China’s “Grand Strategy” in Latin America

The following is an excerpt from the Rapporteur’s Report for the Dialogue’s most recent China and Latin America Working Group meeting, which took place on February 16, 2012. Topics of discussion included China’s “grand strategy” in Latin America, assessments of Chinese foreign direct investment and lending practices in the region, the extent to which Latin America can develop a consolidated regional response to China, and the role of the United States in China-Latin America relations.

China in Latin America: Unitary actor or “fragmented authoritarian” state?

There has been considerable debate in recent years about Chinese strategy for global engagement. The Chinese central government first implemented its “going-out strategy,” or zouchuquzhanlue (走出去战略) in 1999. The policy encouraged firms to go abroad in an effort to supplement China’s supply of natural resources, promote the export of goods and services, and foster the development of China’s multinational companies. Since implementation of the “going-out strategy,” and especially over the past decade, China’s firms have become increasingly active overseas. What remains unclear is the extent to which the interests of China’s central government are well-aligned with those of Chinese commercial actors. Also of interest is the extent to which Chinese state is capable of intervening in the overseas activities of its firms and financiers. Does China really possess a well-conceived “grand strategy” when operating in certain regions? Does it have a strategy or policy for engaging Latin America, in particular?

Working group participants agreed that any assessment of China’s “grand strategy” in Latin America and elsewhere must be conducted at the firm level, or on a deal-by-deal basis. According to William Norris, a China expert at Texas A&M, there are occasions when China acts as a unitary state, with very clear national goals. But there are also instances when China acts in a seemingly fractured and divergent manner. Although China upholds a centralized hierarchy, variations in interpretation and implementation among different institutions and at different levels of Chinese government have led to wide-ranging — and even perplexing — outcomes in China’s interactions abroad.

Norris explained that variations in China’s model of engagement are attributable, in many cases, to the growing complexity of China’s political system, and to decentralization of the decision-making process. At the very top of the Communist Party, the elite members of China’s Politburo Standing Committee issue broad suggestions for China’s development. These suggestions are then interpreted and implemented by at least three institutional decision-making centers: the Party apparatus, the State Council, and the Central Military Commission, each with its own subordinate organizations, interests, and motivations.

A “tyranny of time,” according to Norris, forces all but the senior-most decisions to be deferred to lower levels of the decision-making apparatus. Wei Hongxia of the Carnegie Endowment for International Peace noted that a lack of coordination at lower levels and competing interests among bureaucracies affect the ways in which China interacts globally, leading to variations in approach. Reliance upon personal networks in Chinese politics introduces additional complexities, Norris explained.

The extent to which Chinese companies coordinate with the state when negotiating abroad also appears to vary considerably, often depending upon the scale or importance of the deal in question. Deals are typically made abroad by Chinese companies, and then brought to the China Development Bank or China Export-Import Bank for financing, according to American University’s Deborah Brautigam. Brautigam added that deals in Africa are often composed of multiple contracts — a financing component from the China Export-Import Bank, for example, separate components specific to the deal itself, and other related contracts. They are pieced together into a package that is understood to be cohesive. There is very little clarity, however, in terms of processes for negotiation and planning among the various Chinese entities involved. Sun Hongbo of the Chinese Academy of Social Sciences added that heads of companies are sometimes left to interpret exceedingly broad central government guidelines and regulations when operating abroad.

In many cases, the state is often struggling to catch up to the actions of its overseas firms, according to Norris. China is increasingly reliant upon commercial actors to secure key inputs into the Chinese economic production cycle. The “going-out strategy” appears to allow Chinese firms a degree of autonomy in an effort to accomplish this, according to National Defense University’s Evan Ellis. However, a lack of bureaucratic coordination means that China’s firms are increasingly “leading it by the nose” into uncharted –and potentially hazardous — territory, according to Matt Ferchen of Beijing’s Tsinghua University. Norris agreed, adding that commercial actors with divergent interests have the ability to cause externalities for China. They have already done so in Peru, Burma, and elsewhere, Ferchen explained. Participants added that China Development Bank-led engagement with Venezuela is drawing China into a precarious political situation.

Norris called for better understanding of the relationship between Chinese commercial actors’ incentive structures and those of the state. In many cases, it is difficult to determine whether the Chinese state is intervening in deals because the interests of state and commercial actors are essentially the same. However, according to Norris and Wei, there are plenty of instances in which the interests of Chinese companies do not align well with those of the central government. These instances provide the best opportunities for analysis of stakeholder motivations.