. But it does appear that the approach of “crossing the river by touching the stones” works pretty well in China’s internationalization process, where later leaderships could build on the programs of their predecessors and adapt their strategies by studying the lessons learned.

In my opinion, the reason why stories of “debt traps” or China’s “predatory” behaviors become prevalent is that the international community does not fully understand this historical evolution. And the lack of transparency on the Chinese side is also to blame. When people cannot comprehend the seemingly “sudden” appearance of China on the horizon, they respond with fear and apply familiar narratives to make sense of it.

PPDC: Besides its historical context, what else is unique about the “Going Out” process? Is there a “China Model” being exported?

Z: What I’ve taken note of, as I have written in an article about Chinese investment in Sri Lanka, is the central role played by Chinese state capital in the “Going Out” process. Their prominence does speak to a powerful “formula” of economic growth in China, whether or not you’d like to call that a “model”. This formula is obsessed with infrastructure development, as this is where state capital has comparative edge over private capital. The vehicles of China’s state capital, the state-owned enterprises (SOEs), are a new class of international players in the global economic system that we have never seen before. Fed by a massive internal market and their monopoly status in key sectors, they have grown into gargantuan corporate conglomerates within a short period of time. With that much of capital on hand, they were able to take advantage of the vacuum left by the 2008 financial crisis and extend their tentacles to new places in the world, building and consolidating their access and control of world’s resources.

These conglomerates enjoy unique advantages in the current global economic structure. Backed with the state’s financial and political support, they are much more risk-tolerant than their Western competitors, which enables them to go into the infrastructure sector in developing countries with highly uncertain economic outlooks. Engaging in such strategic sectors in turn locks in long-term structural opportunities for China in these countries. For example, after building the standard-gauge railway for Kenya, Chinese companies will remain in Kenya for years to train the locals how to operate the system according to Chinese protocols; the next generation of Kenyan engineers will know more about how to build things according to Chinese technical standards than European ones.

PPDC: How does the Sri Lanka situation illustrate the model you outlined above?

Z: The Sri Lanka case demonstrates how certain elements of the “China Model” can indeed be exported through BRI. Under a strictly defined “market economy”, the construction of Hambantota Port does not make much sense. There is no natural demand supporting a major port built out of a traditional fishing village. But China’s state capital, coupled with its existing global network, may create demand to match the supply (a new port facility on the Indian Ocean). China Merchants Group, the state-owned Chinese conglomerate that will be running the Hambantota Port, could rearrange some of its global shipping routes to go through Hambantota, creating business for an industrial zone that is to be built adjacent to the port. With CMG’s global reach and resource allocation abilities, there is a fair chance that the Hambantota port may take off as a major trade node.

In this sense, China’s development model does have some “exportability”, even though China’s one-party system itself can hardly be recreated elsewhere.

PPDC: You speak of the Chinese leadership taking a “long view” when it comes to Going Out. Is exporting the China development model the ultimate goal?

Z: I guess the ultimate goal is the so-called “national rejuvenation”. As stated by the Chinese leadership, it is to build China into a real global superpower. Probably due to the Party’s Marxist ideology (which emphasizes the economic base as a determinant in all human activities), there seems to be a firm belief that the goal needs to be achieved through economic means rather than military means. Previous socialist regimes, such as the Soviet Union, never managed to plug itself so deeply into the global economy, let alone occupying structurally important positions. For China, becoming a global superpower in the new era means attaining a strategic, structural advantage in the global economy. And its SOE-driven state capitalism is an instrument to that end. In Party talks, there is already explicit language calling for SOEs to have “capabilities of global resource allocation” and “occupy a privileged position in the global value chain.”

PPDC: As you said, the understanding of those dynamics is still very poor outside China. Do you think there is a role that Chinese media, think tanks or others can play to help shape global perceptions of the BRI?

Z: There could have been a role for them to play, as theoretically speaking they should have better access to the Chinese actors participating in BRI, providing insights that outsiders often do not have. But in reality it is hardly the case due to the generally closed culture with regard to the press. It seems Chinese journalists (barring those from the state media tasked with propaganda) hardly have better access to Chinese companies and government officials than their foreign counterparts. This might also have to do with the fact that reporter tends to be an entry-level job in China; veteran reporters either get promoted to editorial roles (so they are no longer on the frontline doing reporting) or leave the profession after being disillusioned (I myself being an example). So you are left with young reporters who are energetic and passionate about doing good reporting, but without the necessary experience. Plus, Chinese media, when doing stories, still have the tendency of writing to the ears of the decision makers, hoping to have some influence there. So I am not quite sure the Chinese media as a whole is capable of shaping the conversation as part of the global civil society.

PPDC: In 2012, you’ve written a blog titled “the Cambodians who don’t want a dam”, which documented local resistance to a China-built dam and the rejection of China’s development-first mindset. Do you think Chinese media can play the role of safeguarding against the negative impacts of the Going Out process, as many have hoped?

Z: I’m not very optimistic that they can. Having left China’s media industry, I am not in a position to comment on my colleagues’ works today, as I understand that the room for independent reporting has shrunk even more compared to five years ago. However, I am a little disappointed that, for all the attention BRI is getting across the globe, we can think of very few cases of systematic and methodic reporting of BRI from the Chinese media that can draw wide attention. I get the sense that non-state media today are becoming more and more like their state media peers in reporting only one kind of BRI story: that of Chinese investment bringing benefits to other parts of the world. I understand the limitations Chinese journalists are facing, but for someone who used to have high hopes for the profession, this is disheartening.

PPDC: If media is not there as watchdogs, how should the Going Out process been governed given its massive political, social and environmental impacts?

Z: Scholars have described Chinese players as being more elastic with rules: they can follow higher standards when they enter developed markets but are more than happy to do the bare minimum when local governance is weak. At the end of the day, without strong regulation at home, adhering to high standards of corporate conducts is only “optional.” Paradoxically, for all my skepticism about Chinese state capital’s impact on the prospect of global human development, I think it might be easier to induce responsible behaviors in China’s SOEs than private firms in the short term. I think there is real appetite for it right now as the leadership wants China to be seen as a “responsible power.” SOEs are encouraged to take measures to protect the environment and provide services to local communities where they operate. Therefore, if the international community continues to push for these issues, they might gain enough traction in the political agenda, which can then be translated into requirements for SOEs’ overseas operations. That said, having the regulations is one thing, how they are implemented is another. To fundamentally create a system where Chinese players can be held accountable for their overseas activities, deeper governance reform and cultural change within China would be necessary.