CHINA STUDIES REVIEW CHINA STUDIES

volume REVIEW

vol 5 20195 | 2019 Featuring Articles by

Sam Boone Dominic Chiu Kevin Garrahan Brian Hart Michael Sutherland Anna Woods Shangsi Zhou © 2019 The China Studies Program of the Johns Hopkins University Paul H. Nitze School of Advanced International Studies Publication of SAIS China and the China Studies Program All rights reserved.

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volume 5 CHINA STUDIES REVIEW

The SAIS China Studies Review is a publication of SAIS China and the China Studies Program at the Johns Hopkins Paul H. Nitze School of Advanced International Studies.

The Review publishes interdisciplinary work by graduate students conducting research on China, including history, political science, economics, policy, security, and area studies.

i  SAIS China Studies About SAIS China Faculty and Associates in Washington, D.C.

China Studies Review is a publication of SAIS Andrew C. Mertha China, which encompasses all of the formal George and Sadie Hyman Professor of China-related programs at the Johns Hopkins China Studies, University School of Advanced International Director, China Studies and SAIS China Studies (SAIS). SAIS China is anchored by the China Studies Program at SAIS in Washington, Madelyn Ross D.C., which offers multidisciplinary graduate Associate Director, China Studies courses on U.S.-China relations, China’s Executive Director, SAIS China foreign policy, domestic politics, security issues, leadership, environment, economic Carla Freeman development, and Taiwan and cross-strait Associate Research Professor and Executive relations. Students also complete courses Director, SAIS Foreign Policy Institute related to the wider Asia-Pacific region across the school’s more than 20 additional David Bulman areas of study, taught by leading scholars Assistant Professor and practitioners in their fields. Ling Chen Assistant Professor, SAIS students have several options to International Political Economy pursue coursework in China. The Hopkins- Nanjing Center (HNC) in Nanjing began Ho-Fung Hung operations in 1986 and is the longest- Professor, Political Economy running partnership between a Chinese and American university in China. It is Peter Bottelier jointly administered by Nanjing University Affiliated Scholar and Johns Hopkins SAIS. Students have the option of one- or two-year courses of study Deborah Brautigam in Nanjing, or they can spend one year in Professor, International Political Economy Nanjing and continue their studies at SAIS Director, China-Africa Research Initiative centers in Washington, D.C. or Bologna, Italy. Students must have intermediate to advanced- David G. Brown level proficiency in Chinese prior to beginning Affiliated Scholar study in the certificate or master’s degree programs at the Hopkins-Nanjing Center. Michael Chase Adjunct Professor

The SAIS-Tsinghua Dual Degree Program, David Keegan which began enrolling students in 2015, is Adjunct Professor offered by Johns Hopkins SAIS jointly with the International Relations Department at Natalie Lichtenstein Tsinghua University. Students spend one year Affiliated Scholar at Tsinghua University in Beijing followed by three semesters at SAIS in Washington, D.C. Anne F. Thurston With courses taught in English, this program Adjunct Professor and Director, offers the opportunity for students to gain Grassroots China Initiative both a master of arts from Johns Hopkins SAIS and a master of law from Tsinghua University. Shahid Yusuf Adjunct Professor ii THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW Student Editors

Naomi Garcia Editor-in-Chief Jake Morris

Naomi Garcia is a second year SAIS M.A. Jake Morris is a first year SAIS M.A. candidate candidate with a dual concentration in with a primary concentration in Strategic China Studies and Korea Studies. Naomi Studies and a minor in China Studies. is currently an intern at the National Bureau Jake is pursuing a five-year combined BA/ vol 5 of Asian Research. Prior to SAIS, Naomi MA program with Hopkins’ undergradu- |

attended the Hopkins-Nanjing Center ate campus in Baltimore. He has studied 2019 during which time she was an intern at abroad in Yunnan and worked for Sena- the American Chamber of Commerce in tor Chris Murphy. He can be reached at Shanghai. She can be reached at nlgarcia@ [email protected]. smcm.edu. Tarela Osuobeni Rona Vaselaar Managing Editor Tarela Osuobeni is a second year SAIS M.A. candidate in China Studies. Prior to Rona Vaselaar is a 2019 SAIS M.A. grad- enrolling at SAIS, Tarela studied Chinese uate with a dual concentration in China and American studies at the Hopkins-Nan- Studies and Conflict Management. After jing Center. Her research interests include graduating from SAIS, she joined the U.S.- political risk in Asia, Chinese politics, and China Policy Foundation as a Program and China-Africa relations. She can be reached Research Assistant. She can be reached at at [email protected]. [email protected]. Qiang Wu Brian Hart Qiang Wu is an MIPP candidate with a Brian Hart is a 2018 graduate of the Hop- concentration in China Studies. Prior to kins-Nanjing Center and a current M.A. enrolling at SAIS, Qiang worked for the student at SAIS concentrating in China Foreign Affairs Committee of the National Studies. He earned a B.A in Politics and People’s Congress in Beijing, China and International Affairs from Wake Forest earned his M.A. degree in Economics at University and has interned at the Center Kyoto University, Japan. He is interested in for Strategic and International Studies, the the dynamic interaction between China’s Project 2049 Institute, and Trivium China, domestic politics and its foreign policies. where his work has focused on U.S.-China He can be reached at [email protected]. relations, Chinese politics, and Chinese tech innovation. He can be reached at [email protected].

iii  Editorial Board

Editor-in-Chief Naomi Garcia

Managing Editor Rona Vaselaar

Editorial Advisors Carla Freeman Madelyn Ross

Student Editors Brian Hart Jake Morris Tarela Osuobeni Qiang Wu

iv THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW

Table of Contents

Letter from the Editor Research Articles Naomi Garcia China’s Influence on Interpol:

1 vol 5 Progress and Pushback

Commentary Sam Boone | 2019 7 Sino-Capitalism: Demystifying the Paradox of China’s Hybrid Challenges to SOE Mixed Ownership Political Economy Reform in China: A Case Study Shangsi Zhou Dominic Chiu 3 21 Hedging its Bets: China’s Strategies in Pursuing Global Food Security Anna Woods 31 Organizational Reform as a Key Driver of Chinese Military Innovation Brian Hart 44 An Innovation-Driven Economy with Chinese Characteristics Kevin Garrahan 55 Setting a New Standard: Implications of China’s Emerging Standardization Strategy Michael Sutherland 64

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only did we gain in knowledge and profes- Letter from sionalism throughout this process, but we also contributed to—and became a more the Editor intimately connected part of—the broader China Studies and SAIS network. We deeply appreciate your readership, your support, and your continued involvement in the We are truly happy to present to you, our China Studies Review. fellow SAIS affiliates and the broader China Studies community, the fifth edition of the The research contained within this edition

Johns Hopkins SAIS China Studies Review was conducted by students during their time vol 5 (CSR). The following pages explore recent at SAIS. Submissions were selected by our |

economic, technological, and political devel- talented team of student editors via a dou- 2019 opments in China—and what they mean for ble-blind review of anonymized manuscripts. the United States and for international gov- Each paper was given an overall score of ernance at large. “strong reject,” “weak reject,” “weak accept,” or “strong accept.” The minimum require- Our edition begins with Shangsi Zhou’s ment for publication was two double-blind exploration of the unconventional growth strong accept results; all papers meeting of market capitalism in China’s state-gov- this requirement were accepted. In scoring erned economy. Her essay is followed by these papers, our team of editors adhered Sam Boone’s timely review of China’s rela- to a specific set of guidelines designed for tionship with the International Criminal CSR. For your perusal, this guide is located Police Organization (Interpol), reflecting on on the SAIS CSR website at saiscsr.org, under the ways in which China uses international the tab “reviewer guidelines.” organizations to fulfill domestic goals. The next article is Dominic Chiu’s review of the We would love to hear from you. Please inefficiency of China’s state sector and the don’t hesitate to reach out to both our inherent difficulties that exist in reforming authors and editors, whose respective state-owned enterprises. The fourth entry is emails are included in their short biog- Anna Woods’ examination of China’s growing raphies. In addition, we are proud to food insecurity and the ways in which China announce that the 2018–2019 CSR team leverages international organizations and will now be accepting alumni publications multilateral relationships in attempts to mit- for the website; we welcome you to submit igate future shortages. Her work is followed your China-related research to saischina by Brian Hart’s research regarding technolog- [email protected] for review. Enjoy ical innovation in China in terms of strategic this edition, the fifth volume of the China military development, and how this impacts Studies Review! U.S.-China technological competition. Next, Kevin Garrahan examines China’s path to Naomi Garcia becoming a world leader of innovation, and the challenges presented by China’s current economic structure to this transition. Naomi Garcia is a second year SAIS M.A. Finally, Michael Sutherland concludes this candidate with a dual concentration in China edition with his review of China’s transition Studies and Korea Studies. Naomi is currently from a “standards taker” to an international an intern at the National Bureau of Asian “standards maker,” and what this means for Research. Prior to enrolling at SAIS, Naomi international governance organizations. attended the Hopkins-Nanjing Center, during which time she was an intern at the Amer- I believe that I speak for all of us, student ican Chamber of Commerce in Shanghai. authors and editors alike, in saying that not She can be reached at [email protected].

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Despite the ongoing controversy about the Commentary sustainability of the Chinese authoritarian capitalism model, there is no doubt that the realization of China’s phenomenal catch-up success should be credited to its idiosyn- Sino-Capitalism: cratic innovation of a dual-functioning political-economic structure.2 The unique Demystifying “Sino-capitalist” model,3 or as others have termed it, the model of “directed impro- the Paradox of visation,”4 “structured uncertainty,”5 or 6 “experimentation under hierarchy,” cre- vol 5 China’s Hybrid ates a middle ground between central |

planning and a laissez-faire approach. 2019 Political Economy It enables China to harness both state capacity and market forces by combining top-down bureaucratic leadership with bottom-up experimentation with local agents and markets.7 Therefore, based on the existing literature on Chinese political Shangsi Zhou economy, this commentary argues that the institutional innovation of an adaptive dual-track political-economic system, which Shangsi Zhou is a second year SAIS M.A. safeguards both the state and the market, student concentrating in International is the key to understanding how China can Political Economy. Her research interests overcome the contradictions and develop include the political economy of develop- synergies between political guidance and ment, transitional economies, comparative market competition.8 This essay will draw institutional analysis, and social inclusion. upon the examples of institutional inno- She was previously an intern at the John vations in business sector development L. Thornton China Center of the Brook- (consisting of both state-owned and pri- ings Institution. She can be reached at vate enterprises), foreign investment and [email protected]. trade liberalization, and domestic industrial upgrading in the global production system. Is authoritarianism inherently incompatible As each case shows, Chinese institutional with, or does it only provide barren soil for, innovation has been a careful compromise the seeding of a capitalist market economy? between the pre-existing institutional leg- Political economists have long debated the acies, i.e., China’s socialist authoritarian feasibility of symbiosis between two seem- system, and the subsequent modification ingly contradictory forces, i.e., market and or creation of novel institutions to promote state, in facilitating economic develop- a market economy. ment. Conventional analysis supports the view that democracy, rather than authori- The development of China’s business tarianism, provides more fertile ground for sector has been marked by a series of fostering a capitalist economy and growth.1 policy innovations for the advancement of However, the rise of China, an authoritar- state-market coevolution. A peculiar feature ian party-state embracing the ideas of of the business sector in China has been the marketization and globalization, seems vacillations between power centralization to empirically challenge the conventional and further relaxation of the party-state’s wisdom, which claims capitalism can only control over the economy. As stated by Hei- flourish in liberal democracies. lman,9 Naughton and Tsai,10 and Chen,11 the reform of state-owned enterprises in

3 China remains one of the most challenging Party (CCP) and private entrepreneurs. For tasks because of the vested political inter- the CCP rulers, recruiting entrepreneurs ests in this reform and its stake in regime into the CCP enables them to appease stability. Nevertheless, this top-down grad- political dissidents and to consolidate ualist reform approach does not preclude state-business connections in China. These policy experimentations that work for the connections help maintain, albeit indirectly, realization of both useful central guidance the dominance of the CCP over the regime

The economic rent generated from the significant enhancement of China’s global competitiveness through guided liberalization, in turn, sustains the resilience of authoritarianism in China.

and marketization. The policy of “grasping and enable the rulers to share the material the large and letting go of the small” (抓大 rent generated by the private sector.13 On 放小, zhuada fang xiao) in the mid-1990s the other hand, private entrepreneurs are and the creation of the State-owned Assets also motivated to join the CCP since it helps Supervision and Administration Commis- establish good political connections (关系, sion (SASAC) in the early 2000s are cases guanxi) that are important when doing busi- in point. Compared with China’s past under ness in China; it also helps business elites the central planning system and with its advance their political careers, knowing Asian democratic counterparts, these two Party membership acts as a political career reform initiatives improved the competi- entry ticket in China.14 In the end, corpo- tiveness of large SOEs with the purpose rate governance over both the state-owned of creating industrial champions as a means enterprises and private enterprises in China of defending national interests; they also has been driven by institutional innovation increased market competitiveness by relin- that takes into account the duality of the quishing the state’s direct control over state and the market that is specific to the smaller SOEs. Chinese context.

However, relaxation of the state’s direct Regarding foreign economic relations, China control over privatized SOEs and the has successfully integrated into the global booming private sector in China does not economy through foreign investment and equate with weakened party-state guidance international trade by formulating an inno- over the increasingly complex economy. vative dual-track system, harnessing both the Instead, China’s government has been forces of the state as well as the market. The able to adapt to this relative decentraliza- key enabling factor for China’s transforma- tion by embedding itself in the changing tion into the world’s workshop and source of socio-economic structures during business outward investment relies on policy experi- sector reforms.12 In China’s private busi- mentation under the overarching guidance ness sector, co-optation in the form of the of the central government, which stimulates recruitment of private entrepreneurs into the reception and internalization of interna- the party system—”wearing red hats”—can tional capital while maintaining the smooth be viewed as an institutional innovation that channeling of policy information from the helps construct a mutually beneficial rela- top. The development of Special Economic tionship between the Chinese Communist Zones (SEZs), beginning in the 1980s, could

4 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW be viewed as another case of China’s adaptive competition from the global market. As institutional experimentation. As indicated by each case shows, the reason China can the name, SEZs refer to a limited number of reconcile the competing forces of the designated pilot regions that adopt more state and market is attributed to its institu- favorable and liberalized economic policies tional innovation of an adaptive dual-track than found in other parts of the country. A political-economic system preserving the critical objective of SEZs is to expand foreign interactions between the state and the trade and investment, and more implicitly market. This idiosyncratic institutional inno- to introduce and internalize foreign capital, vation is established to balance between resources, and technical know-how from the country’s socialist institutional legacies abroad without overthrowing the overarching and its need for economic development, vol 5 state supervision.15 The unique policy cycle by incorporating entrepreneurial forces at

20 |

in the governance of investment and trade the local level. The sustainability of this 2019 enables the state to conjoin its guidance “Sino-capitalism” model remains hard to from above and secure competitive market predict considering the incompleteness of forces from below, and the economic rent China’s market transition, but the invention generated from the significant enhancement of this innovative political-economic model of China’s global competitiveness through provides an institutional explanation for the guided liberalization, in turn, sustains the Chinese economic miracle through the past resilience of authoritarianism in China.16 forty years of reform and opening-up.

Accordingly, the final point concerns the 1 For example, see: Seymour Martin Lipset, creative way in which China manages to “Some Social Requisites of Democracy: deal with the competing forces of the Economic Development and Political state and market in domestic technolog- Legitimacy,” American Political Science Review ical development, which enables it to 53, no.1 (1959): 69-105; Adam Smith and move up the global value chain from low- Edwin Cannan, The Wealth of Nations (New end labor-intensive industries to high-end York, N.Y: Bantam Classic, 2003); William J. capital-intensive industries through manu- Baumol, Robert E. Litan, and Carl J. Schramm, facturing-centered upgrading.17According Good Capitalism, Bad Capitalism, and the to Breznitz and Murphree18 and Chen,19 Economics of Growth and Prosperity (New economic growth and industrial innovation Haven: Yale University Press, 2007); Joseph in China rely on the invention of a hybrid A. Schumpeter, Capitalism, Socialism and institutional network that, on the one hand, Democracy (Oxon: Routledge, 2010). creates enough space and leeway for local 2 Sebastian Heilmann, “Policy Experimentation innovation. On the other hand, it preserves in China’s Economic Rise,” Studies in a significant amount of steering and over- Comparative International Development 43, seeing capacities from above so as to no. 1 (December 27, 2007): 1–26; Kellee Tsai, mitigate the cost of market failure during Capitalism without Democracy: The Private the innovation process. In other words, Sector in Contemporary China (Ithaca, N.Y: domestic industrial upgrading in China is Cornell University Press, 2007); Dan Breznitz another result of the experimentation with and Michael Murphree, Run of the Red Queen: a hybrid institutional framework, driven by Government, Innovation, Globalization, and a combination of trial and error by local Economic Growth in China (New Haven: agents and final guidance in decision-mak- Yale University Press, 2011); Yuen Yuen ing at the top. Ang, How China Escaped the Poverty Trap (Ithaca, N.Y.: Cornell University Press, 2016); This commentary reviews the development Christopher McNally, “Sino-Capitalism: China’s trajectories of China’s business sector, its Reemergence and the International Political investment and trade liberalization, and Economy,” World Politics 64, no. 4 (2012): its industrial upgrading that faces external 741-776.

Sino-Capitalism: Demystifying the Paradox of China’s Hybrid Political Economy 5 3 McNally, “Sino-Capitalism: China’s 18 Breznitz and Murphree, Run of the Red Queen: Reemergence and the International Political Government, Innovation, Globalization, and Economy,” 741-776. Economic Growth in China. 4 Ang, How China Escaped the Poverty Trap. 19 Ling Chen, “The Microfoundation of State 5 Breznitz and Murphree, Run of the Red Queen: Intervention and Policy Effectiveness,” in Government, Innovation, Globalization, and Manipulating Globalization: The Influence of Economic Growth in China. Bureaucrats on Business in China, (Stanford: 6 Sebastian Heilmann, “Policy Experimentation in Stanford University Press, 2018), 93-130. China’s Economic Rise.” 20 Naughton and Tsai, State Capitalism, Institutional 7 McNally, “Sino-Capitalism: China’s Adaptation, and the Chinese Miracle. Reemergence and the International Political Economy,” 741-776. 8 Barry Naughton and Kellee S. Tsai, “Introduction,” in State Capitalism, Institutional Adaptation, and the Chinese Miracle, eds. Barry Naughton and Kellee S. Tsai (New York, NY: Cambridge University Press, 2015), 1-24. 9 Sebastian Heilmann, “Policy Experimentation in China’s Economic Rise.” 10 Naughton and Tsai, State Capitalism, Institutional Adaptation, and the Chinese Miracle. 11 Ling Chen, “Playing the Market Reform Card: The Changing Patterns of Political Struggle in China’s Electric Power Sector,” The China Journal, no. 64 (July 1, 2010): 69–95. 12 Naughton and Tsai, State Capitalism, Institutional Adaptation, and the Chinese Miracle; Ang, How China Escaped the Poverty Trap; McNally, “Sino-Capitalism: China’s Reemergence and the International Political Economy.” 13 Tsai, Capitalism without Democracy: The Private Sector in Contemporary China; Bruce J. Dickson, Wealth into Power: The Communist Party’s Embrace of China’s Private Sector (Cambridge, New York: Cambridge University Press, 2008); Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (New York: Columbia University Press, 2014). 14 Bruce J. Dickson, Wealth into Power: The Communist Party’s Embrace of China’s Private Sector. 15  Heilmann, “Policy Experimentation in China’s Economic Rise.” 16 Mary Gallagher, “Reform and Openness: Why China’s Economic Reforms have Delayed Democracy,” World Politics 54, no. 3 (April 2002): 338-372. 17  Edward Steinfeld, Playing Our Game: Why China’s Rise Doesn’t Threaten the West (New York; Oxford: Oxford University Press, 2012).

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citizens, accused of corruption and terror- China’s Influence on ism, who have fled abroad. The election of Chinese Vice Minister of Public Security Interpol: Progress Meng Hongwei to be president of Interpol in 2016 signaled that China had become a and Pushback leading country in the organization. How- ever, China’s October 2018 arrest and subsequent March 2019 expulsion of Meng from the Communist Party on the pretext of bribery charges creates uncertainty about

China’s future relationship with Interpol. vol 5 Sam Boone A number of human rights activists have |

accused China of abusing Interpol’s Red 2019 Notice System (RNS), designed to locate Sam Boone is a spring 2019 SAIS M.A. and provisionally arrest individuals pend- graduate concentrating in China Studies. ing an extradition agreement. In an effort During his time at SAIS, he interned at the to repatriate Chinese nationals wanted by U.S. Department of Commerce’s Office of Chinese authorities for violating Chinese Latin America where he dealt with trade restrictions on political or religious activ- compliance and dismantling non-tariff ism, China has abused the guidelines laid trade barriers. His research interests include out in the Interpol Constitution. This paper relations in the China-Latin America-U.S. tri- addresses what China gains from increased angle and China’s growing role in global participation in Interpol and how effective governance. He can be reached at samp- it has been in influencing the organization [email protected] for its own benefit.

The idea of an authoritarian country that Introduction does not practice the rule of law heading the International Criminal Police Organiza- As China continues down its road of mod- tion had caused some people to question ernization, China’s leaders hope to increase the purpose of the organization. However, not only their country’s economic strength a closer look at recent developments paints but also its international political influence. a more complicated picture. Focusing on Since the People’s Republic of China joined China’s use of Interpol’s RNS, this paper the United Nations in 1971, China has been finds that, while China does attempt to gradually increasing its role in interna- manipulate the RNS for political purposes, tional organizations and becoming more it has not succeeded so far in changing the intertwined in the network of international rules or norms of the organization. The structures largely constructed by the United history of Interpol’s relations with human States and its allies following the end of rights and the top-down structure of the World War II. organization creates a difficult environment for China to alter the organization’s rules This paper focuses on China’s influence on and norms. Nonetheless, China still exerts a the International Criminal Police Organiza- large influence in the organization through tion (Interpol)1 as well as the organization’s its ability to shape the agenda on topics effects on China. It aims to add to the exist- ranging from the Belt and Road Initiative, ing literature on how China engages with, to Taiwan’s exclusion from the organization, and may be transforming, international to technological changes that affect inter- institutions. China has recently become national policing. For the most part, the a more active member in Interpol as the relationship between Interpol and China country seeks to bring home Chinese has been symbiotic, since the organization

7 has assisted China in pursuing fugitives highlight the strengths and weaknesses of abroad, but human rights watchdogs and the RNS. The fourth section will compare countries that adhere to the rule of law still Chinese “Red Notices” with Article 3 of the play the dominant role in maintaining the Interpol Constitution, which ensures Inter- core values of the organization. pol’s non-intervention in cases of a political, religious, military, or racial character, to determine if China is abusing the system. Theoretical Approach The fifth section will demonstrate how Inter- and Scope pol is responding to authoritarian abuse of the RNS. The concluding section considers This paper takes a fundamentally realist other ways in which China can increase its approach to understanding how China influence in Interpol in the future, which attempts to influence international organi- also suggests areas for future research. zations and how international organizations affect China in return. According to realists, international organizations are a reflection The History and of state power formulated to further the Structure of Interpol security of powerful states. States engage in these organizations to project power and When China3 assumed Taiwan’s position in accomplish unilateral goals. Mearsheimer’s Interpol in 1984, it joined an international realist description of international organi- organization with a long and contentious zations as a “set of rules that stipulate the history. Interpol was originally established ways in which states should cooperate and in 1923 as the International Criminal Police compete with each other, and which are Commission (ICPC) in Vienna to address embodied in their personnel and budget” the rising threat of cross-border crime serves as a useful framework for how China following World War I.4 The founding 20 interacts with Interpol.2 China, like other countries, mostly located in Europe, cre- countries, joined Interpol to increase its ated the ICPC to direct police-to-police own security and to combat criminals communication links on an international harmful to their state’s well-being. However, scale, with a central headquarters relaying states also find some of Interpol’s limita- information and news to member coun- tions counterproductive to their goals and tries.5 One of the key tenets of the ICPC seek to either bypass the rules or, when was its respect for national sovereignty, possible, exert their influence to change meaning that it could not force countries the rules and norms of the organization. to accept requests by other parties. Despite Overall, China approves of the overarch- the limited scope of operations, the orga- ing framework of Interpol’s respect for state nization faced an existential crisis with the sovereignty, but this does not preclude onset of World War II. China from attempting to shape the rules to help achieve its domestic goals. Following the Nazi invasion of Austria in 1939, Nazi Germany took over the ICPC by This analysis is divided into six sections. The replacing the head of the ICPC with a Nazi first part will examine the history, evolution, Austrian and later moving the headquar- and structure of Interpol, focusing on how ters to Berlin.6 Soon after, the Nazis altered other nations have affected the organiza- search warrants to include an entry for race tion, to provide context for the analysis of alongside one for religion and utilized the China’s role in the organization. The second ICPC network in their hunt to arrest Jewish section will examine what China aspires to refugees.7 Following the atrocities of World gain through influencing Interpol, as well War II, police forces gathered in 1946 to as how Interpol can benefit from increased re-establish the international organiza- Chinese participation. The third section will tion as the International Criminal Police

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Organization (ICPO).8 Other than moving “violent crime known as terrorism” to be the headquarters to France, the organi- pursued within the organization’s consti- zation remained very similar to the ICPC. tutional mandate by linking it to ordinary Under the politically charged environment crime.14 The second resolution modified of the Cold War, Czechoslovakia used the Article 3 to state that a violent political act RNS to track down and capture political dis- outside a “conflict area” does not count as sidents who had received political asylum political, which allowed Interpol to address in West Germany.9 Considering this a vio- “foreign terrorism” in Europe or the United lation of national sovereignty, the director States.15 Following the 9/11 attacks of 2001 of the FBI decided to withdraw the U.S. as in New York City, the United States success- a member of the ICPO in protest. Losing fully filed Red Notices for crimes against vol 5 the U.S. constituted a disaster and eventu- humanity. 16 Interpol streamlined itself to | 2019

Overall, China approves of the overarching framework of Interpol’s respect for state sovereignty, but this does not preclude China from attempting to shape the rules to help achieve its domestic goals.

ally forced the organization to adopt a new focus on a select number of crimes, such constitution in 1956.10 The new constitution as terrorism and public safety, international included Article 2, which embedded the fugitives, drug and criminal organizations, principles and rules of the organization human trafficking, and financial and high- with the Universal Declaration of Human tech crimes.17 The most important change Rights, and Article 3, which forbade the in recent years has been the implementation organization’s involvement in cases consid- of the I-24/7, an internet-based encrypted ered political, military, religious, or racial in communication system that allows imme- nature.11 Along with the constitution, the diate access and communication between organization officially rebranded itself as Interpol and member countries.18 Interpol and the United States fully rejoined the organization, but this would not be the Interpol is composed of 190 member last major change. nations and is led by a secretary general who acts as its chief executive officer. In 1971, Interpol signed a treaty with the UN There is also an executive committee of to formally designate itself an intergovern- 13 members, including the president. The mental organization.12 Soon after, countries president’s role is largely ceremonial, as became ever more frustrated with Interpol the president does not have the power to as it refused to act on terrorism cases due issue alerts.19 The Executive Committee to their inherently political nature. Interpol sets the agenda for the General Assem- risked obsolescence when it refused to act bly, where the organization’s final authority after the Palestinian terrorist attack at the lies. Interpol is similar to the UN in that 1972 Munich Olympics and when coun- every country has one vote in the General tries sought help in tracking down Nazi Assembly, which has led the balance of War criminals.13 Following pressure from power to shift to developing countries.20 the developed countries, Interpol finally Every member country has a National Cen- passed two resolutions in 1984 to directly tral Bureau (NCB) that links the country’s address counter-terrorism. The first allowed national police to Interpol’s network.21 The

China’s Influence on Interpol: Progress and Pushback 9 members of the Executive Committee have rally support in the General Assembly. A the most power because they meet three change in popular sentiment from a large times a year and decide the organization’s enough contingency of member states can policy and direction, but it is impossible lead to resolutions that change Interpol’s for them to pass resolutions without the laws. The United States and Europe took support of the General Assembly, which advantage of a global shift in attitudes meets only once a year.22 The members towards terrorism to push for changes of the Executive Committee change every inside the organization. However, if the three years23 on a geographic rotation.24 organization becomes fractured by ideo- Throughout its history, Interpol has tradi- logical politics, such as during the Cold tionally been led by secretary generals from War, the organization can lose its effective- France, Britain, or the United States, and ness. Although it remains unlikely, the lack developed countries have held a majority of a binding agreement does leave open of the executive positions.25 The number the possibility that countries could leave of executive seats that the Europeans hold in protest if they feel the organization has certainly gives them more decision-making become a political tool for authoritarian ability relative to the size of their popula- countries. Previous experiences with Com- tion. This makes it difficult for countries such munist satellite states and Nazi Germany as Russia, Turkey, or China to dictate the have made the organization very aware of policy agenda of Interpol without compro- the dangers when authoritarian regimes mising with the Europeans and Americans. attempt to use Interpol for political gains. China would be smart to strive for change There are no significant political or economic from within the framework of the constitu- requirements for Interpol membership, with tion, while convincing other countries that nations only required to pay the minimal change is necessary to create an Interpol annual membership fee which in 2017 that functions well in the modern world. amounted to $16,310.26 This is the mini- mal basic rate, but countries can contribute more if they desire—in 2017, the United China’s Goals in Interpol States willingly paid the highest member dues at a total of about $12,694,580; mean- In many aspects, Interpol is a perfect match while, China represented the sixth-highest for China’s goals—not only in terms of total, paying around 1/5th of the U.S. con- domestic politics, but also for how China tribution.27 Interpol does not have a body imagines itself in the world. Xi Jinping used that would be analogous to the UN Security his common phrase “mutual benefit and Council and, in voting, countries that pay win-win outcomes” (坚持互利共赢, jianchi more get no more power than those who huli gongying) in his speech to the Inter- make the minimum payment. Historically, pol General Assembly in 2017.29 China has there has generally been a strong correla- been ramping up its support for the orga- tion between membership dues and the nization and the 2016 election of Meng likelihood of a seat on the Executive Com- Hongwei as president, while largely cere- mittee.28 This might explain why European monial, seemed to be a stamp of approval countries, who are consistently among the for China’s hard work and dedication to biggest contributors, continue to dominate promoting Interpol. Tim Morris, Interpol’s positions on the Executive Committee. Executive Director of Security Policy, said that “China has been a very important To pass a resolution, a country first must member of Interpol and contributed in either have a seat on the Executive Commit- all different ways,” while Ursula Martinez, tee or have another nation pass its message head of Interpol’s Command and Coor- through the committee to put its proposal dination Center, claimed, “China is really on the agenda. Second, the country must important for operations located in Asian

10 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW countries.”30 In 2016, China gathered and has been focused on terrorism for several reported two million pieces of information decades now, but where China seems to regarding stolen and lost Chinese identi- be making the largest push is in regard to fication documents.31 That same year, the corruption. Li Shulei, who leads the Chinese Chinese Ministry of Public Security also repatriation efforts for the Central Commis- claimed that they cooperated with foreign sion for Discipline Inspection, claimed that authorities on 4,460 different cases.32 This China must “build a new order to fight inter- information is helpful not only for bring- national corruption… and cut off escape ing Chinese criminals home, but also for routes for corrupt elements.”42 China keeping other countries safe. During his believes that Interpol can help the country speech, Xi promised China that he would accomplish its goals of counter-terrorism vol 5 devote resources to training 5,000 law and fighting corruption. Worryingly, many |

enforcement agents, assisting in upgrad- Western countries would say there is also a 2019 ing Interpol’s communication network, and third area under attack—political dissidents. increasing Interpol’s global influence.33 Trying to separate political dissidents from the first two categories can be a tricky task China can also gain substantially from its but it is vital in order to assess China’s pres- membership in Interpol. Since 2012, Xi Jin- ent and future impact on the organization. ping has engaged in a sweeping campaign to repatriate Chinese citizens suspected In addition to its fight against corruption of corruption and terrorism.34 During that and terrorism, China also places impor- same period, China has issued approxi- tance on being seen as a responsible mately 200 Red Notices a year.35 In 2015, power. China not only wants to use Inter- China issued 100 Red Notices against eco- pol as a tool to accomplish its goals, but nomic fugitives as part of Operation Skynet, also to give its actions more legitimacy. which seeks to repatriate corrupt Chinese Shortly following Meng’s 2016 election to officials and businessmen.36 High-level the leadership of Interpol, Beijing Youth corruption is a sensitive topic in China and Daily published an article proclaiming Inter- addressing it is something that Xi feels is pol to be the most effective platform for vital to long-term security, as well as to the combating international crime, while also success of the Communist Party.37 China signaling that the election demonstrated wants to show its citizens that the state can that international society is recognizing extend its reach anywhere in the world. The and accepting China’s version of the rule Global Times states that “corrupt officials of law.43 While this newspaper is certainly who might have thought about escaping exaggerating, the election of Meng did will not dare do it now, after such tight mea- seem to indicate a certain approval within sures and cooperation with a wide range Interpol of China’s actions. In Xi’s speech, of countries.”38 Other state-run media even he stresses the “rule of law” both in his suggested that Meng’s election itself would introduction as well as in his proposals be a boon to the international expansion for what Interpol should focus on in the of Chinese efforts to repatriate corrupt cit- years to come.44 China is most likely more izens.39 Apart from corruption, China also interested in appearing to be a rule of law hopes to use the Interpol network to work country than in actually becoming one. The with other countries in the fight against Isla- sudden arrest of Meng in China in Octo- mist militants in Xinjiang.40 China hopes to ber 2018 demonstrates that China views its crack down on Uighurs who have fled the own version of justice as superseding the country and have ties to extremist groups integrity of an international organization. It within its own borders. In Meng Hongwei’s is crucial to acknowledge two factors at play speech to the General Assembly in 2017, against each other. On one hand, China is he emphasized the threat of terrorism and using the RNS to assist in its anti-graft and stressed the importance of unity.41 Interpol counter-terrorism repatriation campaigns,

China’s Influence on Interpol: Progress and Pushback 11 which leads to complications with Article innocence, but rather to streamline the 3 of Interpol’s Constitution when political process and to ensure that the request dissent is involved; on the other hand, comports with the constitution.47 China wants to conform to the standards of Interpol’s review process to be seen as a One of the major RNS foundations is responsible member of the organization. If the inherent assumption that a country’s China is seen as cheating the system, Chi- request is in accord with Interpol policy.48 nese officials will be less likely to obtain Interpol functions as though there is a Executive Committee positions in the common understanding for the desig- future, thereby decreasing their ability to nation of criminals, despite the fact that drive change from within the organization. political asylum, differing definitions of terrorist groups, and espionage all provide clear examples that this is not true.49 The How Do Red Notices Function? system is based on trust that all requests are legitimate, because there are limits to While Interpol operates 17 databases what Interpol can do to make sure countries to assist in solving crimes, the only one abide by the constitution. In 2011, Inter- explored in this paper is the oldest and most pol issued around 21 Red Notices a day famous database, the criminal database. and admitted that 97 percent of requests The criminal database, now synonymous were not reviewed in depth due to limited with the RNS, is a collection of names of all personnel.50 During the same period, an the wanted criminals from around the world Interpol investigation showed that 28 per-

While frozen bank accounts, travel restrictions, and fear of arrest could be factors, it is most probable that these targets returned home because of harassment of their families and loved ones.

with outstanding Red Notices. A Red Notice cent of Red Notices came from countries is a request to locate and provisionally that had Freedom House scores of “no civil arrest an individual pending extradition, liberties,” while 50 percent of Red Notices and is issued by the General Secretariat.45 came from countries with a “high level of While Interpol makes it very clear that this corruption” based on Freedom House’s is not the same as an international arrest transparency index.51 Interpol is an opaque warrant, this is the closest instrument to an organization out of necessity, so it is diffi- arrest warrant that exists within Interpol. cult for the public to find data to prove or Unlike international arrest warrants, Red disprove this assumption. Notices are issued by a country but can be ignored by other member countries Red Notices constitute an important part and are largely dependent on extra- of China’s repatriation strategy, but other dition treaties between the parties methods have accompanied the use involved.46 Red Notices are processed of the RNS. The RNS itself is a capable through the Commission for the Con- tool because it freezes all international trol of Interpol Files (CCF); however, it bank accounts and increases travel restric- is not the CCF’s job to decide guilt or tions for designated individuals.52 Of the

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100 criminals placed on the RNS through and are most likely to inform key officials, Operation Skynet, 51 have already been policy makers, and public opinion. Even if repatriated.53 However, this overempha- these cases only represent a small number sizes the power of the RNS because 35 of of notices on China’s behalf, the damage the 51 criminals “voluntarily” returned to they can do to the credibility of both Inter- China.54 While frozen bank accounts, travel pol and China is substantial. restrictions, and fear of arrest could be fac- tors, it is most probable that these targets Case Study I: Dolkun Isa returned home because of harassment of their families and loved ones. The first case study focuses on Dolkun Isa

and the Chinese Red Notice seeking his vol 5 Interviews with five Red Notice individuals, arrest for terrorism that dates back to 1999. |

who wished to remain anonymous, indi- Political activism in Xinjiang has long been a 2019 cated that Chinese authorities subjected thorn in China’s side, and this autonomous their families to threats, and in some sit- region holds a large number of ethnic and uations, arbitrary detention.55 China has religious minorities. Most of China’s focus shown they are not afraid to use extrale- on terrorism concerns this province and, in gal methods, and they have even used Red the eyes of the government, there is little Notices to justify the systematic harassing difference between political activism and of families. While it is in the nature of Inter- terrorism.58 China blames the instability pol to not comment on the political actions and unrest in Xinjiang on separatist Isla- of member countries, it must be noted that, mist militants. As of December 2018, it is even in cases in which China is within its estimated that as many as 1 million Uighurs rights to issue a Red Notice, it increases are currently being held in “re-education the effectiveness of these notices through camps.”59 Dolkun Isa fled China in the early methods that fall outside of limits on how 1990s in a move he describes as escap- rule of law countries should operate. ing persecution for his political views.60 China issued a Red Notice against Isa in 1997 and later put him on the country’s Case Studies most-wanted terrorist list in 2003.61 After receiving political refugee status in Ger- This section seeks to place Chinese Red many, Isa became the secretary general of Notice cases in the context of Interpol’s Arti- the Munich-based World Uighur Congress, cle 3 Repository of Practice, a guidebook which advocates for political and religious published by Interpol that provides exam- rights for Uighurs.62 International travel ples and explanations for what constitutes became more difficult for Isa following his a violation of the constitution. These case Red Notice warrant—he was briefly detained studies reflect a significant bias owing to in South Korea in 2009, arrested in Italy in the fact that these represent what might 2017, and denied a visa from India.63 Despite be seen as the most egregious notices the case being relatively high profile and the instead of the average notice. One issue weak evidence on the part of China, the Red is that quantitative research is difficult, as Notice remained in place from 1997 until its the public Interpol database in 201856 reversal in March 2018. only contains 82 Chinese criminals with outstanding Red Notices.57 As each coun- China’s evidence for Isa’s crime primarily try can select which Red Notices can be rested on his purported relationship to ter- made public, the published cases on the rorist groups in Xinjiang. While at Xinjiang Interpol website contain inherent biases. University in the 1980s, Isa participated in However, studying the prominent cases several pro-democracy movements and does have its advantages. These are the was expelled from school for distributing cases that receive the most media attention books about Uighur history and culture.64

China’s Influence on Interpol: Progress and Pushback 13 China is not necessarily accusing Isa himself Case Study II: Guo Wengui of violent crime, but rather of association with terrorist groups. The Interpol Article The next case study focuses on the Red 3 Repository states that, while freedom Notice for Guo Wengui and the charges of expression is not an absolute right, against him on the grounds of corruption. “insulting authorities are among those Guo is a Chinese billionaire who fled to the rights that by very nature fall within the U.S. in 2014 in anticipation of corruption scope of Article 3.”65 According to current charges following the arrest of former busi- practice, speaking out against the nature ness partners.68 In 2015, Chinese media of the government apparatus in Xinjiang ran several stories about Guo’s corrup- inherently places the case in a political tion, which he claimed were fabrications category. The repository states that, in the made by political and business opponents context of political unrest, “the predomi- with vendettas against him.69 In 2017, Guo nance test will have to be applied where started giving interviews to U.S. media and there are elements of both a political nature spilling Chinese Communist Party secrets, and an ordinary-law crime nature.”66 Even personally calling out former Politburo if passing out illicit materials constituted an member He Guoqing for his hidden wealth ordinary crime in Xinjiang, under these cir- and corruption.70 These interviews brought cumstances, the predominance test should negative attention to the possible hypoc- identify the nature of this crime to be over- risy of Xi’s anti-graft campaign; three days whelmingly political. China’s final argument following the interviews, China submitted is guilt through association with terrorist a Red Notice calling for Guo’s arrest and groups. Even though Interpol has a spe- extradition on the grounds of corruption, cial provision in the rules to deny freedom bribery, and rape.71 of association with terrorist groups, the current practice lays down specific guide- As previously mentioned, it is not up to lines for what constitutes membership in Interpol to decide the innocence of Guo a terrorist organization. Section 3.6 of the or even to investigate serious charges repository outlines that the terrorist nature such as rape. The important consideration of the organization must be recognized by is whether this is a case of pure corrup- international entities such as the United tion or whether Guo should be treated as Nations, and that the individual practices a political dissident. According to Interpol, active and meaningful involvement in said corruption is an ordinary level crime, but organization beyond mere general support considering the timing of the events, it is of its political goals.67 Dolkun Isa’s case easy to see this case in terms of disclosure would certainly not apply as there is no evi- of government secrets instead of pure cor- dence of active membership in any Islamist ruption. In section 3.4 of the repository, militant group, and Isa actively denounces titled Offenses Against the Security of the the use of terrorist tactics no matter the cir- State, it states that “a case-by-case basis is cumstance. The lack of evidence for any required to ascertain that the facts of the active membership in a terrorist group case are purely political in nature… and the makes it impossible for his case to fall out- facts of a political case may include aspects side of Article 3 on the merits of guilt by of ordinary-law crime which may lead to the association, and Isa’s right to free speech conclusion that the case is of a predomi- is protected by the Interpol Constitution. nantly ordinary-law nature.”72 The Red Notice harassing Isa for 21 years seems to clearly represent an abuse of the In instances that involve whistle-blowing, system that took too long to correct. such as the leaks by Edward Snowden, the cases are unquestionably political in nature, and therefore no Red Notices are issued. However, in the case of Guo,

14 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW it can be argued that the nature of cor- rights groups, many aspects of a 2015 ruption and bribery charges supersede proposal submitted by Fair Trials Inter- the political nature of this case. Despite national were incorporated.76 that argument, the timing of the Red Notice and the interviews that fingered The new resolution explains that Interpol members of the Communist Party supply recognizes the importance of ensuring ample evidence that the Red Notice was that data processing in the information politically motivated. When cases such as system complies with Interpol’s rules, Guo’s became highly political and the line particularly Article 2 and 3 of the consti- becomes blurred, it would be in Interpol’s tution.77 The Commission for the Control best interest to deny China’s request for a of Interpol’s Files (CCF) was restructured vol 5 Red Notice. into two chambers. The Supervisory and |

Advisory Chamber will ensure that the 2019 Overall, the cases related to Xinjiang and processing of personal data is in compli- terrorism seem to present a larger pre- ance with Interpol’s rules and will provide dicament for Interpol than the cases of advice on projects.78 On the other hand, corruption. The case of Guo Wengui had the Requests Chamber will examine and an overarching political component that decide requests for access to data and many of the other corruption cases such corrections or deletions of the processed as Operation Skynet lacked. For example, data.79 The resolution also established a the previous number one fugitive on the clear timetable for a review process and RNS for China was the former vice-mayor procedures to provide an effective remedy of Wenzhou, Yang Xiuzhou, who embez- for individuals with regards to data.80 This zled approximately 19 million RMB in funds resolution improves upon the previous along with 7 million RMB in bribes.73 structure by separating the processing Helping China repatriate criminals such and review phase into two chambers, and as Yang through legal methods is the by speeding up a possible review process. purpose of Interpol and member coun- Reviewing all of the cases in depth will still tries should play their part. Despite the be impossible, but it is now significantly fact that many corruption cases do not easier for each country’s National Central fall under Article 3, the accusations of Bureau (NCB) to report possible violations politically motivated Red Notices against and have them reviewed. This new system Interpol forced the organization to issue a helped facilitate the review of Dolkan Isa’s response in 2016 that strengthened their case, which was overturned in 2018. commitment to Article 3.74 It is worth mentioning that this resolution took effect the same year as the election of Interpol’s Response Meng Hongwei to the presidency of Inter- pol. Interpol is playing a strategic game to Interpol is well aware of the criticisms from give China more power in the organization, Western countries regarding abuse of the while also adding provisions to prevent a RNS. As mentioned earlier, it is important large backlash by Western countries. Inter- for Interpol to maintain its core values and pol is pushing back against the possibility the trust of its member nations, especially of abuse of the RNS and safeguarding the the countries that are its largest contrib- ideology of the organization that allows it utors. In response to complaints about to connect police forces across the globe. the failures of the RNS, Interpol passed a new regulation in 2016 to strengthen the system’s review process.75 While the new resolution did not match the com- plete overhaul proposed by many human

China’s Influence on Interpol: Progress and Pushback 15 Further Considerations: global trade and infrastructure. One of China’s Influence on Interpol the most prominent influences China exerts on Interpol is the continued iso- Due to the history and structure of Interpol, lation of Taiwan from membership in as well as the pushback against abuse of the organization. the RNS, it is difficult for China to shape the rules and norms of the organization. Interpol encompasses almost every coun- However, not only does the system already try, but has refused to admit or even suit China well, but there are three other grant observer status to Taiwan. In 2017, areas in which China notably possesses the Interpol even granted membership to ability to affect Interpol. Palestine despite resistance from Israel. The exclusion of Taiwan means the world The first factor is the potential of Inter- is missing a critical link in an otherwise pol’s partnership with the Belt and Road integrated fight against threats such as Initiative (BRI). In May 2017, Interpol and terrorism and cyberattacks, and the entire China passed the Declaration of Intent Taiwanese population is theoretically more on Strategic Cooperation between Inter- vulnerable than the populations of other pol and the Government of the People’s countries.85 In 2017, Taiwan hosted the Republic of China which listed 13 points Summer Universiade Olympics with over of cooperation.81 The document spe- 9,000 athletes competing from over 170

One of the most prominent influences China exerts on Interpol is the continued isolation of Taiwan from membership in the organization.

cifically mentions BRI and the fact that countries.86 While everything played out China needs to partner with international smoothly, Interpol did not assist in the organizations to develop a multilateral safety of the event and Taiwan was refused cooperation platform in all aspects of access to the I-24/7 database that provides the initiative.82 Interpol pledges their countries with up-to-date information policing capabilities and operational regarding criminals and crucial informa- support to ensure that increased trade tion.87 Taiwan overcomes these challenges does not lead to increased opportunities through the help of its partners such as the for criminals.83 Furthermore, the declara- United States, but the continued exclusion tion addresses goals such as enhancing of Taiwan constitutes a blind spot in the worldwide border security for trade and realm of global policing. While Interpol is travel, protecting vulnerable communities unlikely to grant membership to Taiwan from exploitation, promoting integrity amid the “One China” policy, if Taiwan is and reducing corruption, combating illicit struck by a high-profile attack that Interpol markets, and adhering to the spirit of the could have prevented, this could become Universal Declaration of Human Rights.84 a more contentious issue. It is unclear to what extent Interpol will play a role in ensuring the safety of BRI, The final point of consideration is the but China will appreciate having multi- role of Chinese-created technology and lateral support in its efforts to promote how improved policing equipment could

16 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW affect Interpol. China has invested large However, China’s use of extralegal meth- amounts of R&D funds to ensure that ods to enhance Red Notices give further its policing technology is the most cut- evidence that the country is not becom- ting-edge in the world. The use of facial ing a rule of law nation. Overall, China recognition and artificial intelligence to and Interpol have a symbiotic relationship analyze video evidence, track suspects, kept in check through rule of law countries coordinate responses to emergencies, and human rights groups that place pres- and even prevent crime has the potential sure on Interpol. Interpol’s involvement to alter the way in which global policing is with BRI, its relationship with Taiwan, and conducted.88 China is increasingly storing its adjustment to new technologies are all data on each of its citizens and compiling factors in the China-Interpol relationship vol 5 data of medical records, travel bookings, that will benefit from further research. The |

online purchases, and social media com- fallout from China’s arrest of Meng Hongwei 2019 ments.89 China has begun exporting these and the long-term effect on the relationship technologies to several other countries, between China and Interpol is another area including the Citizen Security System that merits attention. project known as BOL-110 in Bolivia. As these new technologies advance, the Insights on China’s evolving relation- approach to stopping international crime ship with international institutions can will have to adapt. Interpol could prove be extrapolated from this analysis. China to be the best forum for China to play a acknowledges that, as the world becomes role in establishing rules regarding the more connected through globalization, one use of new technology on a global level. of the best ways to project its power and maintain its security is to increase its par- ticipation in multilateral institutions. China Conclusion wishes to be seen not only as a great power, but also as a responsible one. Even though This paper finds that China’s increased par- China has the ability to influence these ticipation in Interpol has produced both organizations in some capacities, many progress in its pursuit of domestic goals international institutions have established and pushback from other countries and rules and norms that are difficult to change. human rights groups when it is perceived Multilateral institutions remain a battle- as gaming the system. While countries such ground where China will attempt to assert as China, Russia, and Turkey do use the RNS its might, but these organizations are not to track down political dissidents, the fear as malleable as pessimists might believe. of China taking over Interpol is unfounded. The European-led top-down structure of 1 The official abbreviation is INTERPOL, but is Interpol and the history of authoritarian commonly referred to as Interpol. abuse have led to a system of safeguards 2 J.J. Mearsheimer, “The False Promise of following the values of the Universal Dec- International Institutions,” International Security laration of Human Rights. The passage of a 19, no 3 (Winter 1994): 8. resolution that increases the scrutiny of the 3 In this paper, China is used in reference to the review process and the overturn of Dolkun People’s Republic of China. Isa’s Red Notice serve as testaments that 4 Mathieu Deflem, “Interpol,” The Encyclopedia the core values of the organization remain of Global Studies (California: Sage Publications intact. However, despite complications with 2012), 956-958. political dissidents, China’s anti-graft and 5 Ibid. counter-terrorism efforts receive a huge 6 Ibid. boost from multilateral engagement with 7 Gilead Amit, “How Interpol Became the Long Interpol. Red Notices, while not a perfect Arm of Nazi Law During World War II,” Modern system, are an effective tool to fight crime. Notion, May 27, 2015, http://modernnotion.

China’s Influence on Interpol: Progress and Pushback 17 com/how-interpol-became-the-long-arm-of- 28 Ibid. nazi-law-during-world-war-ii/. 29 “Xi Jinping’s Speech at the Opening 8 “Constitution of INTERPOL,” INTERPOL, Ceremony of the 86th General Assembly of accessed March 17, 2019, https://www. Interpol,” (习近平在国际刑警组织第八十六届全 interpol.int/Who-we-are/Legal-framework/ 体大会开幕式上的主旨演讲) Xinhua, September Legal-documents. 26, 2017, http://www.xinhuanet.com//2017- 9 Deflem, “Interpol,” 956-958. 09/26/c_1121726066.htm. 10 Ted Bromund and David B. Kopel, “Necessary 30 “Interpol applauds China’s increasingly Reforms Can Keep Interpol Working in the important role in international police U.S. Interest,” Backgrounder, The Heritage cooperation,” Xinhua, September 27, 2017, Foundation, No. 2861 (December 11, 2013): http://www.xinhuanet.com//english/2017- 3, https://www.heritage.org/global-politics/ 09/27/c_136642942.htm. report/necessary-reforms-can-keep-interpol- 31 Ibid. working-the-us-interest. 32 Mimi Lau, “China involved in 3,000 Interpol 11 “Constitution of INTERPOL.” investigations, state media says,” South China 12 Meg Stalcup, “Interpol and the Emergence of Morning Post, September 25, 2017, https:// Global Policing,” In Policing and Contemporary www.scmp.com/news/china/policies-politics/ Governance: The Anthropology of Police article/2112773/china-involved-3000-interpol- in Practice, ed. William Garriott (New York: investigations-state-media. Palgrave MacMillan): 237. 33 “Xi Jinping’s Speech at the Opening Ceremony 13 Stalcup, “Interpol and the Emergence of of the 86th General Assembly of Interpol.” Global Policing,” 248. 34 Lau, “China involved in 3,000 Interpol 14 Ibid. investigations, state media says.” 15 Ibid. 35 Ibid. 16 Josh Margolin, “Beyond the Myth of 36 Allen-Ebrahimian, “Interpol is Helping Enforce Interpol, the world’s police organization,” China’s Political Purges.” ABCnews, October 6, 2018, https:// 37 Ibid. abcnews.go.com/International/myth- 38 Zhang Yiqian, “More fugitives are persuaded to interpol-worlds-police-organization/ surrender from overseas as China strengthens story?id=58325721. international anti-graft cooperation,” Global 17 Deflem, “Interpol,” 956-958. Times, October 17, 2017, http://www. 18 Ibid. globaltimes.cn/content/1070724.shtml. 19 Bethany Allen-Ebrahimian, “Interpol is Helping 39 Allen-Ebrahimian, “Interpol is Helping Enforce Enforce China’s Political Purges,” Foreign China’s Political Purges.” Policy, April 21, 2017, https://foreignpolicy. 40 Ben Blachard and Christian Shephard, com/2017/04/21/interpol-is-helping-enforce- “China to push for greater cooperation on chinas-political-purges/. graft, terrorism at Interpol meeting,” Reuters, 20 Bromund and Kopel, “Necessary Reforms Can September 23, 2017, https://www.reuters. Keep Interpol Working in the U.S. Interest.” com/article/us-china-interpol/china-to-push- 21 “Constitution of INTERPOL.” for-greater-cooperation-on-graft-terrorism- 22 Ibid. at-interpol-meeting-idUSKCN1BZ019?fee 23 With an exemption of the president who dType=RSS&feedName=worldNews&utm_ receives a 4-year term source=dlvr.it&utm_medium=facebook. 24 Ibid. 41 “Meng Hongwei’s Speech at the Opening 25 Bromund and Kopel, “Necessary Reforms Can Ceremony of the 86th General Assembly of Keep Interpol Working in the U.S. Interest.” Interpol,” (孟宏伟在国际刑警组织第八十六届 26 “INTERPOL member country statutory 全体大会开幕式上的主旨演讲) The Ministry contributions 2017,” INTERPOL, accessed of Public Security of the People’s Republic March 17, 2019, https://www.interpol.int/ of China, September 26, 2017, http://www. Who-we-are/Our-funding. mps.gov.cn/n2253534/n2253535/c5796062/ 27 Ibid. content.html.

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42 Blachard and Shephard, “China to push for Newsweek, March 1, 2018, https://www. greater cooperation on graft, terrorism at newsweek.com/china-and-turkey-are-using- Interpol meeting.” interpol-crack-down-dissent-826563. 43 Allen-Ebrahimian, “Interpol is Helping Enforce 61 Joyce Huang, “Uighur Arrest in Italy Sparks China’s Political Purges.” Fears of Chinese Interference in Europe,” 44 “Xi Jinping’s Speech at the Opening Ceremony Voice of America, August 3, 2017, https:// of the 86th General Assembly of Interpol.” www.voanews.com/a/italy-detention-of-exiled- 45 “Red Notices,” INTERPOL, accessed May uighur-activist-a-wake-up-call-as-china-flexes- 1, 2018, https://www.interpol.int/en/ muscles-rights-activists-say/3970690.html. How-we-work/Notices/View-Red-Notices. 62 Ibid.

46 Allen-Ebrahimian, “Interpol is Helping Enforce 63 “Dolkun Isa: Terrorist or freedom fighter,” vol 5 China’s Political Purges.” Business-Standard, April 25, 2016, https://

47 Ibid. www.business-standard.com/article/current- | 2019 48 Stalcup, “Interpol and the Emergence of affairs/dolkun-isa-terrorist-or-freedom- Global Policing,” 242. fighter-116042500511_1.html. 49 Stalcup, “Interpol and the Emergence of 64 Ibid. Global Policing,” 231. 65 “Repository of Practice: Application of Article 50 Bromund and Kopel, “Necessary Reforms Can 3 of INTERPOL’s Constitution in the context of Keep Interpol Working in the U.S. Interest.” the processing of information via INTERPOL’s 51 Kathy Gilsinan, “Interpol at 100: Does the channels,” INTERPOL, Second Edition World’s Police Force Work,” The Atlantic, May (February 2010): 14. 12, 2014, accessed May 1, 2018, https://www. 66 “Repository of Practice: Application of Article theatlantic.com/international/archive/2014/05/ 3 of INTERPOL’s Constitution in the context of interpol-the-global-police-force-that- the processing of information via INTERPOL’s isnt/362086/. channels,” 18. 52 Allen-Ebrahimian, “Interpol is Helping Enforce 67 “Repository of Practice: Application of Article China’s Political Purges.” 3 of INTERPOL’s Constitution in the context of 53 “China: Families of Interpol Targets Harassed,” the processing of information via INTERPOL’s Human Rights Watch, January 31, 2018, channels,” INTERPOL, 27-28, https://www. https://www.hrw.org/news/2018/01/31/ interpol.int/Who-we-are/Legal-framework/ china-families-interpol-targets-harassed. Legal-documents. 54 Ibid. 68 Lauren Hilgers, “The Mystery of the Exiled 55 Ibid. Billionaire Whistle-Blower,” New York Times, 56 As of May 1, 2018. January 10, 2018, https://www.nytimes. 57 The exact number of current Red Notices is com/2018/01/10/magazine/the-mystery-of- not known, but if China has been submitting the-exiled-billionaire-whistleblower.html. approximately 200 Red Notices a year the past 69 Ibid. few years, the number should be over 1,000. 70 Allen-Ebrahimian, “Interpol is Helping Enforce 58 Andrew Small et al. “Is China a Credible China’s Political Purges.” Partner in Fighting Terrorism,” Foreign Policy, 71 Hilgers, “The Mystery of the Exiled Billionaire November 24, 2015, https://foreignpolicy. Whistle-Blower.” com/2015/11/24/china-islamic-state-terrorism- 72 “Repository of Practice: Application of Article war-beijing-paris-us/. 3 of INTERPOL’s Constitution in the context of 59 Chris Buckly and Austin Ramzy, “China’s the processing of information via INTERPOL’s Detention Camps for Muslims Turn to Forced channels,” 21. Labor,” New York Times, December 16, 2018, 73 Zhang, “More fugitives are persuaded to https://www.nytimes.com/2018/12/16/world/ surrender from overseas as China strengthens asia/xinjiang-china-forced-labor-camps- international anti-graft cooperation.” uighurs.html. 74 INTERPOL Resolution No. 6 AG-2016-RES-06,” 60 Bruno Min, “China and Turkey are using INTERPOL, https://www.interpol.int/content/ Interpol to Crack Down on Dissent,” download/33521/428059/version/4/file/

China’s Influence on Interpol: Progress and Pushback 19 AG-2016-RES-06%20E%20GTI%20FINAL%20 REPORT.pdf. 75 Ibid. 76 Libby McVeigh and Bruno Min, “Submission to the Working Group on the Processing of Information,” Fair Trials International, December 10, 2015, https://www.fairtrials.org/ wp-content/uploads/Fair-Trials-Submission-to- GTI-Dec-2015.pdf?platform=hootsuite. 77 INTERPOL Resolution No. 6 AG-2016-RES-06. 78 Ibid. 79 Ibid. 80 Ibid. 81 “Declaration of Intent on Strategic Cooperation between INTEROL and the Government of the People’s Republic of China,” INTERPOL, https://www.interpol.int/ content/download/35004/456581/version/2/ file/Declaration%20of%20Intent%20on%20 Strategic%20Cooperation%20between%20 INTERPOL%20and%20the%20Government%20 of%20the%20People%E2%80%99s%20 Republic%20of%20China.pdf. 82 Ibid. 83 Ibid. 84 Ibid. 85 Bonnie Glaser and Jacqueline Vitello, “Taiwan’s Marginalzed Role in International Security: Paying a Price,” Washington, DC: Center for Strategic & International Studies (January 2015): 1. 86 Glaser and Vitello, “Taiwan’s Marginalzed Role in International Security: Paying a Price,” 4. 87 Ibid. 88 Simon Denyer, “China’s watchful eye,” Washington Post, January 7, 2018, https:// www.washingtonpost.com/news/world/ wp/2018/01/07/feature/in-china-facial- recognition-is-sharp-end-of-a-drive-for-total- surveillance/?utm_term=.ab0e8732677d. 89 Ibid.

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demonstrates one of the most challeng- Challenges to SOE ing problems that China’s economy faces today: an inefficient state sector. This paper Mixed Ownership aims to highlight three problems in the Chinese government’s ongoing efforts to Reform in China: reform SOEs through a mixed ownership scheme. First, private investors’ influence in A Case Study SOEs will be limited by their minority stake; second, a more eclectic board composi- tion makes it harder to reach consensus on

corporate decisions; and third, ownership vol 5 is becoming less important due to party |

and government influence from outside 2019 Dominic Chiu the corporate board. This paper exam- ines these three problems through a case study of the government’s decision to Dominic Chiu is a second year SAIS M.A. welcome private actors to invest in China student concentrating in China Studies and Unicom, one of the country’s largest tele- minoring in International Law. His research communications companies. interests span the Chinese political economy, U.S.-China relations, international investment regulations, and comparative corporate gov- An Inefficient State Sector ernance. Dominic has previously worked at the Economist Intelligence Unit, the Center for The state sector is inefficient primarily Strategic and International Studies, and the because of a lack of incentive to compete. Brookings Institution. He can be reached One reason for this lack of competition is at [email protected]. that state-owned enterprises can access financial resources much more easily than private enterprises, and thus SOE fund- Introduction ing comes at the cost of fewer funding opportunities for the private sector. SOEs The reform of state-owned enterprises have an advantage in obtaining funding (SOEs) in China is crucial for sustaining in two ways. First, they take up an abnor- the country’s economic growth through mally large share of China’s bank loans, increased productivity and innovation. In because banks expect the government 2013, China’s state sector owned assets to implicitly guarantee those loans.3 equivalent to 145 percent of China’s GDP, Although SOEs only provided 16 percent the highest ratio in the world, and almost of China’s employment and less than a third double that of the runner-up, India.1 State of national GDP in 2016, they received sector profitability has been consistently 70 percent of all corporate loans in the lower than that of the private sector and same year.4 For the same reason, SOEs of foreign funded businesses. Chart 1 on have more favorable borrowing rates. page 27 shows that the state sector has According to The Economist, SOEs’ aver- consistently had the lowest rate of return on age annual borrowing rates in the Hong assets in the industrial sector for the past 15 Kong bond market fall from 3.5 percent years. Chart 2 on page 27 shows that SOEs to 2 percent, if rating agencies take into have the highest number of loss-makers as account the government support and a share of the total number of enterprises guarantees that they receive.5 in its ownership category.2 This mismatch between the state sector’s significant share A second reason for the state sector’s inef- of assets and consistently low profitability ficiency is that the structure of corporate

21 governance in SOEs is not conducive to Policy and Procedure generating competitive behavior. This is on Reform primarily due to several reasons, all related to conflicts of interest between manage- The State Council and the Central Com- ment and ownership. First, since promotion mittee of the Chinese Communist Party of the top SOE positions is retained by the (CCP) issued three documents pertaining Communist Party under the nomenklatura to mixed ownership reform between 2013 system, the promotional criteria for SOE and 2015.13 No substantial progress on the managers, which frequently involve politi- reform had been implemented until after cal projects or developmental objectives,6 all three documents were issued. The first

The Chinese government acknowledges the obstacles that inefficient SOEs pose to the need to drive up productivity and growth in the economy.

do not always coincide with economically is the Decision on Major Issues Concern- rational incentives to increase profit or ing Comprehensively Deepening Reforms productivity.7 Second, a relative lack of (中共中央关于全面深化改革若干重大问题的 external supervision and shareholder 决定, zhonggong zhongyang guanyu quan- scrutiny over SOEs means that managers mian shenhua gaige ruogan zhongda wenti have substantial discretion over investment de jueding), which was issued at the Third decisions and compensation policies.8 Plenum of the 18th Central Committee in This encourages rent-seeking behavior November 2013. Among the plethora of and corruption. These problems in Chi- plans for other types of SOE reform, the na’s corporate environment run counter document promises to allow SOEs “to to the guidelines recommended by the develop into mixed enterprises.”14 Organization for Economic Cooperation and Development (OECD), which call for The second and third documents were the state to grant SOEs “full operational issued by the State Council within two autonomy” and respect the independence weeks of one another in September and the autonomy of the boards.9 The 2015: Guiding Opinions on Deepening Chinese government acknowledges the SOE Reform (中共中央国务院关于深化国 obstacles that inefficient SOEs pose to the 有企业改革的指导意见, zhonggong zhong- need to drive up productivity and growth yang guowuyuan guanyu shenhua guoyou in the economy and has proposed a host qiye gaige de zhidao yijian) and Guiding of policies in response: it has strengthened Opinions on Mixed Ownership Reform managerial discipline through the anti-cor- (国务院关于国有企业发展混合所有制经济 ruption campaign,10 and it placed the first 的意见, guowuyuan guanyu guoyou qiye major SOE into involuntary liquidation in fazhan hunhe suoyou zhi jingji de yijian). September 2016.11 One of the solutions The former document focuses not only proposed to address the problem of cor- on mixed ownership but also on a whole porate governance currently in progress is variety of other SOE-related reforms. It mixed ownership reform.12 highlights the importance of mixed own- ership reform by stating that it is “the most significant means to improve the efficiency

22 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW of SOEs.”15 It also specifies the means by out.18 This reform therefore aims to not which non-state firms could participate in only increase funding for SOEs from private SOE ownership, including the purchase sources, but also to improve their operation of stakes and convertible bonds. The third and efficiency through allowing private document is even more specific as it lists investors to play an active role in setting several SOE-dominated sectors that would company policy. be able to participate in the mixed owner- ship reform, including telecommunications, The first batch of SOEs to be reformed natural resources, oil and gas, and nuclear according to the mixed ownership reform energy. It also lists the types of non-state pilot scheme was approved by NDRC in capital, including foreign capital, eligible September 2016, a year after the authori- vol 5 for investment in the SOEs.16 However, as tative documents were issued by the State

19 |

with most guiding opinions issued by the Council. Nine central SOEs including China 2019 central government, the documents were Unicom, China Eastern Airlines, China South- still vague, with details on the procedures ern Power Grid, Harbin Electric Corporation, left to be elaborated in future policies China Nuclear Engineering and Construction issued by ministries and local authorities. Corporation, and China Shipbuilding Industry Corporation were greenlighted to open up The procedure for implementing mixed their businesses units for sale to private inves- ownership reform—abbreviated in Chi- tors.20 A second batch of 10 central SOEs nese as 混改 (hun gai)—can be condensed was approved in April 2017, covering similar into two steps. The first step, 混 (hun), is sectors and including defense and railway.21 to invite a selected group of private inves- tors to purchase shares from an SOE. In July 2017, the government also started The State-owned Assets Supervision and allowing local SOEs to experiment with Administration Commission (SASAC) and mixed ownership reform.22 This was further the National Development and Reform confirmed in November when a third list, Commission (NDRC) first select the SOEs involving 31 more local and central SOEs, that will be subject to reform. The selected was issued by NDRC.23 Although the major- companies then create plans detailing ity of private investors hitherto revealed has which stakes or business units they will mainly consisted of large technology corpo- put up for sale. SOEs will typically sell 30 rations, other sources of private capital have to 45 percent of units such as subsidiar- also appeared. Chinese private equity firm ies to private sector partners. The capital Wealth Capital announced that they formed a raised by the share sales typically raise 5 billion RMB ($756 million) investment fund more than $1 billion, which are reinvested in August 2017 that specifically targets SOEs in new projects jointly managed by the undergoing mixed ownership reform.24 The SOE and its new private partners.17 NDRC plans to “basically complete” SOE mixed ownership reform by the year 2020.25 The second step, 改(gai), is the implemen- tation of corporate governance reform and increased external supervision as a result Challenges to Reform of the presence and participation of the new private investors on the SOE board. The rationale behind the mixed ownership Unlike retail investors who trade SOE reforms is that, by increasing the stakes of shares through public listing for specula- strategic private investors in SOEs, corporate tive purposes, private investors under the governance could be improved by giving mixed ownership schemes are considered these private investors a voice on the board to be strategic partners who will have an and allowing them to scrutinize managerial active say in how the SOEs are managed performance. However, there are three the- and in how future projects will be carried oretical challenges to this rationale.

Challenges to SOE Mixed Ownership Reform in China: A Case Study 23 The first challenge is that private investors are capable of bringing about corporate actually do not, and most likely will not, governance reform, some of which will no have a majority stake in any SOE under the doubt clash with the entrenched interests mixed ownership reform scheme. This is for of incumbent SOE managers, many of two reasons: the first reason is political. It whom are also the major shareholders. is has been made clear by the authorities that the objective of introducing mixed The second challenge is that the intro- capital into SOEs is to strengthen the state duction of private investors into Chinese sector. 26 Allowing private investors to hold SOEs might actually make it more difficult a majority stake in SOEs would constitute for an SOE board to reach a consensus privatization, and there is no impetus from regarding future projects and reform. This any government or party policy to system- is because inviting private actors into SOEs’ atically privatize SOEs.27 A State Council ownership and managerial systems further directive in November 2017 requiring SOEs complicates the already byzantine structure to transfer 10 percent of their shares into of China’s state sector leadership. There pension funds is also an indication that are already a host of players and interest strong SOEs are integral to the govern- groups vying for influence in SOEs, includ- ment’s long-term plans.28 This solidifies ing the CCP Organization Department’s SOEs’ importance in the Chinese economy, nomenklatura system, whereby the CCP

Experts warn that mixed ownership reform in fact sucks resources from the private sector, depriving the latter of much-needed capital.

making systematic privatization even more controls the appointment of SOE heads, unlikely. The second reason why privatiza- SASAC’s nominal ownership of all central tion will not occur is commercial: SOEs are SOEs, and the MOF, for which SOE profits actually quite profitable when one is not are a substantial source of revenue. SASAC putting their figures side by side with the and the CCP have strong developmental even more successful private sector. The objectives for SOEs, for example to provide Ministry of Finance (MOF) reported that in macroeconomic stability through increas- the first ten months of 2017, profits for SOEs ing investments when China’s growth (central and local combined) grew by 24.6 slows.30 This clashes with MOF’s objective percent year on year.29 It is also import- for SOEs to become financially sound by ant to remember that the main impetus being more profit-oriented, which some- for the “grasping the large and letting go times would mean making investments that the small” (抓大放小, zhuada fangxiao) era conflict with developmental objectives. of mass corporatization in the late-1990s was because they were making enormous It is also difficult to determine whether pri- losses. By contrast, the relatively profitable vate actors who invest in these companies position of SOEs today makes it even less through the mixed ownership schemes urgent for the government to grant private do so because they see profitable oppor- investors majority stakes in state sector tunities or simply because they want to firms. It is therefore questionable whether influence these SOEs for the benefit of private investors with only minority stakes their own primary businesses. As is true

24 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW in the Unicom case study, many private lead to a retreat in the state’s involvement investors are also peer competitors from in the SOEs, opening up the possibility for the same oligopolistic sectors. Experts warn continued misallocation of resources due that mixed ownership reform in fact sucks to state interference.34 resources from the private sector, depriving the latter of much-needed capital when the One might think that the increasing blur state sector already has a disproportion- between the public and private sectors ately large allocation of resources.31 would pose less of a problem for foreign investors, especially wholly foreign-owned For example, it is estimated that 10 trillion enterprises that are established without the

RMB ($1.5 trillion) is required for private need for joint venture with SOEs. However, vol 5 investors to have a controlling interest in based on open source information, as of |

(i.e. own 51 percent of shares) 40 percent late 2017 none in the 19 SOEs in the first 2019 of all SOEs; this is more money than Chi- two pilot batches have openly listed for- nese public companies have ever raised on eign investors as participants of their mixed domestic stock markets (7 trillion RMB).32 ownership plans. The unsurprising reason for the apparent exclusion of foreign inves- The third and perhaps most enduring chal- tors is that SOEs, especially inefficient SOEs, lenge that the mixed ownership reform fails tend to dominate sectors pertaining to to address is that the ownership of SOEs national security or pillar industries that are is becoming increasingly less important in sensitive to foreign capital. This is despite China’s current institutional environment. the State Council’s August 2017 release of This is because the lines between SOEs and the Notice on Measures to Increase Foreign the private sector are becoming increas- Investment, which reiterated support for the ingly blurred, with the state exercising more role of foreign capital in the reorganization influence over companies regardless of the of SOEs.35 nature of their ownership.33 For example, although the Third Plenum promised to give market forces a decisive role in the Case Study: economy, the CCP’s control over major China Unicom private sector players in the form of party committees established above the boards One of the first examples of mixed ownership of directors implies that the supposedly pri- reform is China Unicom’s announcement in vate market forces are ultimately under the August 2017 of its sale of 35.2 percent of its control of the state. As a result, ownership shares worth 78 billion RMB ($11.7 billion), of a company no longer necessarily implies to 14 private investors.36 The investors having control or a decisive say over its include prominent technology companies operational and managerial decisions. such as Alibaba, Tencent, Baidu, JD.com, Life Insurance Company, CRRC Corp, In fact, the state may actually increase and Didi Chuxing.37 Unicom announced control over SOEs that have undergone that its Shanghai-listed unit, China United mixed ownership reform. This is because, Network Communications Ltd., would be although inviting strategic private inves- used as the platform for these sales. After tors may diversify the board, strong party the deal is completed, that unit’s board will committees in the investors’ own respective have 15 people in total: six from the state primary businesses will help the govern- sector (including two from Unicom group), ment set a more political agenda for the four from the new strategic private inves- SOE’s reform in the name of the party. This tors, and five independent non-executive might be done in lieu of purely private or directors.38 This deal is also estimated to commercial considerations. Mixed owner- be the largest capital-raising deal in the ship reform therefore might not necessarily Asia-Pacific since 2010.39 Unicom has also

Challenges to SOE Mixed Ownership Reform in China: A Case Study 25 announced that as one of the first acts of Unicom’s party secretary and chairman the post-deal reform, it will soon consoli- Wang Xiaochu gave a speech in Decem- date its 27 departments into 18 in order ber where he defended the decision to to remove overlapping functions and cut include peer competitors on the Unicom red tape.40 board. Wang argued, rather unconvinc- ingly, that Unicom would be able to The first challenge mentioned above “utilize the comparative advantages of concerning the minority stake of private each private investor without generat- investors is apparent in Unicom’s scheme: ing unnecessary friction,” without giving although Unicom’s ownership of its own any substantial explanation as to how that A-shares will drop from 62 percent to 36 could be achieved.43 percent, the state as a whole remains the

Baidu, Alibaba, and Tencent… the fact that they are rivals in their own industry could pose serious problems to cooperating and standing up against the majority interest of the state.

majority stakeholder with 53 percent. The Finally, the third challenge of further blur- largest private investors participating in this ring the lines between public and private sale—Tencent and Baidu—will only hold 5.18 capital is also reflected in this deal. The and 3.3 percent of shares respectively.41 party apparatus has a strong presence in The composition of the new board—with both Tencent and Baidu, the two largest private investors only holding four out of private investors in the deal. Tencent’s party 15 seats—also reflects the private investors’ committee has more than 7,000 members, minority position. Perhaps most interest- around 23 percent of all its employees. ingly, China Life Insurance—which is 70 Its party secretary, Guo Kaitian, is a senior percent state-owned—is the largest of the vice president of the company and has new shareholders to participate in this been in charge since the party committee mixed ownership scheme.42 It will hold was established in 2011. Tencent’s deputy 10 percent of Unicom’s Shanghai unit, party secretaries also hold senior manage- almost a third of all the shares offered, rial posts in charge of cybersecurity, social further increasing the de facto stake held media, and government relations.44 Baidu by the state. has more than 3,600 party members,45 and its party secretary Zhu Guang is also a senior The second challenge pertaining to con- vice president of the company in charge of flicts of interests among the strategic brand building, internal communication, and private investors is also apparent, with all marketing.46 However, given that we as of three of China’s largest tech firms—Baidu, yet do not know who will be on the board of Alibaba, and Tencent (BAT)—involved in this Unicom’s Shanghai business unit, it is difficult deal. The fact that they are rivals in their to definitively prove that the strength of these own industry could pose serious problems party committees will impede Tencent and to cooperating and standing up against the Baidu’s potential to improve Unicom’s cor- majority interest of the state. porate governance as minority shareholders.

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Chart 1: Total Profits / Total Assets of Industrial Enterprises by Ownership Category, 2000 - 2015 49

16%

14%

12%

10%

State vol 5 Owned 8%

Private | 2019 6% Foreign Funded 4% Total Profits / Total Assets Total / Profits Total

2%

0 03 05 07 09 11 13 15 02 04 06 08 10 12 14 00 01 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Years

Chart 2: Percent of Loss-making Industrial Enterprises by Ownership Category, 2000 - 2015 50 45%

40%

35%

30%

State 25% Owned

Private 20%

Foreign Funded 15% Total no. of Enterprises no. Total Loss-making Enterprises / Loss-making

10%

5%

0 03 05 07 09 11 13 15 02 04 06 08 10 12 14 00 01 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Years

Challenges to SOE Mixed Ownership Reform in China: A Case Study 27 Conclusion Indicators of Industrial Enterprises by Status of Registration” section. http://data.stats.gov.cn/ It is very difficult to empirically evaluate english/easyquery.htm?cn=C01. the results of mixed ownership reform 3 Yuan Yang and Tom Mitchell, “China’s for two reasons. The first is because this private sector misses out on credit boom,” is only one of many policies that the gov- Financial Times, July 3, 2016, https://www. ernment has issued for reforming SOEs; ft.com/content/833c5208-3eba-11e6-8716- others include merging or consolidating a4a71e8140b0. existing SOEs as well as the creation of 4 Qu Hongbin, “China’s dual-track state sovereign wealth funds.47 This makes economy,” HSBC, July 29, 2017, http:// it challenging to measure the benefits of www.gbm.hsbc.com/insights/economics/ mixed ownership reform while controlling china-dual-track-economy. for the effects of other reforms. The second 5 “China’s corporate debt: State of grace,” reason is because non-transparent changes The Economist, November 17, 2016, https:// that occur behind closed doors due to the www.economist.com/news/finance-and- reform, such as new managerial input and economics/21710291-government-their-side- improved corporate governance, are hard chinas-state-firms-borrow-cheaply-state-grace. to assess without conducting relevant inter- 6 Barry Naughton, “The Current Wave of State views or obtaining inside information by Enterprise Reform in China: A Preliminary other means. It is hard to verify the claim Appraisal,” Asian Economic Policy Review, 12 that party committees in private compa- (2017): 283. nies exercise influence over their board 7 Barry Naughton, The Chinese Economy: decisions on SOEs unless we know at Transitions and Growth (Cambridge: MIT Press, least who the board representatives are, 2006), 317. for example. 8 Zhaofeng Wang, “Corporate governance under state control: the Chinese experience,” In conclusion, it is too early to tell whether Theoretical Inquiries in Law 13, no.2 (2012): the mixed ownership reforms are suc- 499. ceeding. The two batches of greenlighted 9 “OECD Guidelines on Corporate Governance central SOEs mentioned above are merely of State-Owned Enterprises,” OECD (2015): 26. pilot projects and only a fraction of those 10 Jamil Anderlini, “China corruption purge greenlighted companies have announced snares 115 SOE ‘tigers’,” Financial Times, concrete plans for selling their stakes. The May 18, 2015, https://www.ft.com/content/ government announced that it aims to ad997d5c-fd3c-11e4-9e96-00144feabdc0. complete the reforms by 2020, and yet 11 Dinny McMahon, “The Anatomy of a Bankrupt as of August 2018 only two-thirds of cen- State Firm’s Liquidation,” Marco Polo, tral SOEs have completed the first step of September 26, 2017, https://macropolo.org/ allowing private investors to hold shares.48 anatomy-bankrupt-state-firms-liquidation/. The slow pace of implementation, the lack 12 “李克强主持召开深化国有企业改革和发展座 of good measures for verifying results, and 谈会,” State-owned Assets Supervision and the three conflicting challenges explained Administration Commission, September 21, above mean that mixed ownership reforms 2015, http://www.sasac.gov.cn/n103/n85881/ alone are unlikely to solve the enduring n85901/c2060930/content.html. challenges that SOEs face today. 13 “中共中央关于全面深化改革若干重大问 题的决定,” State Council, November 15, 1 Arthur Kroeber, China’s Economy: What 2013, http://www.gov.cn/jrzg/2013-11/15/ Everyone Needs to Know (Oxford: Oxford content_2528179.htm; “中共中央、国务院 University Press, 2016), 100. 关于深化国有企业改革的指导意见,” State 2 Both Chart 1 and Chart 2 are calculated from Council, September 13, 2015, http://www.gov. annual data drawn from the National Bureau cn/zhengce/2015-09/13/content_2930440. of Statistics (NBS) website’s “Industry: Main htm; “国务院关于国有企业发展混合所有制经

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济的意见,” State Council website, September 27 David Stanway, “China SOEs to resist 24, 2015, http://www.gov.cn/zhengce/ privatization, consolidate Party rule: state asset content/2015-09/24/content_10177.htm. regulator,” Reuters, June 16, 2017, https:// 14 “中共中央关于全面深化改革若干重大问题的决 www.reuters.com/article/us-china-soe/china- 定,” State Council, November 15, 2013. soes-to-resist-privatization-consolidate-party- 15 “中共中央、国务院关于深化国有企业改革的指 rule-state-asset-regulator-idUSKBN1970GW. 导意见,” State Council, September 13, 2015. 28 “国务院关于印发划转部分国有资本充实社保基 16 “国务院关于国有企业发展混合所有制经济的意 金实施方案的通知,” State Council, November 见,” State Council, September 24, 2015. 18, 2017, http://www.gov.cn/zhengce/ 17 Yang Ge, “5 Things to Know About China’s content/2017-11/18/content_5240652.htm.

Mixed-Ownership Reform,” Caixin Global, 29 “2017年1-10月全国国有及国有控股企 vol 5 August 28, 2017, http://www.caixinglobal. 业经济运行情况,” Ministry of Finance,

com/2017-08-28/101136807.html. November 21, 2017, http://zcgls.mof.gov.cn/ | 2019 18 Ibid. zhengwuxinxi/qiyeyunxingdongtai/201711/ 19 This was out of a total of 98 Central SOEs t20171120_2754015.html. controlled by SASAC. 30 Naughton, “The Current Wave of State 20 “China to unveil central SOE mixed-ownership Enterprise Reform in China: A Preliminary reform plans,” Xinhua, April 12, 2015, Appraisal,” 289. http://news.xinhuanet.com/english/2017- 31 Henry Sender, “China’s state-owned business 04/12/c_136202820.htm. reform a step in the wrong direction,” Financial 21 “Central SOE mixed ownership reform to Times, September 25, 2017, https://www. get green light soon,” China Daily, April ft.com/content/8a393130-a1b9-11e7-b797- 25, 2017, http://www.chinadaily.com.cn/ b61809486fe2. business/2017-04/25/content_29077222.htm. 32 Houze Song, “State-Owned Enterprise 22 “China’s mixed-ownership reform to cover Reforms: Untangling Ownership, Control, locally-administered SOEs,” Xinhua, July and Corporate Governance,” Marco Polo, 12, 2017, http://english.gov.cn/news/top_ December 4, 2017, https://macropolo.org/ news/2017/07/12/content_281475723009544. wp-content/uploads/2017/12/State-Owned- htm. Enterprise-Reforms.pdf. 23 “China includes 31 more SOEs in pilot mixed- 33 Curtis J. Milhaupt and Wentong Zheng, “Why ownership reform,” China Daily, November Mixed-Ownership Reforms Cannot Fix China’s 15, 2017, http://www.chinadaily.com.cn/ State Sector,” Paulson Institute, January 2016, business/2017-11/15/content_34564785.htm. http://www.paulsoninstitute.org/wp-content/ 24 Georgina Lee, “Mixed ownership reform an uploads/2017/01/PPM_SOE-Ownership_ opportunity for private equity to invest in Milhaupt-and-Zheng_English_R.pdf. state enterprises,” South China Morning Post, 34 Gabriel Wildau and Don Weinland, “China December 5, 2017, http://www.scmp.com/ state-owned telecom privatisation seen as business/companies/article/2123007/mixed- too timid,” Financial Times, August 21, 2017, ownership-reform-opportunity-private-equity- https://www.ft.com/content/0dd0b152-8659- invest-state. 11e7-bf50-e1c239b45787. 25 Chong Hua, “发改委明确国企混改时间表：2020 35 “国务院关于促进外资增长若干措施的通 本完成国企股权多元化,” People’s Daily, 知,” State Council, August 16, 2017, http:// August 28, 2014, http://energy.people.com. www.gov.cn/zhengce/content/2017-08/16/ cn/n/2014/0828/c71661-25554584.html. content_5218057.htm. 26 “Decision of the Central Committee of 36 “Alibaba to China Life Join Unicom’s $11.7 the Communist Party of China on Some Billion Stake Sale,” Bloomberg, August 16, Major Issues Concerning Comprehensively 2017, https://www.bloomberg.com/news/ Deepening the Reform,” CCP Central articles/2017-08-16/unicom-to-raise-11-7- Committee Third Plenum, November 2013, billion-via-stock-sale-to-alibaba-others. http://www.china.org.cn/china/third_plenary_ 37 Bien Perez, “China taps nation’s who’s who session/2014-01/16/content_31212602_2.htm. of technology to anchor ownership shakeup

29 at Unicom’s parent,” South China Morning Bureau of Statistics, http://data.stats.gov.cn/ Post, August 16, 2017, http://www.scmp.com/ english/easyquery.htm?cn=C01. tech/article/2106982/unicom-shares-halted- 50 Ibid. speculation-mounts-new-investors-its-parent- company. 38 Julie Zhu and Sijia Jiang, “China Unicom’s $12 billion ownership-reforms plan mired in confusion,” Reuters, August 18, 2017, https://www.reuters.com/article/ us-china-unicom-stocks/china-unicoms-12- billion-ownership-reforms-plan-mired-in- confusion-idUSKCN1AY1A4. 39 Zhu and Jiang, “China Unicom’s $12 billion ownership-reforms plan mired in confusion.” 40 “王晓初谈联通混改： “混”已结束， “改”是 当前最主要工作,” China.com, December 4, 2017, http://economy.china.com/ news/11173316/20171204/31757109_all. html#page_2. 41 “China Unicom brings in private investors,” Xinhua, August 16, 2017, http:// news.xinhuanet.com/english/2017- 08/16/c_136531027.htm. 42 Zheng Zhigang, “联通混改 “得”与”失”,” Financial Times, August 28, 2017, http://www. ftchinese.com/story/001073941. 43 “王晓初谈联通混改： “混”已结束， “改” 是当前最主要工作,” China, December 4, 2017, http://economy.china.com/ news/11173316/20171204/31757109_all. html#page_2. 44 “腾讯：公司党员超7000人，带头开发微信等 代表性产品,” Sina Tech, October 14, 2017, http://tech.sina.com.cn/i/2017-10-14/doc- ifymvuys9864621.shtml. 45 “盘点成立党委的互联网公司：其实除了 BAT们还有很多,” Sina Tech, July 1, 2017, http://tech.sina.com.cn/i/2017-07-01/doc- ifyhrxtp6420838.shtml. 46 “Executive Profile: Zhu Guang,” Bloomberg, https://www.bloomberg. com/research/stocks/people/person. asp?personId=51939074&privcapId=428613. 47 Naughton, “The Current Wave of State Enterprise Reform in China: A Preliminary Appraisal,” 290. 48 “央企积极推进混合所有制改革,” People’s Daily, August 31, 2018, http://finance.people.com. cn/n1/2018/0831/c1004-30262396.html. 49 “Industry: Main Indicators of Industrial Enterprises by Status of Registration”, National

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domestically or access the world market. Hedging its Bets: Global governance institutions seek to help moderate the volatility of markets so that China’s Strategies abrupt price changes do not cause harm, incentivize states to remove policies which in Pursuing Global distort the availability of food in markets, provide freely available information, assist Food Security with development of agriculture in coun- tries which struggle with reliable access to food, and provide emergency relief aid

where necessary. vol 5 |

China presents a puzzle for global food 2019 Anna Woods security governance. It is not a typical less developed country (LDC) beneficiary of food security programs—it is in fact the third Anna Woods is a former SAIS M.A./Hop- largest contributor to the Food and Agri- kins-Nanjing Center Certificate student who culture Organization of the United Nations graduated in May 2018 with a concentra- (FAO).1 At the same time, it is the country tion in China Studies and a specialization with the largest population in the world, in Emerging Markets. Her research interests 1.386 billion, making up 18.4 percent of span international commodity markets, world population, yet it only possesses 9 financial inclusion, and international devel- percent of the world’s arable land, which opment. She was previously an intern at the is a hard limitation on its capacity to pro- New Zealand Mission to the United Nations. duce enough food for its people.2 As more She can be reached at annamarywoods@ and more of its population leave poverty outlook.com and enter the middle class (in 2005, 70.7 percent of its population lived on less than $5.50 per day in purchasing power parity— Introduction the upper middle income poverty line; this dropped to 31.5 percent in 2014), demand Access to food is one of humankind’s most for greater variety and greater animal pro- fundamental needs and rights. Population tein will be a continuing force in lifting growth, natural disasters, climate change, demand for different food products.3 As and conflict all throw this access into of 2017, China was self-sufficient in grains, question. If we proceed from the stand- but a net importer of the staples of meat, point that international organizations and dairy, soybeans, and oilseeds.4 regimes have the potential to assist in governing and mitigating problems that Given China’s unique food security situa- apply globally, global governance of food tion, this paper seeks to understand how security is one of the most obvious, primary, China approaches food security as an and pressing areas in which cooperation issue for global governance, so as to infer between states is needed. how this approach may impact the food security of the rest of the world. This paper From the 1870s onwards, we have become concludes that, while China does engage a globalized world in terms of international in the main global food security gover- food flows. In this context, if a state cannot nance regimes (barring one, the Group of produce sufficient food for its population, Seven) and does so in an active way so as it can acquire this from abroad through to advance its interests, it is not satisfied aid or trade. Food insecurity arises when that engaging in multilateral fora alone a state cannot either produce enough can safeguard a resilient and reliable food

31 supply for its population. Therefore, it also between the European colonizers and pursues strategies outside of these fora, their colonies, where tropical, livestock, and with separate food security governance grain products flowed from the colonies to arrangements in Asia, Latin America, and the colonizers.9 BRICS, as well as acquiring investments overseas of arable land and food produc- The end of the Second World War brought tion facilities (often described as “land about the mercantile-industrial food grabs”). The diversification of strategies has regime.10 As colonial relationships broke the ultimate goal of an extremely resilient down, the second food regime centered food supply for the Chinese population. around the United States, which played a new role in international food flows. The United States exported its agricultural Food Regimes and Global surpluses to an “informal empire” of post- Food Security Governance colonial states on the “strategic perimeters” of the Cold War.11 Through these flows, the Food regime scholars aim to conceptu- United States shored up support against alize how food flows around the world. Communism and the Soviet Union, dealt One of the leading scholars, Harriet with surplus production, and ensured that Friedmann, defines the food regime as food shortages in Europe and other coun- the “rule-governed structure of produc- tries were remediated. tion and consumption of food on a world scale.”5 This definition of governance does The third global food regime is yet to be not require formal rules or international defined.12 Powers like China, Brazil, and agreements. Instead, “implicit rules evolved India now have a significant impact on the through practical experiences and nego- flows of food. At the same time, global pro-

China cannot fully embrace complete trade liberalization because of its commitment to a certain level of self- sufficiency, which is only possible through food reserves. Hence, China cannot get all that it wants out of these governance arrangements and it has to resort to other strategies.

tiations.”6 Such negotiations and evolving duction chains and private corporations practices eventually bring about “a stable have begun to play an exceedingly large pattern of production and power.”7 In part in the dynamic of the food regime. food regime analysis, a powerful state or Food production is being increasingly non-state actor must act as the driver of disaggregated in such a way that produc- this pattern. tion is only coherent from the point of view of supply chain managers, in the form of The first food regime was the colonial-dias- transnational commodity complexes. poric food regime, lasting from 1870 to the What we can surmise is that these global 1930s.8 At the time, Britain and other Euro- supply chains are being managed by both pean countries held relative power in the Western and Southern (including Chinese) world system as colonizers. Industrial pro- multinational corporations. duction was expanding in Europe relative to agricultural production. This first food Global food security governance also fits regime was hence a set of relationships the concept of a regime complex. Regime

32 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW complexes are defined by Karl Raustiala supported by home government subsi- and David G. Victor as “an array of par- dies.20 Countries like China and India have tially overlapping institutions governing a pushed back against trade liberalization as particular issue-area, among which there it relates to food security in institutions like is no agreed upon hierarchy.”13 In such a the WTO. In the view of the Chinese gov- regime, states may have trouble achiev- ernment, trade liberalization is important ing their particular aims “because it is in that it will create a more efficient inter- difficult—even for powerful states—to exert national food market that can better meet leverage in many diverse fora simultane- China’s growing demand.21 However, ously and consistently.”14 China cannot fully embrace complete trade

liberalization because of its commitment vol 5 It is clear that global food security gover- to a certain level of self-sufficiency, which

22 |

nance fits with the definition of a regime is only possible through food reserves. 2019 complex. In a literature review of global Hence, China cannot get all that it wants food security governance, Candel notes out of these governance arrangements that the main scholarly critique of current and it has to resort to other strategies. This food governance is that there is no truly comes back to the essential fact that China’s authoritative institution.15 Candel states food security is incompatible with a purely that “we observe a regime complex for multilateral approach, in that with multilat- food security, in which food security is eralism, everyone is treated the same. For affected by a wide array of governance China, its own food security will be most regimes that are all constituted by distinct resilient if other countries largely liberalize sets of actors, forums, discourses, interests, trade in food stuffs while China is able to and so forth.”16 This issue is compounded maintain supports on its own food products because food security governance touches to safeguard a degree of self-sufficiency. upon diverse issues like agriculture, trade, climate change, crisis management, and poverty reduction. China’s Role in Global Food Security Jennifer Clapp has noted that institutions in Governance Regimes the economic sphere have more clout than others, due to their greater legal weight, China plays various roles in the complex of such as in the World Trade Organization institutions involved in global food secu- (WTO).17 States neither want to give sole rity governance. The Food and Agriculture global food security governance responsi- Organization (FAO) of the UN was the first bility to the WTO, where trade issues may effort to globally govern food security when come into conflict with resolving food it was established in 1944. It was given a set security issues, nor give it all to the United of ambitious tasks, including raising world Nations (UN) system, which is seen as being nutrition levels, improving food production toothless in comparison.18 and distribution, and ensuring humani- ty’s freedom from hunger.23 However, In terms of the different norms being con- the UN’s Ministry of Agriculture lost a lot tested within these regimes, global food of power in the mid-1970s following the security governance has been associated world food crisis occurring at the time, with free trade since the world began trade and has declined in relative importance liberalization in the twentieth century.19 and power since.24 However, an imbalance persists in which developing countries must lower pro- In the aftermath, the international finan- tections to the point where the cheapest cial institutions of the World Bank and the option is to purchase foodstuffs imported International Monetary Fund (IMF) initially from developed countries, which are took over the duties of global food security

Hedging its Bets: China’s Strategies in Pursuing Global Food Security 33 governance. These institutions advised in move forward in negotiations and finalize favor of market opening measures and cuts agreements, it has not been able to fulfill to state support of agriculture in devel- its mandate of disciplining trade-distortive oping countries.25 The world food crisis policies such as agricultural subsidies. Chi- from 2007-2008 marked another transi- nese engagement in the WTO as pertaining tion, acting as a wake-up call for the world to global food security governance plays that other institutions needed to take over out in a number of ways. China has subtly global food security governance, which supported developing countries in their had only been a peripheral issue for the fights to retain the right to food reserves. World Bank and the IMF. This led to the China does not lead such efforts because G7, G20, WTO, and Committee on World to do so would harm its image as a sup- Food Security (CFS) being more important porter of trade liberalization. However, in for those following ten years. 2013 at the Ninth Ministerial Conference in Bali, the G-33 (a coalition of 46 devel- Although the FAO is no longer such a key oping countries that included China) global governance institution, China has tried to remove food reserves from being been increasingly active in it, primarily considered in the aggregate measure in the form of encouraging South-South of support, meaning that a food reserve development cooperation in agriculture, policy would not be considered part of a presumably to bolster its credentials in the country’s subsidy policy. China has been South so as to strengthen access to food especially concerned about the effect of supplies—this will be discussed later on.26 speculation on the price of food. In 2009, Vice Premier Hui Liangyu stated that “it is At the World Food Summit in 2009, Vice imperative to enhance financial regulation Premier Hui Liangyu concluded his address over agricultural markets and effectively by promising that “China is ready to work curb speculative activities.”30 with the international community to safe- guard world food security and build a China is not part of the G7, which means harmonious world of enduring peace it does not engage in its food security ini- and common prosperity.”27 Despite this, tiatives, such as the L’Aquila Food Security because the CFS involves a wide range of Initiative (to which $3 billion was pledged stakeholders through its civil society mech- by the U.S. for a total of $22 billion by donor anism (CSM), the lack of plurality in Chinese countries),31 the Feed the Future Initiative delegates (all quite state dominated) rep- (the U.S. whole-of-government poverty resents a weakness in China’s ability to and hunger alleviation program), and the influence proceedings. Elkin notes that Global Agriculture and Food Security Pro- countries in which independent civil society gram (GAFSP). However, the G20 seems organizations (CSOs) have positive working to have taken over the G7’s role lately in relationships with their governments have global food security governance issues. greater influence because they arrive with Within the G20, China has tried to put food common positions and are able to exert security on the agenda, holding the Meet- influence in multiple aspects: through ing of the G20 Agricultural Chief Scientists CSMs as well as state-only meetings.28 and the G20 Agricultural Entrepreneurs Forum in Xi’an in 2016. This involvement The WTO as an institution of global gov- has increased as China has realized that ernance has become both less effective the WTO is becoming less and less effec- in determining global trading norms and tive (particularly since the failure of the also a less-effective body within global food Bali Conference) and so has attempted to security governance.29 This is fundamen- increase its power in the G20.32 It should tally due to the deadlock that has plagued be noted that the G20 clearly excludes the the Doha round—because countries cannot other 100 countries which make up the

34 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW other 15 percent of world GDP, and rather of food security protection, but updated it more pertinently for food security pur- slightly to reflect a more flexible produc- poses, a third of the world’s population and tion base. The 95 percent rate was replaced half of the world’s land area.33 This group by a reserve to consumption ratio which includes every African country aside from includes both domestic production and net South Africa. The G20 also does not include imports, with wording such as “moderate non-state actors in its deliberations, such imports” showing acceptance of the real as civil society organizations and private situation China faces currently.40 sector participants. Both groups have a great deal to say about and contribute to Additional aspects that characterize the Chi- the issue of food security governance, since nese outlook on food security are distrust vol 5 they are directly affected and implicated in of external actors, skepticism regarding the |

food security issues. Finally, the G20 lacks West’s approach to food security, and the 2019 the expertise and capacity to implement its wish for diversification. China also still has a recommendations, since it lacks a formal third of its population as of 2013 in the rural ability to enforce rules. labor force. Policies that support domestic food production hence also support this large pool of workers, which is desirable.41 China’s Food Security Mindset Distrust of overseas actors stems from the 1959 famine, in which China was unable to Food security is a peculiarly pressing issue purchase enough grain to feed its people for China for historical and political reasons. due to the U.S. embargo at the time.42 It Historians have estimated that in almost fears being locked out of world markets. every year from 108 BC to 1911 AD, one This is also due to the fact that China con- or more province in China suffered a famine sumes such a large amount of grain that due to drought or flooding.34 This has gen- it cannot help but act in a large-country erated a “continuous tradition of thinking fashion on the world market, driving prices about famine” and a “cultural mindset” up and potentially still not being able to obsessed by the threat of hunger. 35 This meet its needs. In 2016, the FAO released historical setting has engendered some key a projection of China’s expected net soy- ideas that continue to inform the narrative: bean imports in 2025 of 106.1 million the paramount importance of self-sufficiency tons. The average total volume of soybean in food, and the responsibility of the ruler exports from 2015-2017 according to the to ensure that there is enough food for the Agricultural Market Information System is people.36 In imperial times, the emperor 143.12 million tons, so without a signifi- risked losing the “Mandate of Heaven” cant increase in world production, clearly should he shirk his duty to ensure adequate Chinese demand would dominate the food production throughout the empire.37 world market.43 Without expansion, China would theoretically stand to import 74 This concept has carried through to the percent of world soybean exports. Noting Chinese Communist Party (CCP), which China’s immense demand, Duggan and prioritizes grain self-sufficiency not only Naarajärvi state that the international as a matter of national pride, but also as market “cannot meet China’s shortfall in a key aspect of political legitimacy.38 Until food production and, therefore, cannot recently, “red lines” for the CCP included ensure China’s food security.”44 keeping the stock of arable land at or above 120 million hectares, as well as achieving The Chinese government is also aware of a 95 percent grain self-sufficiency rate.39 the China threat narrative that Lester Brown This did, however, change in 2014 with the first promulgated in his bookWho Will Feed No. 1 Document which kept the same spirit China? and in the past China has boosted

Hedging its Bets: China’s Strategies in Pursuing Global Food Security 35 domestic grain production as a direct aimed at increasing access to international result of such accusations, most recently food markets while maintaining a high level in response to the 2008 food crisis.45 The of domestic self-sufficiency in food produc- structure of world markets and the multilat- tion.”51 Duggan and Naarajärvi state that, eral institutions is also viewed by the Chinese as China moves from the role of “standby authorities as unfairly biased towards grain player” to “active rule maker,” it will reshape exporters like the United States. China feels the agenda of global governance bodies, that the international food regime is “tightly which historically were not designed by, controlled” by these states and their multi- and hence not targeted towards, the con- national corporations, and that as a result, cerns of the developing world.52 reforms always seem to target import tar- iffs rather than export subsidies.46 These Regional Actions concerns have mobilized a desire for diver- sification in food supply sources in terms of China has taken a leading role in certain regions, channels, and approaches to reduce regional initiatives where it is more capa- the risk of overdependence. ble of shaping the regime to its preference. These include regional grain reserves, new The Chinese government consistently men- food security governance regimes, and tions food security in discourse, which is cooperation forums with the Association unsurprising given its importance to the of Southeast Asian Nations (ASEAN), BRICS Chinese people. The general message is countries (Brazil, Russia, India, China and positive and indicates the idea that China South Africa), and the Latin American and is helping the rest of the world in their food Caribbean countries respectively.53 security as well. For example, Vice Minister of Agriculture Gao Hongbin claimed at a China’s affinity for grain reserves is part of its global summit for food security in 2009 resilience strategy. The ASEAN Plus Three that China’s food security has actually Rice Reserve is a permanent mechanism enhanced global food security.47 Chi- developed by member countries’ agricul- nese state newspapers publish articles tural ministers. The reserve is designed to with headlines like “China’s food security deal with the threat of extreme price vola- fully guaranteed” and “Self-sufficient food tility or natural disasters wiping out capacity policy benefits world.”48 Not only does in Asia. The reserve holds 787,000 tons of China depict things as going smoothly, rice stockpiled under this arrangement with but shows this as predicated upon being a $4 million endowment fund, mostly from able to acquire land abroad as well as at the “plus three” who contributed $1 mil- home. Mindi Schneider notes that these lion each. This aligns very well with China’s discussions begin by citing the “well-worn” domestic policy of strategic reserves. China statistic that China is feeding 21 percent holds the world’s largest grain reserves of the world’s population on 9 percent located at the central, local, and provincial of its arable land, so as to “communicate levels, estimated at over 200 million tons.54 impending crisis while proposing solu- tions.” 49 China has deemed rice, wheat, and BRICS countries have started to tackle maize to be the three “strategic crops” for the issue of food security governance food security, selectively liberalizing other as a group. At leadership summits, com- crops such as soybeans, but retaining tight mitments have included the signing of a controls on production, pricing, and imports joint declaration on food security, the cre- on those staple grains.50 ation of the Basic Agricultural Information Exchange System of BRICS countries, and Given China’s unique situation, it is clear statements against developed countries’ that Chinese engagement in the institu- subsidies; in New Delhi in 2012 the group tions of global food security governance is stated that “subsidies in agriculture by

36 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW some developed countries continue to dis- developing countries at the UN High-level tort trade and undermine the food security meeting on the Millennium Development and development prospects of developing Goals, as well as to send agricultural tech- countries.”55 They are working to show the nicians to those countries.60 world that BRICS countries are determined to “play an important role in global initia- Through this, we can see that China tends tives on food security.”56 to engage with countries bilaterally when it comes to securing food chain cooperation China has formalized engagement with the deals, rather than through multilateral mech- Community of Latin American and Carib- anisms. These bilateral deals that help other bean States (CELAC) through the general countries increase their food production are vol 5 China CELAC Forum. Engagement on food a win-win situation for everyone: for China, |

security occurs at the China-LAC Agricul- because it can feel more confident in the 2019 tural Ministers Forum, which has a focus greater availability of food to import from on agricultural development and food overseas, and for the recipient countries, who security. In this forum, China’s actions have are increasing their volumes of production. included establishing a joint 500,000 ton food reserve and a $50 million fund for “Land Grabs” eight research and development centers in the LAC region.57 China is trying to take Land grabs involve the aquisition of land the initiative in this regional governance so and food production facilities by one coun- as to ensure continued ability to influence try in another. Some scholars view them as a the important agricultural production coun- form of neo-colonialism, while others frame tries in the region. them as a natural consequence of the inte- gration of food production into the global Beyond Multilateral Venues economy.61 The Chinese government has been active in encouraging Chinese com- Outside of the regimes covered so far, panies in the “go out” strategy to acquire China also deals with food security in a investments in grain and meat production unilateral manner. It provides capital to abroad, including in official speeches. foreign countries, particularly in Africa, Abdenur states that “Chinese state and non- but also Latin America, Asia, and the state actors have come together to boost Pacific, which in return allow them access their presence in production, processing, to food production. Provision of capital is and logistics of agricultural commodities defined through setting up production in other countries.”62 bases, agricultural development centers, agricultural research and development Chongqing Grain Group (CGG) is a prom- (R&D) exchanges, and economic coop- inent example of a Chinese corporation eration arrangements. Daojiong Zha and with a vigorous overseas investment policy, Hongzhou Zhang estimated that by 2013, spending millions or even billions to secure China had set up 60 bilateral agricultural projects in Canada, Brazil, and Argentina or fishery cooperation working groups in soybeans and oilseeds.63 In Latin Amer- with over 50 countries and regions.58 Also ica and the Caribbean, China does a lot by 2013, China had undertaken fishing in of investing in building infrastructure for the exclusive economic zones (EEZs) of transporting food, including improving more than 30 countries, and in fact the transport, logistics, and port infrastructure number of “distant water fishing vessels,” to facilitate exports to China.64 Zhang and totaling 1,991, was the most of any coun- Cheng agree, stating, “the main task for try in the world.59 In 2010, China pledged China’s overseas agricultural investment to establish 30 demonstration centers lies in establishing a global system for pro- for agricultural technologies in other duction, marketing, transportation, storage,

Hedging its Bets: China’s Strategies in Pursuing Global Food Security 37 processing and manufacturing.”65 Duggan America which are being grown for export and Naarajärvi, writing in 2015, found that purposes. This was initially controlled by China acquired an estimated eleven million Western corporations who managed the hectares of land in land grabs in the global entire complex from farming to sales of the South.66 Other Chinese agribusiness firms end product.73 with global acquisitions are Beidahuang, the China National Cereals, Oils and In the 2000s, China started to engage Feedstuffs Corporation (COFCO), and the more with the soy complex. This occurred China National Agricultural Development because the Chinese government liberal- Group.67 While the concept of land grabs ized trade in soybeans in the late 1990s and is problematic in that it removes agency on began a strategy of importing whole beans the side of the host country and implies that to then be crushed domestically, which China is taking land as opposed to engag- included fiscal incentives for foreign direct ing in a mutually agreed upon investment, investment in soybean crushing.74 By 1996, what is indisputable is that these transac- China became a net soy importer and, by tions are occurring. What’s more, they are 2003, became the world’s largest importer inextricably linked to the Chinese gov- of soybeans.75 In 2013 China imported 64 ernment’s efforts to increase world food percent of the total global soy trade.76 production, because this is inherently ben- eficial for China’s food security. During the 2004 soybean crisis, the price of soybeans plunged, but Chinese purchasers who had contracts with U.S. corporations China in the Soybean Complex: were required to fulfill them at the agreed A Case Study upon price, leading to widespread bank- ruptcy of Chinese crushers and refineries. Soy is a very interesting case study of the This allowed a massive entry of foreign firms intersection of global agricultural trade, into the Chinese refining market to take a Chinese culture, and Chinese food policy. market share of 80 percent for crushing and Soybeans originated in northeast China 60 percent for refining.77 Gustavo Oliveira (there are 6,000 domestic varieties) and var- and Mindi Schneider note that “this meant ious soy products, such as tofu, soy sauce, that the same firms controlling soybean and fermented soy products are a domi- exports to China from production centers nant dietary and culinary staple throughout in the U.S. and South America were also the China.68 Nowadays, the majority of soy major importers controlling the flow of soy consumed actually appears in the form of and soy products through the Chinese food industrial meat that is raised with soymeal system.”78 This situation was problematic feed.69 Soybeans have hence become Chi- in that these firms clearly did not have the na’s most important agricultural import.70 Chinese consumers’ best interests at heart This fits with the worldwide trend in soy (rather they were concerned with profits for usage, with only six percent consumed in their shareholders and with gaining market the form of whole beans, tofu, or other soy- power in the world). It also wounded the based foods.71 Chinese national pride to have such a sensitive national industry become dom- Soy production has been characterized inated by U.S. corporations. The Chinese as a global complex. Soy production has government felt compelled to recover the expanded massively over the last 50 years, soy industry from this foreign domination with world production increasing from 26.8 and hence gave state assistance to Chinese million metric tons in 1961 to 285 million state-owned enterprises to build process- in 2013.72 This enormous increase in pro- ing infrastructure.79 This decision in turn duction has occurred through the creation helped Chinese firms become powerful of soy monocultures in North and South actors in the global soy complex, and they

38 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW now capture the profits of crushing and to the local population and increases food processing soybeans domestically. insecurity. China’s search for food security endangers the food security of the popula- Finally, Chinese demand encouraged Latin tions from which it sources. American countries to engage in export- driven monoculture at the expense of more diversified agricultural production.80 This Future Prospects situation compromises the food security of the supplying regions. Gustavo and We can expect the Chinese government Schneider note that monocultures are a to continue pursuing diverse strategies

“contradictory process, whereby a multipli- to achieve a secure food supply. The G20 vol 5 cation of uses of a single monoculture also seems to be the favored venue for China, |

reduces the diversity of agro-ecosystems, and it will continue to engage actively to 2019 diets, and even cultural practices, ultimately keep food security on the G2O agenda. increases our collective vulnerability to cat- Should breakthroughs in the WTO dead- astrophic pest outbreaks, price shocks and lock occur, China will work with like-minded market volatility, and food crises.”81 developing countries such as India. While China will continue to put on an active and The case study of soy provides a valuable positive front in the CFS, it is unlikely that analogy to China’s overall approach to food China will view it as the primary venue for procurement and security. A victim in the pushing their objectives given the plural- past of dependence on Western firms and ity of stakeholders which they will judge the international institutions through which unlikely to accommodate their interests. they operate, China has chosen a strategy Given the authoritarian turn of the coun- of empowering domestic firms, particularly try under Xi Jinping, it is also unlikely that

China’s search for food security endangers the food security of the populations from which it sources.

SOEs, to ensure the ability to be self-suf- Chinese CSOs and private companies ficient—if not in producing soy, then in will be empowered to freely engage in processing it. At the same time, Chinese the CFS (or just as likely, that other coun- bilateral cooperation with LAC countries, as tries will view any such engagement as well as in the regional China-LAC Agricul- speaking on behalf of anyone barring the ture Ministers’ Forum, has helped it ensure Chinese government). good access to the soybean producers, including through financial contributions In terms of regional cooperation, Chinese to the food reserve and fund for R&D in the leadership will remain strong. Their part- LAC region. The final illustrative aspect of nerships in ASEAN, BRICs, and LAC will be this engagement is the fact that China’s copi- actively maintained as China believes that ous demand in the soybean trade remains active cooperation with the global South problematic in terms of global food security. is important in safeguarding food supply. We know that a single monoculture in a geo- This leadership will be backed by eco- graphical region brings with it risks and costs nomic and technical support for agricultural

Hedging its Bets: China’s Strategies in Pursuing Global Food Security 39 development.82 Connectivity in the form of countries, which have been characterized investment in infrastructure will also be a as land grabs. A more cooperative mul- component of China’s strategy. Zhang and tilateral approach to acquiring land would Cheng posit that through this cooperation, be unlikely to work, so to secure these “China can reduce poverty, support local supply chains, China must act bilaterally. food security and build a fair and effective China also has no genuinely free private global food regime.”83 sector or civil society groups to engage with on these issues, so it opts for state- China will continue to be a massive pres- state interactions. These will not provide ence in the soy complex and, should trade all the answers, since the solution lies with tensions with the United States continue, a broad spectrum of stakeholders. will actively work with other countries to

China’s main reason for engagement in the global food regime complex—a deep and persistent concern about safeguarding domestic food security.

set up soy and other grain production to China’s actions in global food security gov- ensure that the supply is protected. This ernance cannot be understood in isolation is already occurring as Canadian farmers in terms of one regime or one foreign direct respond to trade war threats and alter pro- investment decision. China is pursuing a duction for an expected increase in demand strategy of diversification across a range for Canadian crops from China, as well as of approaches with the end goal of resil- countries including Brazil and Russia.84 ience. Due to historical distrust and innate ideological differences, China will not leave the paramount goal of a secure food supply Conclusion to be resolved solely by free markets and the multilateral liberal order. Instead, while The regime complex that governs global Chinese officials choose to engage with food security is complicated. No one body these regimes and institutions, they also can discipline nation states to tackle all engage directly with regions and coun- aspects of the drivers of global food inse- tries that have the ability or the potential curity. China views itself as a leader of the to grow the total global food supply and global South, and has tried to engage in be of assistance to China. In this frame of different venues as its representative, like understanding, China does not see land in the WTO. However, acting on behalf of acquisitions or country-specific deals as developing countries is only a side effect running contrary to multilateral gover- of China’s main reason for engagement in nance, but rather as a complementary and the global food regime complex—a deep vital aspect of their main strategy. and persistent concern about safeguard- ing domestic food security. Aspects of 1 MOA, “Permanent Representative of China China’s engagement that bode poorly to UN Agencies for Food and Agriculture for a genuinely multilateral solution Attends 40th Session of FAO Conference,” to global food security are its actions Ministry of Agriculture and Rural Affairs, PRC, securing land and supply chains in other

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July 12, 2017, http://english.agri.gov.cn/news/ https://www.iss.nl/sites/corporate/files/1- dqnf/201707/t20170712_283173.htm. ICAS_CP_Clapp.pdf. 2 “Population, total,” The World Bank, 2017, 18 Matias E. Margulis, “The regime complex https://data.worldbank.org/indicator/SP.POP. for food security: Implications for the global TOTL?locations=CN&view=chart. hunger challenge,” Global Governance: A 3 “Poverty Trend (By International Standards),” Review of Multilateralism and International The World Bank, 2018, http://povertydata. Organizations 19, no. 1 (2013): 63. worldbank.org/poverty/country/CHN. 19 Clapp, “Trade and the Sustainability Challenge 4 Ji-kun Huang, Wei Wei, Cui Qi, and Xie Wei, for Global Food Governance,” 1. “The prospects for China’s food security 20 Bill Pritchard, “The long hangover from the

and imports: Will China starve the world via second food regime: a world-historical vol 5 imports?” Journal of Integrative Agriculture 16, interpretation of the collapse of the WTO

no. 12 (2017): 2939. Doha Round,” Agriculture & Human Values 26 | 2019 5 Harriet Friedmann, “The International (2009): 301. Political Economy of Food: A Global Crisis,” 21 Niall Duggan, and Teemu Naarajärvi, “China in International Journal of Health Services 25, no. Global Food Security Governance,” Journal of 3 (1995): 512. Contemporary China 24, no. 95 (2015): 954. 6 Friedmann, “The International Political 22 Katherine Morton, “Learning by Doing: China’s Economy of Food: A Global Crisis,” 513. Role in the Global Governance of Food 7 Ibid. Security,” Indiana University Research Center 8 Harriet Friedmann, “From colonialism to for Chinese Politics & Business Working Paper green capitalism: social movements and the No. 30, September 1, 2012, 20, https://ssrn. emergence of food regimes,” in New directions com/abstract=2169883. in the sociology of global development 23 Margulis (2013), p. 55 (Research in rural sociology and development, 24 Duggan, Niall, and Teemu Naarajärvi. “China in Volume 11), eds. Fredercik H. Buttel and Philip Global Food Security Governance.” Journal of McMichael (Oxford: Elsevier, 2005), 229–67. Contemporary China 24, no. 95 (2015): p. 950. 9 McMichael, “A food regime genealogy,” 144. 25 Ibid. 10 Friedmann, “From colonialism to green 26 Abdenur, Adriana Erthal. “Sowing More than capitalism: social movements and the Soybeans?.” In Wu, Fengshi, and Hongzhou emergence of food regimes,” 240. Zhang. China’s Global Quest for Resources: 11 Friedmann, “From colonialism to green Energy, Food and Water. (London: Routledge/ capitalism: social movements and the Taylor & Francis Group, 2017), p. 159. emergence of food regimes,” 141. 27 Hui Liangyu. “Strengthen Cooperation for 12 David Burch and Geoffrey Lawrence, Global Food Security.” Ministry of Foreign “Towards a third food regime: behind the Affairs of the People’s Republic of China., last transformation,” Agriculture and Human Values modified November 17, accessed April 28, 26, no. 4 (2009): 267. 2018, http://www.fmprc.gov.cn/mfa_eng/ 13 Karl Raustiala and David G. Victor, “The wjdt_665385/zyjh_665391/t628178.shtml. regime complex for plant genetic resources,” 28 Elkin et al, p. 16. International Organization 58, no. 2 (2004): 2. 29 Duggan and Naarajärvi, p. 955. 14 Raustiala and Victor, “The regime complex for 30 Duggan and Naarajärvi, p. 954. plant genetic resources,” 3. 31 Group of 8, L’Aquila Joint Statement on Global 15 Candel, “Food security governance: a Food Security: L’Aquila Food Security Initiative systematic literature review,” 592. (AFSI), 1 July 2009 http://www.g8.utoronto.ca/ 16 Ibid. summit/2009laquila/2009-food.pdf. 17 Jennifer Clapp, “Trade and the Sustainability 32 Duggan and Naarajärvi, p. 955. Challenge for Global Food Governance,” 33 “Frequently Asked Questions.” Frequently in International Studies Association Annual Asked Questions | G20 Argentina. January 08, Meetings in Atlanta, GA, March 2016, 11, 2018. Accessed April 15, 2018. https://g20. org/en/g20/faqs.

Hedging its Bets: China’s Strategies in Pursuing Global Food Security 41 34 Daojiong Zha and Hongzhou Zhang, “Food Food Security Challenges,” The BRICS Post, in China’s international relations,” The Pacific October 30, 2013, http://thebricspost.com/ Review 26, no. 5 (2013): 460. brics-vow-to-meet-food-security-challenges/; 35 Ibid Abdenur, “Sowing More than Soybeans?,” 169. 36 Ibid. 54 Morton, “Learning by Doing: China’s Role in 37 Zha and Zhang, “Food in China’s international the Global Governance of Food Security,” 21. relations,” 461. 55 “Joint Press Release of the Meeting of 38 Zha and Zhang, “Food in China’s international BRICS Trade and Economic Ministers on relations,” 460. the Eve of the IV Summit,” BRICS Ministry of 39 Zha and Zhang, “Food in China’s international External Relations, March 28, 2012, http:// relations,” 462. brics.itamaraty.gov.br/press-releases/21- 40 Hongzhou Zhang and Guoqiang Cheng, documents/170-the-2nd-meeting-of-the-brics- “China’s Food Security Strategy Reform: An trade-and-economic-ministers. emerging global agricultural policy,” in eds. 56 “BRICS Vow to Meet Food Security Wu, Fengshi, and Hongzhou Zhang (London: Challenges.” Routledge/Taylor & Francis Group, 2017), 34. 57 Abdenur, “Sowing More than Soybeans?” 169. 41 Ibid. 58 Zha and Zhang, “Food in China’s international 42 Zha and Zhang, “Food in China’s international relations,” 466. relations,” 463. 59 Ibid. 43 Agricultural Market Information System, 60 Ibid. “AMIS Crops: Soybeans,” Agricultural Market 61 Duggan and Naarajärvi, “China in Global Food Information System, accessed April 30, 2018, Security Governance,” 949. http://www.amis-outlook.org/amis-about/ 62 Abdenur, “Sowing More than Soybeans?,” 160. amis-crops/crops-soybeans/en/. 63 Zha and Zhang, “Food in China’s international 44 Duggan and Naarajärvi, “China in Global Food relations,” 468. Security Governance,” 954. 64 Abdenur, “Sowing More than Soybeans?,” 167. 45 Zhang and Cheng, “China’s Food Security 65 Zhang and Cheng, “China’s Food Security Strategy Reform: An emerging global Strategy Reform: An emerging global agricultural policy,” 27. agricultural policy,” 35. 46 Zha and Zhang, “Food in China’s international 66 Duggan and Naarajärvi, “China in Global Food relations,” 465. Security Governance,” 952. 47 Mindi Schneider, “Developing the meat grab,” 67 Schneider, “Developing the meat grab,” 628. Journal of Peasant Studies 41, no. 4 (2014): 68 Gustavo de L. T. Oliveira and Mindi Schneider, 619. “The politics of flexing soybeans: China, Brazil 48 Ibid. and global agroindustrial restructuring,” The 49 Schneider, “Developing the meat grab,” 620. Journal of Peasant Studies 43, no. 1 (2016): 10. 50 Schneider, “Developing the meat grab,” 623. 69 L. T. Oliviera and Schneider, “The politics of 51 Duggan and Naarajärvi, “China in Global Food flexing soybeans: China, Brazil and global Security Governance,” 945. agroindustrial restructuring,” 11. 52 Duggan and Naarajärvi, “China in Global Food 70 Ibid. Security Governance,” 946. 71 L. T. Oliviera and Schneider, “The politics of 53 Mulat Demeke, Adriano Spinelli, Stefania flexing soybeans: China, Brazil and global Croce, Valentina Pernechele, Eugenia agroindustrial restructuring,” 2. Stefanelli, Areej Jafari, Guendalina Pangrazio, 72 L. T. Oliviera and Schneider, “The politics of Giovanni Carrasco, Barthelemy Lanos, and flexing soybeans: China, Brazil and global Camille Roux, “Food and agriculture policy agroindustrial restructuring,” 3. decisions: trends, emerging issues and policy 73 L. T. Oliviera and Schneider, “The politics of alignments since the 2007/08 food security flexing soybeans: China, Brazil and global crisis,” Food and Agriculture Organization of agroindustrial restructuring,” 5. the United Nations, 2014, 102, http://www.fao. org/3/i3514e/i3514e.pdf; “BRICS Vow to Meet

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74 Oliveira and Schneider, “The politics of flexing soybeans: China, Brazil and global agroindustrial restructuring,” 6. 75 Schneider, “Developing the meat grab,” 624. 76 Schneider, “Developing the meat grab,” 12. 77 L. T. Oliveira and Schneider, “The politics of flexing soybeans: China, Brazil and global agroindustrial restructuring,” 12. 78 Ibid. 79 L. T. Oliveira and Schneider, “The politics of

flexing soybeans: China, Brazil and global vol 5 agroindustrial restructuring,” 13.

80 Abdenur, “Sowing More than Soybeans?,” 167. | 2019 81 L. T. Oliveira and Schneider, “The politics of flexing soybeans: China, Brazil and global agroindustrial restructuring,” 24. 82 Zhang and Cheng, “China’s Food Security Strategy Reform: An emerging global agricultural policy,” 36. 83 Ibid. 84 Jen Skerritt, “Canada Bets Big on Canola Amid China-U.S. Spat,” Bloomberg, April 9, 2018, https://www.bloomberg.com/news/ articles/2018-04-09/canada-bets-big-on- canola-as-china-u-s-spat-creates-opening.

Hedging its Bets: China’s Strategies in Pursuing Global Food Security 43 the Armed Forces document.2 The most Organizational important of these reforms include the restructuring of offices under the Central Reform as a Military Commission (CMC), the reorganiza- tion of seven military regions into five new Key Driver of theater commands, and service reforms including the elevation of the Second Artil- Chinese Military lery Force to a full-fledged service known as the PLA Rocket Force and the creation of Innovation an entirely new service—the Strategic Sup- port Force. Through these organizational reforms and a number of other defense-re- lated organizational reforms, Xi Jinping has instituted the most sweeping changes to PLA and national defense organizations Brian Hart since the founding of the People’s Repub- lic of China in 1949.3

Brian Hart is a 2018 graduate of the Hop- These reforms have been a major focus of kins-Nanjing Center and a current M.A. many recent studies of the PLA; however, student at SAIS concentrating in China most of the attention has been focused Studies. He earned a B.A in Politics and on their impacts on “jointness” between International Affairs from Wake Forest Uni- PLA services and tightening political con- versity and has interned at the Center for trol over the PLA—especially with respect Strategic and International Studies, the to Xi Jinping’s strengthened leadership Project 2049 Institute, and Trivium China, over the command and control structure.4 where his work focused on U.S.-China rela- While these two impacts of the reforms are tions, Chinese politics, and Chinese tech undoubtedly critical to the present and innovation. He can be reached at hartbt10@ future of the PLA, there is a lack of focus on gmail.com. another critical impact of the reforms: their contribution to China’s efforts to promote military innovation. As such, the purpose Introduction of this paper is to provide details on three newly created groups within the CCP and Since Xi Jinping rose to power in Novem- PLA, and to consider their respective ber 2012, he and the top leadership of the roles in promoting Chinese military tech- Chinese Communist Party (CCP) have initi- nology innovation. The three groups in ated significant reforms to all three pillars of question are the Central Commission for the Chinese polity: the party, military, and Integrated Military and Civilian Develop- government. Some of the most sweeping ment, the CMC Science and Technology reforms are taking place within the Peo- Commission, and the Military Science ple’s Liberation Army (PLA). At the Third Research Steering Committee. In order Plenum of the 18th Central Committee in to better understand these organizational November 2013, the CCP announced a reforms, this paper places them within the sweeping reform plan which made clear broader history and contemporary context that reforms to the PLA were needed.1 of China’s efforts to become a science and However, the full details of specific PLA technology superpower, considers their reforms were not announced until Janu- potential impact on military innovation, and ary 1, 2016 with the release of the Central discusses their relevance to U.S. interests. Military Commission Opinions on Deepen- ing the Reform of National Defense and

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China’s Innovation major developments: a global revolution Drive in Context in military affairs demonstrated by U.S. technological dominance in the Gulf War, Before discussing the specific details of the renewed cross-strait tensions with Taiwan organizations in question, it is important during the Third Taiwan Strait Crisis, and to understand the context behind China’s the 1999 U.S. bombing of the Chinese push for military innovation, as well as embassy in Belgrade.8 Following these the need for organizational reform. Since developments, the incoming Hu Jintao the early years of the People’s Repub- administration initiated the drafting of the lic of China, Chinese leaders have made National Medium- and Long-Term Program the development of its “strategic innova- (MLP) for Science and Technology Develop- vol 5 tion system” a priority. Tai Ming Cheung ment (2006–2020), promulgated in 2006. |

defines a strategic innovation system (SIS) The MLP emphasized the importance of 2019 as encompassing “a national network of improving China’s capacity for “indigenous organizations that interactively pursue sci- innovation” (自主创新, zizhu chuangxin).9 A ence, technology, and innovation-related core feature of the MLP was its focus on

Xi Jinping has instituted the most sweeping changes to PLA and national defense organizations since the founding of the People’s Republic of China in 1949.

activities to further the development of a developing strategically important dual-use country’s national security interests and technologies, which are technologies that capabilities, especially related to strate- have both civilian and military applications. gic, defense and dual-use civil-military The MLP marked a renewed emphasis activities.”5 Cheung says that since the on the techno-nationalist approach, but 1950s, Chinese leaders have pursued with a distinctly commercial nature that a state-dominated “techno-nationalist” was markedly different from historically approach to developing China’s SIS, with military-dominated techno-nationalist varying degrees of intensity and priority approaches.10 depending on the nature of China’s exter- nal strategic environment.6 Since the release of the MLP in 2006, China has also released a number of other plans China’s techno-nationalist roots date back that seek to promote S&T innovation, to the 1950s and the early years of the most notably the Made in China (MIC) People’s Republic, when foreign threats 2025 Plan and the Next Generation Artifi- led Chairman Mao Zedong to conclude cial Intelligence Development Plan. These that China could not depend on foreign documents detail China’s plans to fund technologies for its security.7 But China’s and support world-leading S&T innova- current drive to develop its SIS and pro- tions. Both documents also emphasize mote dual-use science and technology the importance of dual-use technologies (S&T) innovation can be traced back to the and military-civil fusion (MCF, 军民融合, late 1990s. At that time, Chinese leaders junmin ronghe), discussed below.11 Taken perceived a marked shift in China’s external together, the issuance of the MLP, Made in security environment as a result of three China 2025, and the Artificial Intelligence

Organizational Reform as a Key Driver of Chinese Military Innovation 45 Development Plan over the past several New Key Organizational years signifies China’s serious commitment Drivers of Innovation to promoting military S&T innovation. And the data show that Beijing is backing China’s political and military leadership these up with serious money. Government appear to be placing a high priority on funding for Chinese research and devel- military innovation. But policy guidance opment (R&D) has increased from just and heavy government funding can only $3.1 billion in 1997 to an estimated $40 do so much; without needed organizational billion in 2013, with roughly $5 to $7 bil- reforms, inefficiencies and coordination lion of that dedicated to defense-related problems will persist. A number of recent R&D.12 By 2016, the Chinese government organizational reforms suggest that the was spending (in nominal terms) $70.8 CCP and PLA understand this. In recent billion on R&D, with much of this helping years, they have made organizational to produce dual-use technologies like the reforms a key component of their efforts Tiangong-2 space station and the world’s to strengthen China’s strategic innovation first quantum satellite, Micius.13 system and promote military innovation. What follows is a discussion of the three Thus, unlike decades ago, access to fund- most important relevant organizational ing is no longer the primary weakness in reforms that have taken place over the past developing China’s strategic innovation few years. Because these reforms are so system and industrial base. Instead, the recent—and to some extent ongoing—it is major problem is weak institutional sup- not yet possible to do any post facto anal- port and coordination. In 2014, Zhang ysis of their impact on improving efficiency. Youxia, former head of the CMC General As such, the discussion below seeks only Armaments Department and current sec- to trace recent reforms, place them in the ond-ranked vice chairman of the CMC, larger context of China’s military innovation made clear that bottlenecking problems in efforts, and analyze what impacts they may weapons development are no longer due have. In the future, further study will need to to lack of funding, but instead, “institutional be undertaken in order to determine what systems and mechanisms have become the actual impact they have on improving mil- greatest hurdle.”14 These problems have itary innovation. historical roots. Following the establish- ment of the People’s Republic in 1949, The Central Commission for Integrated China imported the Soviet approach to Military and Civilian Development defense industrialization, bringing with it all of the bureaucratic and institutional weak- The most important organization driving nesses of the Soviet top-down style. China’s Chinese military S&T innovation is the Cen- institutions tend to be overly segmented tral Commission for Integrated Military and and stratified. The resulting compartmen- Civilian Development (中央军民融合发展 talization requires coordinating committees 委员会, zhongyang junmin ronghe fazhan and agencies that are often inefficient and weiyuanhui), which was established in Jan- prone to bargaining, which creates sig- uary 2017. The Civil-Military Integration nificant challenges to coordination and (CMI) Commission is the most important development.15 And as China’s military and group analyzed here for a number of rea- national security interests have expanded, sons. Unlike the other groups studied in so too have its organizational challenges, this paper, the commission is set up under heightening the need for reform. the CCP’s Politburo and its Standing Com- mittee—rather than under the PLA. Perhaps more importantly, the group is chaired by Xi Jinping himself, giving it the highest level of influence and authority.16 Additionally,

46 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW

Wang Huning and Han Zheng—both mem- Shraberg, and Morgan Clemens provide bers of the party’s Politburo Standing a helpful explanation for why MCF is an Committee—serve as vice chairs of the com- increasing priority for China and Xi Jinping: mission.17 As will be shown, the importance and effectiveness of the CMI Commission Modern information-based warfare is largely based on the rank and influence has made the development and of its members. deployment of new, breakthrough technologies imperative to a country’s The purpose of the CMI Commission is to ability to stay ahead, necessitating serve as the central-level decision-mak- a long-term focus on the pursuit of ing and deliberative coordinating body technological superiority. In addition, vol 5 on major issues relating to the develop- the pace of modern technological |

ment of military-civil fusion, and to unify change has dramatically increased, 2019 the CCP’s leadership over MCF’s in-depth such that lagging development development.18 MCF is a process that seeks of advanced S&T capabilities can to combine defense and civilian industrial have progressively dire effects on a bases to support both military and com- country’s security. Cutting-edge tech- mercial demands, and also to promote nology, meanwhile, is increasingly greater integration of civilian and military compatible with both civilian and mili- resources to support military operations.19 tary applications, enabling civilian-use Some analysts argue that CMI and MCF are technologies to be adapted or directly distinct in that MCF is a Chinese-specific transferred to military use.23 concept going beyond broader concep- tions of CMI.20 Because of this, this paper Some Chinese analysts predict that as much uses the term MCF, except when referring as 85 percent of current technologies to the CMI Commission, which official have civil-military dual use applications, English translations refer to as the Central providing a significant opportunity to suc- Commission for Integrated Military and cessfully employ MCF as a driving force for Civilian Development. national economic, industrial, and techno-

Some Chinese analysts predict that as much as 85 percent of current technologies have civil-military dual use applications.

Military-civil fusion has long been a goal for logical development. 24 China. It was first raised as an official con- cept in 2009 by Hu Jintao and elevated to a But in order to make MCF work, China’s national strategy by Xi Jinping at the Third leaders have known for years that it will Plenum in 2013.21 In recent years, it has require organizational reforms. In 2010, become an increasingly important effort the State Council and CMC jointly pro- cross-cutting the party, PLA, and govern- mulgated Document 37, which sought to ment. The efforts towards MCF make sense create a strategic framework for MCF policy given China’s growing emphasis on the role related to science and technology devel- of information in warfare in its most recent opment. Document 37 lists six broad areas military strategy.22 Brian Lafferty, Aaron of MCF work needing improvement, two

Organizational Reform as a Key Driver of Chinese Military Innovation 47 of which relate to inadequate coordinat- it is unlikely to suffer from these problems. ing mechanisms and the need to deepen Instead, it seems poised to successfully reform of institutional mechanisms.25 These drive military innovation and guide overall institutional and organizational weaknesses MCF coordination and development. reflect the coordination problems within China’s strategic innovation system dis- The CMC Science and cussed earlier. Technology Commission

They also reflect the broader coordination The second most important organization efforts that have long plagued Chinese pol- considered in this study is the Science icymakers in all areas of policy. Despite its and Technology Commission of the Cen- authoritarian nature, the Chinese system tral Military Commission (中央军委科学技 is too large to be centrally run; thus, gov- 术委员会, zhongyang junwei kexue jishu ernance is significantly fragmented, with weiyuanhui), which has historically served decision-makers at all levels fighting for as the PLA’s nexus of civil-military cooper- influence over the policymaking process.26 ation on defense technological issues. The To mitigate the negative impacts of this commission is a focus of this study because fragmentation, Chinese leaders employ a it was reformed and upgraded as part of number of institutional and organizational the sweeping PLA organizational reforms tools to increase coordination and increase announced in January 2016.30 Previously, efficiency. David M. Lampton refers to these there were four departments directly set as “cross-system integrators,” and lists up under the CMC: The General Staff “leading small groups” and committees Department, General Political Department,

The PLA acknowledges that the incorporation of AI into weapons and military technology is likely to radically transform the nature of combat and national defense.

as examples.27 These organizations allow General Logistics Department, and Gen- leaders to settle disputes which are kicked eral Armaments Department. Under this up the hierarchy from lower levels, and they setup, the CMC’s S&T Commission was also provide leaders with permanent staff not directly under the CMC, but was set and resources to address related issues.28 up at a lower level within the General Arma- ments Department (GAD, 总装备部, zong The CMI Commission is a perfect exam- zhuangbei bu), which was the PLA’s chief ple of a cross-system integrator. And as organ in charge of performing research, previously mentioned, the fact that it is a development, testing, and evaluation of party—not government—commission, led by armaments; overseeing procurement Xi Jinping and two other Politburo Standing management; and overseeing information Committee members, suggests that it will systems building for the PLA.31 likely be successful in this role. Coordination committees can sometimes be weak and Under the new CMC setup, the GAD was risk-averse, creating additional bottlenecks renamed the Equipment Development and policy paralysis.29 But with the highest Department (EDD, 装备发展部, zhuangbei levels of authority leading this commission, fazhan) and the S&T Commission was spun

48 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW off to become one of the 15 new organs CMC reflects the high priority that the PLA directly under the CMC. This puts the S&T leadership places on military S&T inno- Commission on an equal administrative vation.34 And the selection of Liu Guozhi rank as the EDD and the other organs as head of the commission shows their under the CMC. According to Wuthrow and commitment to providing the necessary Saunders, “The commission will continue organizational authority to—in theory— to be responsible for guiding and advising effectively drive innovation. In the same PLA leadership on weapons development way that the party’s CMI Commission was and serving as a nexus for collaboration set up to overcome structural bureaucratic between the armed forces and defense issues and facilitate better coordination, the 32 industry.” The specific details of the divi- upgraded CMC S&T Commission should vol 5 sion of labor between the EDD and S&T provide the PLA with enhanced organiza- |

Commission does not appear to be known tional capacity to innovate and develop its 2019 yet, but their respective names suggest that strategic innovation system. the EDD will focus on maintenance and administration of China’s procurement The Military Science Research system, while the commission will be the Steering Committee PLA’s internal driver of S&T innovation and military-civil fusion. The third and final organization considered in detail is the secretive Military Science Based on the commission’s leadership, Research Steering Committee (军事科学 it appears to be poised for success. The 研究指导委员会, junshi kexue yanjiu zhidao director of the commission is Liu Guozhi, weiyuanhui), a new agency that reports who previously led the commission when directly to the CMC. However, the details of it was set up within the GAD. Liu is a tech- this setup are unclear, as it is not one of the nical expert, not a career bureaucrat. He 15 administrative organs under the CMC. graduated from Tsinghua University, one Instead, reports suggest that the committee of China’s top schools, and led a career will report directly to the CMC in a separate through the PLA’s weapons development manner, providing a “consultative role,” system. He was previously a physicist work- while the other 15 CMC organs handle ing on high-power microwave weapons at the funding and implementation of proj- the Northwest Nuclear Technology Insti- ects.35 This organization was secretly tute, a key lab in charge of Chinese nuclear created in early 2017 and announced weapons research and the development publicly in July 2017 in a CCTV documen- of other high-power technologies.33 Liu’s tary entitled “Carrying Reform Through background indicates that the commis- to the End” (将改革进行到底, jiang gaige sion will be led by someone with technical jinxing daodi).36 Few details about the knowledge and a deep understanding of agency have been made public, but China’s strategic innovation system. Addi- reports suggest that it is envisioned as tionally, at the 19th Party Congress in 2017, a Chinese version of the U.S. Defense Liu became a member of the CCP’s central Advanced Research Projects Agency committee, making him one of the high- (DARPA), a U.S. defense agency set up est-ranking political leaders in China. Taken in 1958 to drive technological innovation together, Liu’s technical background and for the U.S. military.37 DARPA is famous political status suggest the S&T Commis- for producing some of the world’s most sion is poised to play an important role in important technological innovations, such strengthening military innovation. as the internet, which have applications outside of traditional defense applica- Overall, the upgrading of the S&T Com- tions. If this agency is indeed similar to mission from an organ under the GAD to DARPA, it will likely focus on driving the a commission directly responsible to the development of advanced technologies

Organizational Reform as a Key Driver of Chinese Military Innovation 49 that have both military and commercial In short, these three organizations serve a applications, further supporting China’s variety of roles and represent significant efforts towards military-civil fusion.38 advances in China’s capacity to innovate. The party’s new CMI Commission, with Xi One technology that the agency may focus Jinping as its leader, will have the power on is artificial intelligence (AI). The prom- to more successfully coordinate overall ulgation of China’s previously mentioned national MCF efforts, removing key bureau- Next Generation AI Development Plan cratic coordination weaknesses identified demonstrates the high priority that Chinese by China in 2010. The CMC’s newly pro- political and military leaders place on the moted S&T Commission will solve some development of AI. The PLA acknowledges of the same bureaucratic and coordination that the incorporation of AI into weapons issues within the PLA. And the new Military and military technology is likely to radically Science Research Steering Committee will transform the nature of combat and national play a new role in identifying early-stage defense. Military writing on AI makes it clear technologies for the PLA, driving bot- that the PLA is committed to the idea that tom-up military innovation in a system that incorporating AI into the military will allow has historically been heavily top-down. the PLA to be smaller, more efficient, and more effective.39 And, AI will, of course, also But much is still unknown about these have huge non-military commercial appli- groups, the latter two in particular. As new cations. In fact, an expert at the Chinese information becomes publicly available, Academy of Engineering has said that AI future research should seek to find out will be the most important dual-use tech- more about their specific roles, how they nology of the next several decades.40 If the interact with each other, and whether or not Military Science Research Steering Commit- they appear to be successful at improving tee does, in fact, serve a similar function to coordination and promoting military inno- DARPA, it seems very likely that it will focus vation. In particular, more information is heavily on the development of AI technolo- needed regarding the specific role of the gies.In terms of organizational reforms, the Military Science Research Steering Commit- Military Science Research Steering Commit- tee. Because of its likely bottom-up focus, tee seems to be markedly different from this agency seems poised to play a unique the two previously discussed groups, which role in military innovation. were created in order to comprehensively oversee and coordinate defense innova- tion bureaucracies. As a party group, the Additional Groups for CMI Commission is tasked with overseeing Future Consideration overall national MCF coordination, and the CMC’s newly upgraded S&T Commission is These three organizations are not the set up to oversee high-level MCF coordina- only organizations playing a role in tion from within the PLA. This new agency, military S&T innovation within China’s however, will likely focus less on bureau- massive party-state-military apparatus. cratic coordination and more on strategic They were chosen for this study because technology guidance. That is, it will likely they represent the three most significant be focused on designating key military developments in recent years. But other technologies, identifying new technology organizations are worth mentioning here innovators in the commercial sector, and as well, and warrant further study. connecting these nascent technologies to the PLA’s defense innovation network.41 In First, the CMC’s newly reformed Equipment this way, the new agency will help to drive Development Department (briefly men- bottom-up technological innovation for the tioned above) plays an important role in defense sector. the PLA’s weapons research, development,

50 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW and procurement. It was not included in and policy support, China appears to be the limited scope of this study because making some progress in this area. A 2017 the functions of its predecessor, the Gen- report by Scott Kennedy at the Center eral Armaments Department, were largely for Strategic and International Studies retained through the 2016 reforms. The concludes that, “whether one looks at spin-off and promotion of the CMC Science China in isolation or puts the country in and Technology Commission thus repre- comparative perspective, China’s innova- sented a more significant development in tion performance has gradually improved overall organizational reform with regard to over the last decade along a number of S&T innovation. However, as the PLA con- indicators.”45 While significant problems tinues to implement the 2016 reforms, new remain for China’s innovation efforts, Xi vol 5 developments relating to the EDD should Jinping’s organizational reforms, which |

be studied further. span party, military, and government, 2019 seem poised to aid China in pursuing its Second, two other important organiza- S&T development goals. Xi and the rest tions that play a role in China’s military of the CCP leadership seem committed S&T innovation bear mentioning. The State to embracing the techno-nationalist mold Administration for Science, Technology and for developing China’s civilian and military Industry for National Defense (SASTIND), tech industries, and they are undertaking situated within the Ministry of Industry the necessary policy and organizational and Information Technology, has played a reforms to achieve their goals. role in developing and managing China’s defense industrial base. However, since its But China’s S&T innovation efforts do not creation as part of a State Council reorga- exist within a vacuum: they are already nization in 2008, the SASTIND has become having an impact on U.S.-China relations. less important as other organizations like In the past several years—especially during the EDD have taken on a greater role.42 the presidency of Donald Trump—strategic Last, the National Science and Technology and economic competition between the Leading Group plays a key role in coordi- United States and China has increased nating numerous government ministries significantly, with science and technol- and agencies in devising national S&T ogy competition emerging as one of the strategies and policies.43 The group, led greatest sources of tension between the by Premier Li Keqiang, recently removed two countries. In the United States, lead- “Education” from its name, reflecting an ers worry that China’s innovation efforts increased focus on S&T development. are rapidly chipping away at America’s Given that Liu Guozhi, Chairman of the existing technological edge, especially CMC Science and Technology Commission, in defense-related areas. For example, a is a member of this government leading September 2018 report by the U.S. gov- group, it is likely that the group will play ernment called for the United States to take some role in promoting military S&T devel- serious action to rebuild its defense indus- opment.44 However, it was not a focus of trial base. China’s defense industrial base, this study because military innovation will and the challenges it poses to the United only be a part of its larger focus. States, were major themes of the report.46 Such discussions about long-term efforts to rebuild the U.S. defense industrial base Conclusions and Broader come as the Trump administration is also Implications taking aggressive action against China in the near-term to thwart Chinese technology China’s capacity to innovate has long innovation. In April 2018, the U.S. Com- been an important priority for its leaders, merce Department placed an export ban and through heavy government funding on Chinese telecom giant ZTE, temporarily

Organizational Reform as a Key Driver of Chinese Military Innovation 51 crippling the company and making clear 委员会第三次全体会议公报,” People’s Online, China’s serious vulnerabilities to its lead- November 12, 2013, http://cpc.people.com. ers.47 Months later in October 2018, the cn/n/2013/1112/c64094-23519137.html. U.S. Justice Department accused Chinese 2 “Central Military Commission Opinions on chipmaker Fujian Jinhua Integrated Circuit Deepening the Reform of National Defense Co. of stealing U.S. technology, and the and the Armed Forces 中央军委关于深化 Commerce Department banned the com- 国防和军队改革的意见,” Xinhua, January 1, pany from purchasing chip components 2016, http://www.xinhuanet.com/mil/2016- from U.S. firms.48 01/01/c_1117646695.htm. 3 Joel Wuthnow and Phillip C. Saunders, These episodes demonstrate how critical Chinese Military Reforms in the Age of Xi science and technology will be for both Jinping: Drivers, Challenges, and Implications countries going forward. If U.S.-China (Washington, DC: National Defense University competition continues to increase, both Press, 2017), 4. countries will likely double down on their 4 Phillip C. Saunders and Joel Wuthnow, efforts to innovate. China, over the past few “China’s Goldwater Nichols? Assessing PLA years, seems to be already doing this. Xi Organizational Reforms,” Strategic Forum, no. Jinping’s organizational reforms appear 294 (2016): 5-8, http://ndupress.ndu.edu/ to have established stronger and more Portals/68/Documents/stratforum/SF-294.pdf; diverse organizational support for its stra- Joel Wuthnow and Phillip C. Saunders, “From tegic innovation system, which will likely Green to Purple: Can the Chinese Military provide future innovation dividends. But Become More Joint?” War on the Rocks, March this approach is heavily state-driven. The 30, 2017, https://warontherocks.com/2017/03/ U.S. system is markedly different: it owes from-green-to-purple-can-the-chinese-military- its existing innovative edge to a market become-more-joint/; James Mulvenon, “The economy—albeit with some government Cult of Xi and the Rise of the CMC Chairman support. But to compete with China in the Responsibility System,” China Leadership realm of S&T innovation, the U.S. govern- Monitor, No. 55 (2018), https://www.hoover. ment will need to find ways to maximize org/sites/default/files/research/docs/clm55- its innovative strengths. President Trump’s jm-final.pdf. recent executive order on AI, along with 5 Tai Ming Cheung, “Continuity and Change in the U.S. Defense Department’s AI strategy, China’s Strategic Innovation System,” Issues appear aimed at doing just this.49 But U.S.- and Studies 51, no. 2 (2015): 141-2. China technological competition is still in 6 Cheung, “Continuity and Change in China’s the early stages. In the twenty-first century, Strategic Innovation System,” 143. long-term competition between the United 7 Evan A. Feigenbaum, “The Deep Roots and States and China may hinge on which coun- Long Branches of Chinese Technonationalism,” try can successfully win the innovation race Macro Polo, August 12, 2017, https:// and lead in the technologies of the future. macropolo.org/deep-roots-long-branches- China clearly recognizes this fact, and chinese-technonationalism/. is acting to shore up its strengths. If the 8 Cheung, “Continuity and Change in China’s United States wants to maintain its edge Strategic Innovation System,” 151-2. and compete successfully with China, it 9 “The National Medium- and Long-Term must do the same. Program for Science and Technology Development (2006- 2020) 国家中长期科学 1 “Communiqué of the Third Plenary Session of 和技术发展规划纲要 (2006–2020年),” Central the 18th Central Committee of the Communist People’s Government of the People’s Republic Party of China 中国共产党第十八届中央委员会 of China, January 9, 2016, http://www.gov.cn/ 第三次全体会议公报中国共产党第十八届中央 jrzg/2006-02/09/content_183787.htm. 10 Cheung, “Continuity and Change in China’s Strategic Innovation System,” 158.

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11 “State Council Notice on the Issuance of ‘Made 15, 2018, http://www.xinhuanet.com/politics/ in China 2025’ 国务院关于印发《中国制造2025 leaders/2018-10/15/c_1123562440.htm. 》的通知,” Ministry of Industry and Information 18 “Central Commission for Integrated Military Technology, June 19, 2015, http://www. and Civilian Development Is Established.” miit.gov.cn/n973401/n1234620/n1234622/ 19 Greg Levesque and Mark Stokes, “Blurred c4409653/content.html; “State Council Notice Lines: Military-Civil Fusion and the ‘Going on the Issuance of the Next Generation Out’ of China’s Defense Industry,” Pointe Bello, Artificial Intelligence Development Plan 国务 December 2016, 6, https://static1.squarespace. 院关于印发新一代人工智能发展规划的通知,” com/static/569925bfe0327c837e2e9a94/ Central People’s Government of the People’s t/593dad0320099e64e1ca

Republic of China, July 20, 2017, http:// 92a5/1497214574912/062017_Pointe+Bello_ vol 5 www.gov.cn/zhengce/content/2017-07/20/ Military+Civil+Fusion+Report.pdf.

content_5211996.htm. For an English 20 Ibid. | 2019 translation of the AI Plan, see “A Next 21 Ibid. Generation Artificial Intelligence Development 22 “China’s Military Strategy 《中国的军事战略》 Plan,” China Copyright and Media, translated 白皮书 (全文),” State Council Information Office, by Graham Webster, Paul Triolo, Elsa Kania, May 2015, http://www.scio.gov.cn/zfbps/ and Rogier Creemers, July 20, 2017, https:// ndhf/2015/Document/1435161/1435161.htm. chinacopyrightandmedia.wordpress. 23 Brian Lafferty, Aaron Shraberg, and Morgan com/2017/07/20/a-next-generation-artificial- Clemens, “China’s Civil-Military Integration,” intelligence-development-plan/. SITC Research Briefs, 2013(2013-10), 2, https:// 12 Richard A. Britzinger and Michael Raska, escholarship.org/uc/item/1712q1h0. “Chapter 5: Capacity for Innovation: 24 Ibid. Technological Drivers of China’s Future Military 25 “Opinions on Building and Improving a Modernization,” in The Chinese People’s ‘Combining the Military and Civilian Sectors’ Liberation Army in 2025, ed. Roy Kamphausen and ‘Locating Military Potential in Civilian and David Lai (Carlisle Barracks, PA: United Capabilities’ Research and Production System States Army War College Press, 2015), 145. for Weapons and Equipment 国务院中央军委关 13 China Power Team, “Is China a Global 于建立和完善军民结合寓军于民武器装备科研生 Leader in Research and Development?” 产体系的若干意见,” Ministry of Defense of the China Power, accessed March 28, People’s Republic of China, October 24, 2010, 2019, https://chinapower.csis.org/ http://www.mod.gov.cn/policy/2015-01/07/ china-research-and-development-rnd/. content_4562869.htm. 14 Chase et al, China’s Incomplete Military 26 For more on China’s “fragmented Transformation: Assessing the Weaknesses authoritarianism,” see Kenneth Lieberthal and of the People’s Liberation Army (PLA) (Santa Michel Oksenberg, Policy Making in China: Monica, CA: RAND Corporation, 2015), 127. Leaders, Structures, and Processes (Princeton: 15 Chase et al, China’s Incomplete Military Princeton University Press, 1988). Transformation: Assessing the Weaknesses of 27 David M. Lampton, Following the Leader: the People’s Liberation Army (PLA), 128. Ruling China, from Deng Xiaoping to Xi Jinping 16 “Central Commission for Integrated Military (Berkley: University of California Press, 2014): and Civilian Development Is Established, Xi 85. Jinping Appointed Chairman 中央军民融合 28 Lieberthal and Oksenberg, Policy Making in 发展委员会成立 习近平任主任,” PLA Daily, China: Leaders, Structures, and Processes, 41. January 22, 2017, http://jz.81.cn/n2014/tp/ 28 Chase et al, China’s Incomplete Military content_7462794.htm. Transformation: Assessing the Weaknesses of 17 “Xi Presides Over the Second Meeting of the the People’s Liberation Army (PLA), 128. Central Commission for Integrated Military and 30 “China Reshuffles Military Headquarters,” Civilian Development 习近平主持召开中央军民 Xinhua, January 11, 2016, http:// 融合发展委员会第二次会议,” Xinhua, October

Organizational Reform as a Key Driver of Chinese Military Innovation 53 www.xinhuanet.com/english/2016- August 8, 2018, http://english.gov.cn/ 01/11/c_134998692.htm. policies/latest_releases/2018/08/08/ 31 Wuthnow and Saunders, Chinese Military content_281476253686450.htm. Reforms in the Age of Xi Jinping, 62. 44 “State Council Notice on the Establishment of the 32 Wuthnow and Saunders, Chinese Military National Science and Technology Leading Group Reforms in the Age of Xi Jinping, 64. 国务院办公厅关于成立国家科技领导小组的通 33 “Liu Guozhi 刘国治,” Baidu Baike, http://baike. 知,” Ministry of Science and Technology of the baidu.com/item/%E5%88%98% People’s Republic of China, July 28, 2018, http:// E59B%BD%E6%B2BB/82405; “Northwest www.most.gov.cn/mostinfo/xinxifenlei/fgzc/gfxwj/ Institute of Nuclear Technology (NINT),”Nuclear gfxwj2018/201808/t20180808_141136.htm. Threat Initiative, July 26, 2012, https://www.nti. 45 Scott Kennedy, “The Fat Tech Dragon: org/learn/facilities/711/. Benchmarking China’s Innovation Drive”, Center for 34 Ibid. Strategic and International Studies, August 2017. 35 Minnie Chan, “Chinese military sets up hi-tech 46 “Assessing and Strengthening the weapons research agency modelled on US Manufacturing and Defense Industrial Base and body,” South China Morning Post, July 15, Supply Chain Resiliency of the United States,” U.S. 2017, https://www.scmp.com/news/china/ Department of Defense, September 2018, https:// diplomacy-defence/article/2104070/chinese- media.defense.gov/2018/Oct/05/2002048904/- military-sets-hi-tech-weapons-research-agency. 1/-1/1/ASSESSING-AND-STRENGTHENING- 36 “‘Carrying Reform Through to the End’ Part Eight: THE-MANUFACTURING-AND%20 The Road to a Strong Army’ 《《将改革进行到 DEFENSE-INDUSTRIAL-BASE-AND-SUPPLY- 底》 第八集 《强军之路》（下）》,” CPC Online, CHAIN-RESILIENCY.PDF. accessed March 28, 2019, http://news.12371. 47 David J. Lynch, “U.S. Companies Banned from cn/2018/02/03/VIDE1517610540870462.shtml. Selling to China’s ZTE Telecom Maker,” Washington 37 Adam Ni, “China Reveals New Military Post, April 16, 2018, https://www.washingtonpost. Technology Agency,” The Diplomat, July 28, com/news/business/wp/2018/04/16/u-s- 2017, https://thediplomat.com/2017/07/ companies-banned-from-selling-to-chinas-zte- china-reveals-new-military-technology-agency/. telecom-maker/?utm_term=.7030dbd1207e. 38 Meia Nouwens, “Xi Looks to China’s Private 48 David Lawder, “U.S. restricts exports to Chinese Sector as He Pursues a Slimmer, Smarter PLA,” semiconductor firm Fujian Jinhua,” Reuters, International Institute for Strategic Studies, October 29, 2018, https://www.reuters.com/ February 23, 2018, https://www.iiss.org/blogs/ article/us-usa-trade-china-semiconductors/ military-balance/2018/02/china-smarter-pla. us-restricts-exports-to-chinese-semiconductor- 39 Ming Zhao, “Get on the Express Train of firm-fujian-jinhua-idUSKCN1N328E. Military Intelligenized Development 搭上军事 49 Donald J. Trump, “Executive Order 13859, 智能化发展的快车,” People’s Daily, November Maintaining American Leadership in Artificial 14, 2017, http://www.81.cn/jfjbmap/ Intelligence,” Federal Register, February 11, content/2017-11/14/content_191788.htm. 2019, https://www.federalregister.gov/ 40 “Dual Variations of Military-Civil Fusion and d/2019-02544; U.S. Department of Defense, Artificial Intelligence 军民融合与人工智能的双 “Summary of the 2018 Department of Defense 重变奏,” PLA Daily, September 15, 2018, http:// Artificial Intelligence Strategy: Harnessing www.81.cn/jfjbmap/content/2018-09/15/ AI to Advance Our Security and Prosperity,” content_215934.htm. February 2019, https://media.defense. 41 Ni, “China Reveals New Military gov/2019/Feb/12/2002088963/-1/-1/1/ Technology Agency.” SUMMARY-OF-DOD-AI-STRATEGY.PDF. 42 Britzinger and Raska, “Chapter 5: Capacity for Innovation: Technological Drivers of China’s Future Military Modernization,” 135. 43 “China Sets Up National Science and Technology Leading Group,” State Council of the People’s Republic of China,

54 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW

with, high-income nations through innova- An Innovation- tion. Xi Jinping and the rest of the Chinese leadership have gone all-in on this strategy, Driven Economy but the underlying question remains—can China successfully transition into the ranks with Chinese of the world’s innovation leaders? Characteristics This paper’s answer is a resounding yes, albeit with a few caveats. This assessment, far more bullish than most, is centered on

China’s impressive innovation track record vol 5 to date, and the strengths and early results |

of its upgrading efforts. In 2018 alone, 2019 Kevin Garrahan rather than rely on the loose, often cul- ture-based predictions of the past, we can observe substantive empirical evidence Kevin Garrahan is a spring 2018 SAIS M.A. of innovation successes and their broader graduate with a concentration in Latin economic impact in China. We are also American Studies. Prior to SAIS, he worked able to analyze the economic policies that on Capitol Hill covering a broad legislative underlie this transition as well as their ini- portfolio for a United States Congressman. tial outputs in innovative, next-generation He is now working as a management con- sectors like artificial intelligence (AI). sultant in Chicago. He can be reached at [email protected]. There will be barriers, as well as broader structural constraints, that will shape Chi- na’s ultimate future economy. But these Introduction issues and considerations aside, the take- away remains—China is well on its way to Over the past twenty-five years of China’s becoming a leader in innovation, and its economic rise and expanding influence, plans for a full-scale transition are making politicians, business leaders, and econo- headway. As the McKinsey Global Institute’s mists have questioned whether China is (MGI) Jonathan Woetzel, an expert on the capable of innovation. In more recent years, topic, succinctly states, “China’s got what this issue has taken on even greater signifi- it takes.”1 cance. From the perspective of the United States and other advanced economies, Chi- na’s progress in high-tech fields threatens Progress on Innovation their hold on innovation-based industries and economic power. This has been true for “Anyone who says that China is not some time, but plays a larger role now in the innovative or entrepreneurial is kidding context of the ever-escalating U.S.-China themselves,” an Amazon employee in trade dispute. From China’s perspective, China recently proclaimed.2 The staid new economic realities and a domes- conventional wisdom that China simply tic growth model that is shifting towards cannot innovate must be rebutted for consumption-driven growth mean that two reasons. One, it mistakenly conflates innovation, and the productivity increases pure invention with innovation, missing it fuels, must now become the key driver its underlying importance; two, it relies of the economy. The country has swiftly on a 1990s-esque image of the Chinese entered middle-income status, with higher economy that revolves around fake prod- wages and slower growth rates, and is seek- ucts and copycat businesses. ing to upgrade to, and ultimately converge

55 For China, as for all countries, innovation in certain types of innovation, mostly is critical because of its potential pos- within the last five to ten years and itive economic effects on productivity, mostly focused on commercialization. value added, employment, and overall upgrading. It need not be “breakthrough” The oft-cited MGI report, The China innovation to be successful in this regard. Effect on Global Innovation, groups Chi- As The Economist explains, “the proof of nese innovation in the two categories of successful innovation is the ability of com- “improving consumer products and the panies to expand revenue and raise profits,” business models used to sell them,”5 and and Chinese firms have certainly managed “making manufacturing processes cheaper, to do that, as will be seen below.3 Intro- quicker and better.”6 China’s broader ducing new technologies or processes, internet sector offers the best example

There is a growing consensus that China has developed its own core strengths in certain types of innovation, mostly within the last five to ten years and mostly focused on commercialization.

regardless of the source of their creation, of the first category. As MGI describes also raises productivity and, ultimately, it, “nowhere have Chinese entrepreneurs economic growth. This is the core tenet of shown a greater flair for innovation than in the innovation-driven economy concept. In internet-based businesses.”7 China’s tech China’s case, further advances (and their powerhouses, Baidu, Alibaba, and Tencent application) in computing, AI, and robot- (collectively known as BAT), have skyrock- ics will boost productivity. These advances eted to the list of top companies in the could add an estimated $450-780 billion world through real business model inno- of value each year in manufacturing and vations, rather than just “copycat” models $500 billion to $1.4 trillion in the services and government protection. sector.4 To make a simplified historical comparison, Japan was not the first to The first innovation relates to their custom- make cars or semiconductors, but it used er-facing offerings; they have pioneered new manufacturing processes, manage- the idea of super-apps, or platforms, where ment practices, and supportive policies “dozens of different services or sub-apps to become competitive with the original come together.”8 Second, China has devel- producers in the industries, propelling oped related revenue-generating models. the country to the top tier of wealthy While most U.S. firms rely on advertising nations. From this perspective, China’s to monetize their users, BAT and others goal of sustainable growth through inno- have successfully developed other reve- vation seems more within reach, whether nue sources. Tencent’s WeChat, the prime they invent the world’s next semiconduc- example of both, is a social media, mes- tor or iPhone or not. senger, and mobile payment app in one. It relies on game sales, e-commerce, and Regarding the second point—that China transaction fees.9 It is hard to consider Chi- is only good at copying others—there na’s mobile payment commercialization a is a growing consensus that China business model innovation. However, Chi- has developed its own core strengths nese firms adapted the QR code, originally

56 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW developed in Japan for the automotive production in traditional industries, China’s industry, to making payments via smart- low-cost model is upgrading to rapidly phones.10 These transactions were worth speed up design and scale, and improve just 1.2 trillion RMB in 2013 but are now products for both Chinese and export expected to total 98.7 trillion RMB (roughly markets at the same time.15 “Chinese com- $15.5 trillion) for 2017, with estimates rising panies have shown that they can move from even more in the coming years. These fig- idea to commercial product or service in ures dwarf the U.S. and all other major far less time than companies in other mar- advanced markets combined; consumers kets,” including through much quicker in China now make mobile payments 50 prototyping, shorter product cycles, and 11 16 times more often than Americans. a focus on customer feedback. In the vol 5 renewables sector specifically, Jonas Nahm |

China’s tech market is still not on par with and Edward Steinfeld describe a unique 2019 its U.S. counterpart, but it is rising quickly. “innovative manufacturing” process that sits According to analysis by The Economist, “at the intersection of upstream R&D and China’s tech sector was 42 percent as manufacturing.” 17 Chinese firms innovate powerful as the United States’ as of early at this juncture on processes, inputs, and 2018, up significantly from just 15 percent even the final product, to commercialize in 2012.12 Looking to the future, “China’s new-to-the-world technologies.18 This is unicorns, a proxy for the next generation often done with global partners that are of giants, are in total worth 69 percent of the original owners of the idea or concept, America’s, and its level of venture capital but the authors’ on-the-ground interviews (VC) activity is 85 percent as big as Ameri- indicate that the Chinese role goes “well ca’s based on money spent since 2016.”13 beyond traditional emulation and assem- Tencent and Alibaba play a large role in bly, reaching deep into new product and supporting these new firms, funding about process design.”19 This has translated into a quarter of venture deals and growing the remarkable commercial performance, with

China’s tech powerhouses ... have skyrocketed to the list of top companies in the world through real business model innovations, rather than just “copycat” models and government protection.

broader ecosystem. A recent Center for China accounting for 60 percent of world Strategic and International Studies (CSIS) solar production and playing a leading role report on the sector states that, “many in wind turbine manufacturing, as well. This innovative and vital internet companies is similar to the stories in other high-end have emerged, playing an important role manufacturing sectors. DJI dominates the in promoting stable growth and employ- global commercial drone market, now con- ment, and benefitting the people.”14 trolling 85 percent of production. Huawei has transformed into a major global player In the second category of innovation that across information and communications has developed in China—cheaper, faster, technologies (ICT). It is set to play a decisive and better manufacturing—the wind and role in the coming 5G wave. 20 Economi- solar energy sectors stand out as good cally important, these firms are operating case studies. After years of “good enough” throughout the value chain, including in the

An Innovation-Driven Economy with Chinese Characteristics 57 high value-added early stages of design The central government and provincial and development and later stage of sales governments are utilizing forceful industrial and marketing.21 policies and massive financial support “to speed up China’s technological catch-up Finally, in assessing recent progress, it and to leapfrog stages of technological should also be acknowledged that China development.” 26 These efforts are aided has shown increased indications of the by a stronger position and role of private more frontier-type of innovation. China firms than in past periods in Chinese his- has the two fastest supercomputers in the tory, including BAT, countless start-ups, and world and 202 of the world’s top 500. The venture capital (VC) investors. Their com- leader, TaihuLight, is more than five times bined strengths and potential are already faster than the U.S. top performer, and having an impact, propelling China away it uses Chinese processors, rather than from its middle-income peers in next-gen- Intel chips. 22 eration sectors expected to drive the global economy in the coming decades. “A tech- China has also developed the world’s first nology revolution is sweeping the world,” quantum satellite, Micius, which has scored Eurasia Group president Ian Bremmer a number of pioneering achievements, proclaimed, “and the countries that most including the first quantum-encrypted sat- effectively seize the opportunities it creates ellite video call.23 In biotech, another key will dominate the 21st century.”27 China breakthrough field, Chinese firms have seems to be seizing that opportunity. excelled at genome sequencing.24 These are a few cases and should not be taken The Chinese government has created to mean that China now competes head- a slew of economic and sector plans to to-head with the scientific power of the achieve their goals. This includes Made

China has the two fastest supercomputers in the world and 202 of the world’s top 500. The leader, TaihuLight, is more than five times faster than the U.S. top performer, and it uses Chinese processors, rather than Intel chips.

United States. But they may be harbingers in China 2025 (MC2025), its well-known of things to come. “At least parts of Chinese blueprint for manufacturing modernization industry,” Nahm and Steinfeld conclude, that became a sticking point in the trade “have reached a new stage of competitive- conflict with the United States. Other key ness, one situated at the frontier of global plans include the Guidelines to Promote technology development, and deep within National Integrated Circuit Industry Devel- global innovation networks.”25 opment and Internet Plus plans, and the 2017 Next Generation Artificial Intelligence Development Plan. These plans have spe- Realizing an cific production targets, as well as broader Innovation Economy objectives in automation, supply chain localization, promotion of national champi- Moving broader segments of the economy ons, and productivity gains. Some notable towards the technology frontier is now the production targets include producing 70 linchpin of China’s development strategy. percent of “basic core components” for

58 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW aerospace and electronics, 40 percent of an innovation-driven economy. Prime mobile phone chips, 70 percent of indus- among them is AI, which will drive further trial robots, and 80 percent of new energy developments in both new and traditional vehicles (NEV) within China by 2025.28 To industries. In AI, as opposed to most tradi- realize these goals, governments will mar- tional industries, China has surpassed the shal billions of dollars of public financing rest of the world and is competing directly through subsidies, specific funds, and bank with the United States. This leapfrogging lending; support foreign acquisitions for has been supported by government efforts, technology transfer and domestic merg- flourishing private sector activity, and Chi- ers for consolidation; and use a range of na’s clear advantage in the data needed to competition and procurement policies train AI algorithms. “The size of available vol 5 to promote domestic players over for- datasets is the most important source of

29 36 |

eign firms. National-level funds include competitive advantage in AI,” and Chi- 2019 the Advanced Manufacturing Fund, the na’s resulting advantage in that regard will National Integrated Circuit Fund (also be insurmountable for other countries. 37 known as the Big Fund), and the Emerg- The report also categorizes four types of ing Industries Fund. There is a plethora of AI and China’s performance in each. In provincial-level funds as well. At the end of internet AI, focused on new-age operating 2015, there were 720 of these funds with systems and elsewhere, BAT are competing assets of $328 billion, numbers that have well with their U.S. counterparts, despite likely gone up since.30 Google’s current AI global dominance. In business AI, China notably lags due to “China is pulling ahead because it has a slower implementation of earlier data and strategy to build a high-tech economy and enterprise applications, but 4th Paradigm is willing to spend heavily and consistently stands out as a global player providing AI over years,” James Lewis from CSIS sum- for financial institutions. The third type the marized.31 The strategy is forward-looking, authors identify, perception AI, is where focusing especially on nascent industries China really shines. They appear to be a not yet dominated by the OECD nations. It global leader in cutting-edge face and is supported by both theory and empirical voice recognition, with firms like Face++, successes.32 Every country that converged iFlyTek, and SenseTime, recently named the with high-income nations in the post-war most valuable AI firm in the world at $3 period, including but not limited to the East billion.38 Lastly, in autonomous AI, China is Asian Tigers, utilized some form of state catching up and could ultimately be on par policy for technological development.33 As with the United States, they posit, in areas Chinese policymakers point out, even the like autonomous vehicles, robots, and con- United States employed significant gov- nected things. Importantly, AI seems to be ernment intervention for infant innovative providing an opportunity for China’s semi- fields, helping to give rise to Silicon Valley conductor industry to also make progress, today.34 China is undoubtedly using much after years of slower progress. Cambricon more heavy-handed interventions than the and Bitmain are examples of Chinese firms United States ever did, causing some to that could jump into competitive posi- decry the Chinese plans as neo-mercan- tions in niche chip markets.39 With these tilist.35 It may not be the most efficient or developments, and its impressive perfor- equitable economic approach, but this is mance in three out of four AI categories, no less reason to take it seriously. the government’s goal to catch up on AI technology and applications by 2020 and Moving from strong potential to real-world become the leading AI hub by 2030 must results, China’s progress in next-genera- be considered within reach. Former Alpha- tion sectors further supports the overall bet chairman Eric Schmidt notably expects conclusion that China will transition into China to overtake the United States in AI

An Innovation-Driven Economy with Chinese Characteristics 59 as early as 2025, besting the government’s made that a strong party hand in universi- target by five years.40 China’s AI progress ties and state-owned enterprises (SOEs) will indicates that it is well on its way to realiz- restrict further development beyond the ing the potential trillion-dollar productivity current stage of innovation.43 Private firms gains from future sectors. are leading the way on innovation, yet the state has propped up SOEs in recent years, China’s performance in two other next-gen- backsliding on years of reform efforts. Inter- eration sectors is also worth mentioning. national politics, especially the U.S.-China In vehicles, China is taking advantage of relationship, have also created significant timing. Anand Shah, a senior advisor with barriers to market access. The United States the Albright Stonebridge Group, recently is cracking down on Chinese tech-related explained that two trends—electric vehicles investments, prohibiting firms like Huawei and autonomous vehicles—are shaking up from selling into its market and others, what was a stable, decades-old model for drying up investment with new investment incumbent automakers. This change initially approval reforms, and threatening to cut off caught U.S. firms flat-footed, while the Chi- the supply of key components for firms like nese, driven by BAT and other firms, have ZTE.44 These efforts by the Trump adminis- acted swiftly in developing production tration could be extremely detrimental to and spurring demand.41 China could skip Chinese firms and could prohibit techno- the painstaking process of trying to gain logical learning and upgrading. In the long ground in the crowded traditional indus- term, closed or restricted access to the U.S. try and move right into a strong position market makes it very difficult for compa- in the next wave of vehicles. In robotics, nies to become truly globally competitive China is still behind the global curve, but and amass needed profits.45 An expanded, is rushing to catch up. They are by far the wealthier consumer base in China will help, largest market in the world, spending $10 but it is still nowhere near the prize of the billion annually to install some 600,000 U.S. market. Finally, China’s pure innova- total robots to meet the MC2025 targets. tion inputs—in human capital, the value of Provincial governments have especially intellectual property, and applied research thrown their weight behind the industry. and development (R&D)—are still lagging. Both of these new-age sectors would be China has, to date, made up for these short- propelled by further AI advancement in comings with a focus on experimental R&D the country, adding to the potential of a (80 percent of all R&D in China) and com- breakthrough, catching-up moment. mercialization. Reports indicate that they have been improving on these metrics in recent years.46 In order to push larger parts Barriers and Constraints of the economy forward, China will have to continue this progress. Despite all of its progress and future potential, there are both weaknesses in There are also two rather unique factors China’s efforts and larger issues that will that will shape China’s innovation push. The affect its transition to an innovation-driven first one, structural in nature, stems from economy. Many of the barriers are politi- the size of China’s economy. China’s mas- cally related. This includes the top-down sive manufacturing base and employment nature of its upgrading plans, which do is without compare.47 It will be extremely not necessarily meet firm-level needs difficult to fully propel all sectors and firms or demand. Much of the spending flow- into a new model. The innovation-driven ing from these plans will be inefficient, economies of the world are largely smaller, leading Scott Kennedy of CSIS to claim denser places, such as those in Europe that, “these are fat years for innovation in and elsewhere in East Asia. The United China.”42 There is also an argument to be States is the prime exception with its large,

60 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW innovation-based economy. But it too has 1 Jonathan Woetzel, “Will China ever be on grappled with its own issues of sector, the cutting edge of global innovation?” firm, and employment shifts as a result of ChinaPower Project CSIS, February 27, 2016, issues resulting from the transition away https://chinapower.csis.org/will-china-ever-be- from manufacturing over the past decades on-cutting-edge-of-global-innovation/. (at least in part).48 The second issue con- 2 Lillian Rogers, “China’s Tech Titans, From cerns the unique “China effect” on global Another Planet,” LinkedIn, September 22, innovation. China mobilizes overwhelm- 2017, https://www.linkedin.com/pulse/chinas- ing resources to support sector growth, as tech-titans-from-another-planet-lilian-rogers/. discussed, which can drive down margins 3 “Calibrating Chinese Creativity,” The and drive out the high-end firms that spend Economist, July 9, 2015, https://www. vol 5 heavily on R&D to innovate. This was the economist.com/business/2015/07/09/

calibrating-chinese-creativity; Shang-Jin Wei, | case in the solar PV market, which suffered 2019 from Chinese-led overcapacity, and the Xie Zhuan, and Xiaobo Zhang, “From ‘Made worry is that it will happen again. “To put it in China’ to ‘Innovated in China’: Necessity, plainly,” Scott Kennedy says, “China could Prospect, and Challenges,” Journal of do to semiconductors, artificial intelligence, Economic Perspectives 31, no.1 (2017): 49-70. and pharmaceuticals what it has done to 4 “China Effect on Global Innovation: Executive steel and aluminum. This could, in turn, Summary,” McKinsey Global Institute, October result in a downturn in overall productivity, 2015, 15, https://www.mckinsey.com/~/media/ the most important source of growth for McKinsey/Featured%20Insights/Innovation/ countries and the global economy.”49 On Gauging%20the%20strength%20of%20 this China effect, the future is less certain, Chinese%20innovation/MGI%20China%20 but a larger shift away from innovation-led Effect_Executive%20summary_October_2015. growth seems unlikely at this point. ashx. 5 “Calibrating Chinese Creativity,” The Economist, July 9, 2015, https://www. Conclusion economist.com/news/business/21657376- sceptics-exaggerate-some-industries-chinese- Innovation in China still suffers from some firms-are-innovative-calibrating-chinese. persistent shortcomings. That is true today 6 “Calibrating Chinese Creativity,” The and will likely be true in the foreseeable Economist, July 9, 2015, https://www. future. But, in returning to the original ques- economist.com/news/business/21657376- tion, this doesn’t mean that China won’t sceptics-exaggerate-some-industries-chinese- ultimately succeed in its overall economic firms-are-innovative-calibrating-chinese. transition. Chinese-style innovation is now 7 “China Effect on Global Innovation,” 11. rightly recognized as a powerful global 8 “China Effect on Global Innovation,” 15. force, as exemplified by the internet and 9 “Calibrating Chinese Creativity.” renewable sector examples. The govern- 10 “The Mobile Payments Race: Why China Is ment’s policies to realize its objectives are Leading the Pack—for Now,” Knowledge@ largely the right ones; incomparable financ- Wharton, University of Pennsylvania, January ing and support buoy these policies. Finally, 17, 2018, http://knowledge.wharton.upenn. an ascendant private sector is poised to edu/article/how-will-chinas-overseas-mobile- potentially leapfrog its competitors in payment-systems-fare/. the United States and other advanced 11 Kai-Fu Lee and Paul Triolo, “China Embraces AI: economies in a meaningful way. These A Close Look and a Long View,” Eurasia Group, trends are too powerful to slow, mean- December 2017, 7, https://www.eurasiagroup. ing the lasting challenges will only affect net/files/upload/China_Embraces_AI.pdf. China’s transition at the margins—creat- 12 “How Does Chinese Tech Stack Up Against ing an innovation-driven economy, with the US,” The Economist, February 15, Chinese characteristics. 2018, https://www.economist.com/news/

An Innovation-Driven Economy with Chinese Characteristics 61 business/21737075-silicon-valley-may-not- China Studies, Merics Papers on China, no. 2 hold-its-global-superiority-much-longer-how- (2016): 7. does-chinese-tech. 27 Lee and Triolo, “China Embraces AI: A Close 13 Ibid. Look and a Long View.” 14 Samm Sacks, “Disruptors, Innovators, 28 Wübbeke et al., “Made in China 2025: The and Thieves: Assessing Innovation in making of a high-tech superpower and China’s Digital Economy,” CSIS, January consequences for industrial countries,” 21. 2018, https://csis-prod.s3.amazonaws. 29 Scott Kennedy, “The Fat Tech Dragon: com/s3fs-public/publication/180108_ Benchmarking China’s Innovation Drive,” CSIS, Sacks_DisruptorsInnovatorsThieves_Web. August 2017, 2, https://www.csis.org/analysis/ pdf?22jQMv.fUUhvJsneUUmP767drezraCX. fat-tech-dragon. 15 “China Effect on Global Innovation: Executive 30 Kennedy, “The Fat Tech Dragon: Benchmarking Summary,” 104. China’s Innovation Drive,” 22. 16 Ibid. 31 James A Lewis, “China and Technology: 17 Jonas Nahm and Edward S. Steinfeld, Tortoise and Hare Again,” CSIS, August “Scale-up Nation: China’s Specialization 2, 2017, https://www.csis.org/analysis/ in Innovative Manufacturing,” World china-and-technology-tortoise-and-hare-again. Development 54 (2014): 290. 32 For example, see: Erol Yayboke, “Innovation- 18 Ibid. Led Economic Growth: Transforming 19 Nahm and Steinfeld, “Scaled-up Nation: Tomorrow’s Developing Economies through China’s Specialization in Innovative Technology and Innovation,” CSIS, September Manufacturing,” 294. 2017, https://www.csis.org/analysis/ 20 Sacks, “Disruptors, Innovators, and Thieves: innovation-led-economic-growth. Assessing Innovation in China’s Digital 33 Robert Devlin, “Competing in World Markets: Economy.” New Industrial Policy for Latin America,” Johns 21 Sacks, “Disruptors, Innovators, and Thieves: Hopkins School of Advanced International Assessing Innovation in China’s Digital Studies Course, Spring 2018. Economy,” 14. 34 Kennedy, “The Fat Tech Dragon: Benchmarking 22 “America Just Can’t Match China’s Exploding China’s Innovation Drive,” 3. Supercomputing Power,” MIT Technology 35 Ed Gerwin, “Confronting China’s Threat to Review, November 13, 2017, https://www. Open Trade,” Progressive Policy Institute, technologyreview.com/the-download/609468/ June 2018, https://www.progressivepolicy. america-just-cant-match-chinas-exploding- org/wp-content/uploads/2018/06/PPI_ supercomputing-power/. China_2018.pdf. 23 “Chinese satellite uses quantum cryptography 36 Lee and Triolo, “China Embraces AI: A Close for secure video conference between Look and a Long View,” 7. continents,” MIT Technology Review, January 37 Ibid. 30, 2018, https://www.technologyreview. 38 Adam Jezard, “China is Now Home to the com/s/610106/chinese-satellite-uses- World’s Most Valuable AI start-up,” World quantum-cryptography-for-secure-video- Economic Forum, April 11, 2018, https://www. conference-between-continents/. weforum.org/agenda/2018/04/chart-of-the- 24 “China Effect on Global Innovation: Executive day-china-now-has-the-worlds-most-valuable- Summary,” 20. ai-startup. 25 Nahm and Steinfeld, “Scale-up Nation: China’s 39 Lee and Triolo, “China Embraces AI: A Close Specialization in Innovative Manufacturing,” Look and a Long View,” 9. 290. 40 “The Battle for Digital Supremacy,” The 26 Jost Wübbeke, Mirjam Meissner, Max J. Economist, March 15,2018, https://www. Zenglein, Jaqueline Ives, and Björn Conrad, economist.com/news/leaders/21738883- “Made in China 2025: The making of a high- americas-technological-hegemony-under- tech superpower and consequences for threat-china-battle-digital-supremacy. industrial countries,” Mercator Institute for

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41 Anand Shah, “China’s Rapid Drive Into New - Generation Cars Trends, Opportunities And Risks,“ CSIS Event, February 21, 2018, https:// www.csis.org/events/chinas-rapid-drive-new- generation-cars-trends-opportunities-and- risks. 42 Kennedy, “The Fat Tech Dragon: Benchmarking China’s Innovation Drive,” 39. 43 Regina M. Abrami, William C. Kirby, and F. Warren McFarlan, “Why China Can’t Innovate,”

Harvard Business Review, 2014, https://hbr. vol 5 org/2014/03/why-china-cant-innovate.

44 Danny Crichton and Arman Tabatabai, | 2019 “The US Continues to Hammer Chinese tech,” TechCrunch, January 2019, https://techcrunch.com/2019/01/11/ the-u-s-continues-to-hammer-chinese-tech/. 45 “How Does Chinese Tech Stack Up Against the US.” 46 China Power Team, “Is China a global leader in research and development?” CSIS, last updated March 26, 2019, https://chinapower.csis.org/ china-research-and-development-rnd/. 47 Darrel M. West and Christian Lansang, “Global Manufacturing scorecard: How the US compares to 18 other nations,” The Brookings Institution, July 10, 2018, https:// www.brookings.edu/research/global- manufacturing-scorecard-how-the-us- compares-to-18-other-nations/. 48 Daniel M. Gerstein, “America’s Shifting Labor Market in a Technology-Driven World,” RAND Corporation, November 25, 2018, https://www. rand.org/blog/2016/11/americas-shifting- labor-market-in-a-technology-driven.html. 49 Kennedy, “The Fat Tech Dragon: Benchmarking China’s Innovation Drive,” 3.

An Innovation-Driven Economy with Chinese Characteristics 63 campaign was a direct result of the Party Setting a New recognizing that “standardization is a reflec- tion of a country’s core competitiveness Standard: and overall strength.”2 Implications of Prior to the 2017 Standardization Law, the development of Chinese standards China’s Emerging was largely centralized, with the majority of standards-setting power vested in the Standardization Standardization Administration of China (SAC). The Chinese government has recog- Strategy nized that its standardization regime had to change as China’s economy became more globally integrated. The new law allows industries to band together and create vol- untary enterprise standards which can then be transformed into national standards in Michael Sutherland cooperation with SAC, enhancing the role of the market in China’s standardization process.3 At the same time, leaders in Michael Sutherland is a 2019 SAIS M.A. the Chinese Communist Party (CCP) and graduate with a concentration in China Chinese industry groups see the opportu- Studies and a minor in Strategic Studies. nities inherent in China becoming a global His experience includes an internship in standards leader and have an interest in the Department of Commerce’s Office of controlling the broader direction of China’s China and Mongolia, and working as an standards development.4 education consultant in mainland China. Michael holds a B.A. in Political Science This paper seeks to evaluate China’s recent from Nebraska Wesleyan University, and efforts to promote Chinese standards glob- is originally from Omaha, NE. He can be ally and to assess the potential implications reached at [email protected] China’s emerging standardization strategy may hold for the role of standards in inter- national trade. Following a discussion of existing frameworks commonly applied to Introduction standards development in China, this paper builds a new framework designed to evalu- On November 4, 2017, the Standing ate China’s standards development strategy Committee of the 12th National People’s in the context of its broader economic Congress formally adopted the first major objectives. This framework characterizes revision to China’s Standardization Law, China’s standards development strategy as almost thirty years after China’s original a new type of comprehensive “standards Standardization Law was adopted in 1989.1 push” involving three key elements: the Standardization reform has been a major integration of standards development and priority for the Chinese government since China’s broader industrial policy goals, Chi- the 18th National Party Congress in 2012, na’s increased participation in the making and the 2017 revision to China’s Standard- of international standards, and China’s ization Law is the culmination of a five-year efforts to link Chinese standards to the process that began when the State Council Belt and Road Initiative (BRI). This standards published the Deepening Standardization push framework is then used to assess the Reform Scheme in 2012. According to implications of China’s standardization remarks made by Premier Li Keqiang, this reform for standards enforcement in the

64 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW

WTO and international standards develop- popular consensus in international eco- ment efforts in organizations such as the nomics literature is that companies able to International Standards Organization (ISO). set standards enjoy a first-mover advantage when developing any derivative technology Ultimately, this paper finds that framing that conforms to that standard. In addition China’s standardization reform as part to this first-mover advantage, standard- of a broader comprehensive standards ization facilitates the production of new push is a useful but limited approach for goods by more unskilled labor, granting researching China’s standardization reform yet another first-mover advantage to com- and evaluating its potential implications for panies that develop technical standards.6 the role of standards in the global trading Standards setters also typically receive vol 5 system. Using this framework, this paper rents (most commonly in the form of roy- | 2019

Standardization reform in China is likely to pose a significant challenge to the norms governing the role of standards in international trade.

assesses that as long as it remains an alties) for the rights to adopt the standards integral component of China’s broader they set. Even ISO, the leading international industrial policy, standardization reform organization governing standards develop- in China is likely to pose a significant chal- ment, charges companies a nominal fee for lenge to the norms governing the role of the right to use standards developed by its standards in international trade. technical committees, which are produced (at least nominally) “to be applied in the development of international regulation.”7 Existing Frameworks for Explaining China’s This first-mover incentive to develop new Standardization Strategy standards is not just limited to companies operating in innovative industries; this Standardization is an often overlooked ele- framework applies at the country level as ment of the global economic system that well. Earlier work by contemporary experts is nonetheless essential for its function. As on China’s standards development, such countries make new breakthroughs in fields as that of Dieter Ernst or Scott Kennedy, such as information and communications focuses on how countries work to promote technology (ICT), pharmaceuticals, and standards that are favorable to the major manufacturing, widely adopted interna- players in their domestic industries, a pro- tional standards can ensure that products cess that often favors more developed and services resulting from these break- economies such as the United States and throughs can be easily traded and used Germany.8 Ernst in particular outlines the across borders. The most successful interna- challenges faced by developing countries tional standards are so widely adopted that as they seek to catch up in the realm of they are taken as given by most consumers, standards development. Focusing primar- such as the Universal Serial Bus (USB) in ily on Asian economies, Ernst argues that computing, or the YYYY–MM–DD standard latecomers must deal with a series of trade- for communicating dates and times.5 The offs when deciding how to formulate future

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 65 industrial policy in the face of well-estab- the international level. Chinese representa- lished technical standards.9 Of particular tives submitted WAPI to ISO for recognition significance to China’s situation is the trade- as an international standard four years later off Ernst identifies between timely access in 2010, and while ISO ultimately rejected to advanced technologies and the ability it, the case China made in 2010 was much to develop those technologies indige- more sophisticated and had broader inter- nously—operating within the bounds of national support than the case they made established foreign technical standards in 2006, indicating the progress Chinese enables faster development at the expense standards coalitions were capable of of continued technological dependence making within four years.13 Chinese stan- and vulnerability to rents generated by de dards coalitions have since become an facto industry standards. China’s approach even stronger force on the international to this dilemma has been to take what Ernst stage as a result of two complementary calls a “two-track approach”—incorporating strategies: increasing participation in inter- Chinese technology into global standards national standards-setting bodies such as in order to strengthen its bargaining power ISO and the International Electrotechnical and reduce its payments of high royalty fees, Commission (IEC), and developing edu- while at the same time promoting its own cation initiatives and incentive programs new international standards in an effort to designed to create a new generation of change the international standards system Chinese standardization experts. over time.10 China’s ultimate ambition is to transform its domestic industries into “stan- At the international level, Chinese efforts dards makers” instead of “standards takers.” to become more involved in standardiza- tion range from the mundane to the cutting In China’s case, the struggle for dominance edge. On one hand, it seems that Chinese in the realm of technical standards occurs experts are contributing to every interna- among existing “standards coalitions” as tional standardization technical committee Scott Kennedy calls them—various indus- in which they can be involved. Right after try groups and government organizations the new Standardization Law was passed, that band together in order to promote the China National Institute of Standard- the adoption of their own domestically ization (CNIS), one of several government conceived standards.11 Writing in 2006, bodies involved in standardization, ran a Kennedy argued that standards coalitions story on its web page featuring Chinese in China were too weak to compete with participation in an ISO meeting on safety foreign companies in the ICT sector, and signs. CNIS praised its experts who “sub- Chinese efforts to promote an alternative mitted recommendations on safety signage standard for wireless internet connec- including ‘Caution: Falling into Water’ and tions, known as WAPI, ultimately lost out ‘Beware: Jellyfish.’”14 On the other hand, to foreign coalitions advocating Chinese Chinese experts are also participating in adoption of the more widely used Wi-Fi standards development groups in highly standard.12 Kennedy’s assessment of Chi- technical industries at a much higher rate. nese standards coalitions at the time was In March 2018, Chinese lawmakers began a highly accurate: their slow and centralized national standards-setting process for new nature combined with a lack of interna- energy vehicle charging apparatuses, and tional “lobbying” experience left them at the Ministry of Industry and Information a disadvantage when facing the more expe- Technology (MIIT) published a white paper rienced U.S. companies that constituted the on the standardization of blockchain tech- opposing standards coalition. However, nology.15 In 2013, CNIS began developing despite their relative inability to advance master’s degree programs in technology the WAPI standard, Chinese standards coa- standardization with the goal of increas- litions continued to pursue its adoption at ing the ability of Chinese contributors to

66 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW promote China’s interests in international Taken together with programs like the CNIS standards-setting bodies like ISO.16 master’s program in technical standards, the law seems especially concerned with Both the China-as-latecomer framework strengthening China’s standards coalitions and the standards coalition framework at every level by directing SAC to foster a are useful for evaluating China’s standards culture of standards development within development today. When discussing Chi- industry and enterprise associations. The na’s standards development push, Chinese push to strengthen standards coalitions in policymakers and academics frequently China is seeing strong results: In a 2013 cite a desire to regain a measure of control research report for the U.S.-China Eco- over China’s massive domestic technology nomic and Security Review Commission, vol 5 market. In 2007, a leading official responsi- Dan Breznitz and Michael Murphree claim |

ble for China’s technology policy claimed that Chinese standards experts “now have 2019 that “China’s market is one of the largest a much better understanding of the spe- in the world, but the market is controlled cific wording of international agreements by foreign companies, and the situation is about standards, to include what practices extremely grave as we are further pressured are allowed, when, and how.”21 In their by developed countries who use blockades report, Breznitz and Murphree posit that and technology controls.”17 This sentiment China “may now have an advantage over is echoed across other national level eco- the U.S. (and U.S. firms) in international nomic planning documents, with a phrase and domestic standards bodies because translated as “first-mover advantage” (先 of their understanding of the law and the 发优势, xianfa youshi) appearing in sev- system that governs it.”22 In most standard- eral State Council directives dealing with ization disputes, the winning side is most standardization.18 Regarding standards often the one that understands the system coalitions, the 2017 Standardization Law in which they operate.23 codifies a process of public-private coop- eration that has long characterized the Chinese standards development process. Standards and The law calls upon the SAC to “encourage Indigenous Innovation enterprises, social organizations, educational institutions, research institutes, and other Meanwhile, the domestic push for the organizations to participate in international development of new standards has been standardization activities.”19 The law also linked to China’s push for indigenous focuses on developing an infrastructure to innovation in advanced manufacturing strengthen standards makers at every level and information technology, as exempli- of commerce and government, stating: fied by initiatives such as Made in China 2025. In concert with the 13th Five-Year People’s governments at or above the Plan (2016–2020), Made in China 2025 county level shall support pilot and seeks to transform China’s economy into demonstration projects and publicity a “quality driven economy” that is less reli- work concerning standardization, dis- ant on foreign technology imports and is seminate standardization concepts, able to export its own technically advanced spread standardization experiences, products by 2025.24 In order to achieve this promote the use of standardization goal, the State Council has begun provid- methods throughout society for organiz- ing financial support to priority industries, ing production, business, management funding foreign technology acquisitions, and services, and make the most of the and positioning state-owned enterprises supporting role of standards for encour- (SOEs) to become “global champions” in aging industrial transformation and each named industry sector.25 Standards upgrading and driving innovation.20 are an essential component of China’s push

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 67 to create global champions; a saying that standards during the drafting process of has become popular recently among Chi- its 2017 Standardization Law.29 In contrast nese scholars of innovation is “third-tier to the adversarial approach that U.S. stan- companies make products, second-tier dards makers and the U.S. government companies make technology, and first-tier have taken to China’s push for standards companies make standards (三流企业做产 development, DIN has a longstanding 品, sanliu qiye zuochanpin; 二流企业做技 cooperative relationship with Chinese stan- 术, erliu qiye zuo jishu; 一流企业做标准, yiliu dards organizations; this lends significance qiye zuo bioazhun).”26 to the similarity between their comments about China’s Standardization Law and the The standardization reform proposed so comments made by ANSI, USITO, and the far in conjunction with the Made in China U.S. government. 2025 initiative has provoked concern in China’s major Western trading partners. In its 2017 report to Congress on China’s WTO Standards Push: Industrial compliance, the Office of the United States Policy, ISO Participation, and Trade Representative (USTR) says that Chi- the Belt and Road Initiative na’s “ongoing effort to develop unique national standards aims eventually to serve An increased ability to compete in inter- the interests of Chinese companies while national standards bodies does not simultaneously seeking to impede and dis- necessarily mean Chinese standards advantage their foreign counterparts.”27 makers are going to promote unique The American National Standards Institute Chinese standards solely for the sake of (ANSI) and the United States Information competing with U.S. and European stan- Technology Office (USITO) submitted com- dards makers. Kennedy, Suttmeier, and Su ments on China’s 2017 Standardization Law in 2008 made a convincing case for the during its drafting process, pointing out majority of new Chinese standards being that the law emphasized the “development non-controversial. Kennedy et. al found that and promotion of Chinese standards with the only controversial standards initiatives no indication of intent to give preference to undertaken by China at that time were all in international standards.”28 Concern about the ICT sector, with other standards being

Indigenous innovation as outlined in the 15-Year Plan involves a dual-track strategy of encouraging Chinese firms to file more patents and propose more domestic and international standards.

the potential market impacts of Chinese seen largely as China’s efforts to “catch standardization reform has not been limited up to the developed world.”30 However, to the United States—the Deutsches Institut much has changed in the ten years since für Normung (DIN), which cooperated with this research was published. China has SAC in 2011 to form the German-Chinese drastically increased its representation in Standardization Cooperation Commis- international standards-setting bodies that sion, raised similar concerns, particularly lead in developing technical standards about China’s perceived lack of defer- for developed countries. For example, ence to already established international in 2008, fewer than 100 Chinese experts

68 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW participated in the standards-setting meet- results in most Five-Year Plans broadly ings of the International Electrotechnical meeting their stated objectives.32 Commission (IEC), the leading international standards-setting organization for all major The 13th Five-Year Plan was first announced ICT and electronics sectors.31 in 2016, but the policy ideas that consti- tute its foundation can be traced back to a In order to determine how China’s stan- State Council document published in 2006, dardization strategy might evolve in the The National Medium- and Long-Term Sci- wake of these changes, this paper analyzes ence and Technology Development Plan, three elements of China’s standardization which was styled as a 15-Year Plan outlin- strategy and discusses their implications: ing priorities for national technological vol 5 the role of standards development in development from 2006 to 2020. This |

China’s industrial policy, the nature of 15-Year Plan established a new principle, 2019 China’s increased participation in ISO “indigenous innovation” (自主创新, zizhu standards-setting, and China’s plans to inte- chuangxin), which would become the guid- grate its standardization processes with the ing principle of standards development in Belt and Road Initiative. the 13th Five-Year Plan, published ten years later.33 Indigenous innovation as outlined Industrial Policy in the 15-Year Plan involves a dual-track strategy of encouraging Chinese firms To clarify the role of standards develop- to file more patents and propose more ment in China’s broader industrial policy, domestic and international standards. this paper focuses on analyzing specific On both counts, the push for indigenous State Council directives and planning doc- innovation appears to have been wildly uments connected to the 13th Five-Year successful; China’s State Intellectual Prop- Plan, which outlines the party’s economic erty Office (SIPO) is now the busiest in the priorities from 2016 to 2020. This approach world, with 928,177 applications received was chosen due to the lack of case stud- in 2014, 86.3 percent of which came from ies available about China’s post-reform domestic applicants. In the U.S. Patent standardization processes, and because and Trademark Office, Chinese patent of the unique function of Five-Year Plans applications in ICT alone increased over in China’s economy. China’s national stan- 1,000 percent from 2008–2018.34 dardization strategy is still emerging, and there are few viable ways of determining its Priority sectors outlined in Made in China role in specific sectors through case stud- 2025 are at the forefront of this push to ies or other post facto methods of analysis. indigenize, and several planning docu- The 13th Five-Year Plan outlines incentives, ments at the national, provincial, and local funding schemes, and central government levels provide insight into how Chinese expectations of firms operating in priority policymakers see indigenous innovation sectors such as ICT, the automobile indus- and standardization as complementary. try, and biopharmaceuticals. Furthermore, In May 2015, the State Council published China’s Five-Year Plans influence economic Several Opinions on Accelerating the behavior by directing funding to certain Cultivation of New Competitive Edges in firms, provinces, and cities that contribute Foreign Trade.35 Not only does the term to meeting goals outlined in the national “indigenous innovation” appear alongside Five-Year Plan. The dual pressures of “standards” nine times in the document, meeting the State Council’s expectations but it also outlines plans to “encourage the and acquiring access to central funding propagation of Chinese standards.”36 Given before their competitors drives most firms the document’s explicitly stated purpose of and local governments to adopt the State “cultivating a competitive edge in foreign Council’s priorities as their own, which trade,” the motivation behind the proposed

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 69 propagation of Chinese standards appears Outside the ICT sector, standardization to be somewhat competitively driven. is connected to localization most often in plans related to the automobile indus- This competitive drive is even more pro- try. The Energy-Saving and New-Energy nounced in the ICT sector. The National Automotive Industry Development Plan Informationization Development Strategy, (2012-2020), published by the State Coun- published by the CPC Central Committee cil, identifies “expediting the formation of and the State Council in July 2016, not technology, standards, and brands using only contains several paired references of indigenous intellectual property” as a “indigenous innovation” and “standard- “basic principle.”41 Overall, the presence ization,” but these passages have also of this language across a broad spectrum been flagged as “explicitly problematic” of plans points heavily to a broader move by several foreign companies.37 One pas- towards localization, in which standards sage calls for standardization to be part of play a significant role. a “comprehensive multilevel protection scheme” for China’s ICT industry. While the ISO Participation plan is largely hortatory and aspirational in nature, with very few specific policy pre- In conjunction with its efforts to use stan- scriptions, a recent report by the European dards as a mechanism for reforming its Commission of the Directorate-General domestic industrial policy, China is also for Trade indicated that standards-setting is pursuing an international leadership role in also appearing alongside calls for protecting standards development through increased new industries at the provincial level.38 For participation in ISO’s standards develop- example, in Guangdong Province’s Action ment process. ISO centers its standards Plan for the Year 2014-2015 on Building a development process on technical com-

China’s decision to sign a group of bilateral standards agreements at the ISO meeting ... indicates that China is pursuing a parallel strategy of promoting its standards alongside increased participation in ISO.

Powerful Province With Quality, a section mittees composed of industry experts from titled “Strengthen Standardization Work” various countries. ISO publishes standards, begins with, “we shall focus on areas of but it does not autonomously create them; strategic emerging industries such as rather, ISO serves as a kind of arena in which areas of high-end new electronic infor- different countries and standards coalitions mation ... and promote the establishment lobby for their own domestically conceived of advanced standards with indigenous standards.42 Getting a standard ratified and intellectual property rights.”39 Apart from promulgated by ISO is beneficial for coun- Guangdong’s provincial level plans, sim- tries and standards coalitions in two ways. ilar language can be found in ICT sector First, it bestows the standards maker with development plans in Zhejiang and Fujian, the previously discussed first-mover advan- with the phrase “advanced standards with tage, as global producers overwhelmingly indigenous intellectual property rights” subscribe to ISO standards, particularly in appearing even at the municipal level in plans high-tech industries like ICT. Second, ISO specific to Shanghai, Ningbo, and Xiamen.40 ratification carries an implicit recognition of

70 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW the standards maker’s technical expertise, that, despite its push to lead in international and signals that they have an influence on standardization, China “only led in 0.7 per- the market that operates on a level above cent of international standards, and needs that of pure market share. In China’s case, intensified participation in the formulation ISO standardization also signals to domes- of international standards.”46 tic Chinese consumers that the overall quality of Chinese goods is increasing, to During the meeting, China signed several the point that Chinese goods can be used agreements with the European Com- as an international benchmark.43 mittee for Standardization, outlining a framework for mutual recognition of

China was a participating member in 706 standards and “exchanges of personnel vol 5 ISO technical committees in 2012. ISO’s and information.”47 Studies have shown |

most recent membership information lists China has a history of using multilateral 2019 China as a participating member in 730 organization meetings as a forum for technical committees, which is a significant signing separate bilateral agreements increase. For reference, Germany, widely with other participants, often to support considered to be ISO’s most active Western its own international objectives that are member country, went from participating in outside the parameters of, but broadly in 715 technical committees to 724 in the same line with, the spirit of the international orga- time period.44 China’s increased represen- nization convening the meeting.48 China’s tation in technical committees indicates decision to sign a group of bilateral stan- that Chinese policymakers and industries dards agreements at the ISO meeting, see value in ISO participation. Chinese discussed below, indicates that China is policymakers have not only increased their pursuing a parallel strategy of promoting representation in ISO technical committees its standards alongside increased partic- but now also have companies and experts ipation in ISO. chairing them. Huawei currently chairs an ISO Joint Technical Committee on AI Stan- Standards and the Belt and dardization (ISO/IEC JTC 1/SC 42).45 This Road Initiative particular committee includes premier U.S. ICT standardization organizations, includ- During the 2016 ISO General Assembly ing USITO and the National Institute of in Beijing, China also signed bilateral Standards and Technology (NIST). Buy-in standards agreements with nine other from these organizations into Huwaei’s countries, including Albania, Russia, and ISO committee is a significant indicator Turkey. Chinese press reports regarding of China’s progress towards its goal of these bilateral standards agreements all becoming a standards maker. emphasized their role in BRI.49 Apart from its various other roles in China’s interna- Apart from its participation in ISO standard- tional economic engagement strategy, BRI ization processes, China is also pursuing is seen by Chinese policymakers as a premier a broader leadership role in the organiza- opportunity to “export Chinese standards tion. In September 2016, Beijing hosted while upgrading Chinese industry”—lan- the 39th ISO General Assembly, and the guage that echoes its domestic industrial Chinese government was determined to policies.50 Alongside its publication of guide- display enthusiasm for international stan- lines governing standardization, the State dardization during the meeting while also Council has also produced two standards outlining its vision for China’s future role development plans specifically related to in standards development. Zhang Xiao- BRI, the Action Plan to Connect “One Belt, gang, a Chinese steel magnate, serving as One Road” Through Standardization (2015– ISO’s president during the Beijing General 2017), and the Action Plan on Belt and Assembly, used his remarks to point out Road Standard Connectivity (2018–2020).

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 71 While the 2018–2020 plan is more up to experts from other countries involved date on current events and accounts for in BRI. Chinese standards will also likely political changes that have occurred in become more prevalent as countries in focus countries, the two plans are similar Africa, Europe, and the Middle East are and provide insight into the parallel inter- incentivized to adopt them if they choose national standardization framework China to become more involved in BRI projects is pursuing, apart from its involvement in the future. in ISO. Both plans exhort Chinese stan- dards makers to facilitate the “going out” of Chinese standards and outline several Implications of China’s strategies for accomplishing this goal. For Standards Push for the example, the 2015–2017 plan calls for “con- International Trading System ducting comparative analysis of standards in bulk import/export sectors across One The foundations of China’s emerging Belt One Road countries,” and the subse- comprehensive standardization strategy quent promotion of Chinese standards if have the potential to significantly affect the countries in question have not already the rules and norms governing the role of adopted ISO standards.51 The 2015–2017 standards in international trade. It is outside plan also proposes tying BRI funding to the the scope of this paper to predict the con- broader adoption of Chinese standards in crete effects that China’s standards push countries hosting BRI projects, which may will have on international trade using trade serve as a mechanism to entice these coun- data. Changes in imports and exports are tries to adopt Chinese standards.52 The notoriously difficult to attribute to standards 2018–2020 plan goes even further, calling empirically; the few studies that have man- on Chinese standards experts to “establish aged to do so focus on the diffusion of a a preliminary ‘standardization think tank’ single standard across multiple countries to conduct research on the standardization and rely on relatively advanced econo- laws, regulations, systems, and develop- metrics techniques.56 There is currently ment strategies of BRI countries in order little data available that would support an to push for early outcomes.”53 attempt to model the effect of standard- ization on China’s economic behavior, as Furthermore, the 2018–2020 plan offers China’s standards strategy is still emerging. some insight into how China plans to use However, there are still methods to quali- BRI as a means to increase its influence in tatively assess the potential implications of ISO. The plan proposes allocating funding China’s standards push on the norms gov- for the establishment of “standardization erning standards and international trade. centers” in BRI countries to “train local stan- dards experts and support standardization One method of evaluating these impli- capacity-building in BRI countries, so as cations involves examining the drafting to enhance Chinese standards’ influence process of the 2017 Standardization Law overseas.”54 In coordination with building and its reactivity to input from international the standardization capacity of BRI coun- standards makers. While international tries, a separate subsection of the plan institutions such as ISO and IEC publish proposes working with these countries to standards, they do not impose any legal “push the ISO to establish new technical obligations on their member countries that institutions in the fields which have signifi- dictate how standards are used. Powerful cant impacts on the industries of the BRI.”55 international standards leaders including This seems to indicate that if the Belt and ANSI, the European Committee for Stan- Road initiative moves forward according to dardization (ECS), and DIN set de facto plan, Chinese-led standardization efforts in standards of best practice that most other ISO will receive the support of standards standardization organizations generally

72 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW follow, but they have no enforcement power standards in the Chinese context.”62 The only that can compel countries to adopt inter- other related language in the Standardization nationally accepted standards.57 That Law calls for increased participation in interna- power effectively rests with the WTO. tional standardization activities, a priority that is When SAC and the National People’s reflected in China’s increased participation in Congress began drafting the new Stan- ISO meetings and committees.63 dardization Law, they solicited public comments from international standards Using the standards push framework pro- makers and industry associations. ANSI, posed by this paper to evaluate SAC’s ECS, and DIN all submitted comments failure to integrate language support- that shared one common point of con- ing international standards (outside of a vol 5 cern—China’s draft Standardization Law Chinese context) into the new Standard- |

contained no clause signifying intent to ization Law has potential implications 2019 adhere to the WTO’s 1997 agreement on for international standardization and Technical Barriers to Trade (TBT), which trade. The first potential implication is is the closest approximation the world that China could indeed be preparing has to an enforceable global normative to use its growing list of unique national framework governing standardization.58 standards as technical barriers to trade to protect industries essential to its indus- The WTO TBT agreement stipulates that trial policy. As foreign companies seek to “where technical regulations are required enter China’s market, they may begin to and relevant international standards exist face standardization measures that limit or their completion is imminent, members their ability to compete with domestic shall use them, or the relevant parts of manufacturers. One area where this may them, as a basis for their technical regula- already be occurring is the automobile tions.”59 Effectively, the TBT agreement industry. The recent Section 301 inves- requires WTO member countries to use tigation conducted by USTR identifies internationally accepted standards or several standardization measures in the risk retaliatory action through the WTO’s automobile industry that increase local arbitration apparatus. ISO, ANSI, and content requirements, require increased ECS all use the WTO TBT Agreement as compliance testing for foreign cars enter- a reference for how their standards are ing the market, and push foreign auto internationally applicable.60 manufacturers to turn over certain elements of their intellectual property During the drafting process, comments during certification processes.64 The submitted by the US-China Business Coun- report also notes standards in cyber- cil (USCBC) reveal that SAC scaled back the security and biopharmaceuticals that role of international standards while draft- “drastically exceed the burden and ing the Standardization Law. According to scope of international standards.”65 USCBC, “the draft law deleted language promoting the adoption of international USTR’s finding that these standards are standards; the draft law also adds language designed to advance China’s industrial placing conditions on the adoption of inter- policy goals are supported by the frame- national standards.”61 Despite input from work developed by this paper. Each of these influential standards and trade orga- these areas is a priority sector linked to nizations calling on SAC to include language Made in China 2025, and as the documents that supports the existing standards and analyzed in this paper establish, standard- trade governance, the final version of the ization is an essential part of advancing Standardization Law only includes a single China’s overall industrial policy goals. As clause obligating standards makers in China China continues to push for the adoption of to support “the adoption of international its own unique standards, both domestically

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 73 and internationally, particularly along BRI, for- processes, combined with its use of ISO eign companies looking to access China’s meetings to sign separate bilateral stan- market or become involved in BRI projects dards agreements, could also be seen as are likely to face conformity with evolving an effort to increase its role in ISO at the Chinese standards as a barrier to entry. expense of Western standards makers. This possibility is supported by China’s plans to The second and more far-reaching implica- invest in “standardization capacity build- tion is that China is developing a network ing”68 in countries involved in BRI, many of of standards designed to eventually whom are also members of ISO. Increasing supplant widely used international stan- the number of Chinese-trained standards dards. Despite the Standardization Law’s makers in ISO, including those coming from

Foreign companies looking to access China’s market or become involved in BRI projects are likely to face conformity with evolving Chinese standards as a barrier to entry.

encouragement of stakeholder participa- BRI countries trained by Chinese standards tion in standardization activities, Western experts, will also likely increase the influence standards experts and industry associa- of Chinese standards in international trade. tions appear to be increasingly shut out of technical committees (TCs) that make standards in China. The European Cham- Suggestions for Future ber of Commerce in China has noted that Research and Conclusion European and U.S. businesses are afforded little to no opportunity to participate in Chi- China is likely to continue to increase its nese standards-setting. The report notes involvement in international standardiza- that “foreign-invested enterprises are tion and propose its own unique standards sometimes only granted observer status in new areas and in areas where inter- in TCs, or even excluded from member- national standards are already widely ship altogether.”66 The report also points adopted. Framing this behavior in the out that Chinese standards relating to data context of a broader standards push linked security and cloud computing do not align to Chinese industrial policy could help at all with international standards such as guide future research on China’s standards the EU’s proposed General Data Protec- development. Currently, the utility of the tion Regulation (GDPR).67 If Chinese data standards push framework for evaluating protection standards and the GDPR end China’s standardization strategy in detail up competing, China’s growing standards is relatively limited. However, it provides a expertise and support for Chinese stan- useful starting point for evaluating future dards in international projects like those actions by China in the international stan- involved in BRI could provide Chinese data dards-setting community. For example, protection standards with an advantage. if China continues to sign more bilateral standards cooperation agreements, this As China continues to prioritize participa- framework could prove useful for placing tion in ISO, its efforts to minimize foreign each bilateral agreement in the con- stakeholder input in its own standardization text of China’s broader standardization

74 THE CHINA STUDIES PROGRAM | SAIS CHINA STUDIES REVIEW strategy. The standards push framework China’s broader industrial policy, standard- proposed by this paper will also be useful ization reform in China is unlikely to bring in measuring the progress China makes Chinese and international standards into towards its standardization goals in the further alignment in the foreseeable future. time between the current 13th Five-Year Plan and its future iterations. 1 “Overview of the Standards Administration of China,” International Trade Administration, Additionally, each of the three elements of 2016, https://2016.trade.gov/td/standards/ the standards push framework proposed by Markets/East%20Asia%20Pacific/China/China. this paper could be further explored. The pdf. tranche of Five-Year Plans, State Council 2 “Premier Li calls for improvements in vol 5 directives, and guiding opinions analyzed standardization,” State Council of the People’s

Republic of China, last modified September | in this paper are a small sample of hun- 2019 dreds of industrial policy documents. If 14, 2016, http://english.gov.cn/premier/ other documents connected to China’s news/2016/09/14/content_281475442336090. industrial policy and the 13th Five-Year Plan htm. are analyzed for similar language, a data set 3 “Standardization Law of the People’s Republic could be built that allows for the identifica- of China,”Standardization Administration of tion of broader trends in China’s domestic the People’s Republic of China, March 23, standardization processes. Using this data 2018, http://www.sac.gov.cn/sbgs/flfg/fl/ set to track which provinces, municipalities, bzhf/201803/t20180323_342012.htm. and industry sectors implement the largest 4 Hui Liu and Carl F. Cargill, “Setting Standards number of new standardization measures for Industry: Comparing the Emerging Chinese could be useful for investigating the role Standardization System and the Current US of standards in China’s political economy. System,” Policy Studies 75 (2017): 145, 47, Finally, as China invests in improving its own 49-53. standardization expertise and the standard- 5 “Popular Standards,”International Organization ization expertise in countries involved in for Standardization, accessed March 11, 2019, BRI, tracking the participation of standards https://www.iso.org/popular-standards.html. experts from these countries in ISO technical 6 Daron Acemoglu, Gino Gancia, and Fabrizio committees over time could help deter- Zilibotti, “Competing Engines of Growth: mine the efficacy of those investments. Innovation and Standardization,” National Bureau of Economic Research Working Paper As new frontiers for technical standards Series, Working Paper 15958 (2010): 7-10, such as 5G telecommunications, AI, and http://www.nber.org/papers/w15958. cloud computing continue to open up in 7 “ISO and Policy Makers,” International the future, we will likely see China push for Organization for Standardization, accessed an even greater leadership role for itself March 11, 2019, https://www.iso.org/iso-and- and its standards in the global economy. policy-makers.html. Unfortunately, the new Standardization Law 8 Dieter Ernst, “Standards, Innovation, and is unlikely to contribute to the alignment of Latecomer Economic Development – A international standards and Chinese stan- Conceptual Framework,” East West Center dards as much as other standards-setting Economic Series 134 (2013): 2-3, https://www. organizations hoped it would. In fact, the files.ethz.ch/isn/170131/econwp134.pdf. new law’s emphasis on increased Chinese 9 Ibid. participation in the setting and adoption 10 Dieter Ernst, “Indigenous Innovation and of international standards in the Chinese Globalization: The Challenge for China’s context imply an intent to keep Chinese Standardization Strategy,” UC Institute standards and international standards at on Global Conflict and Cooperation and least partially at odds. As long as standard- The East West Center (2011): 21, https:// ization remains an integral component of www.eastwestcenter.org/publications/

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 75 indigenous-innovation-and-globalization- Standardization Administration of the People’s challenge-chinas-standardization-strategy. Republic of China, 2018. 11 Scott Kennedy, “The Political Economy of 21 Breznitz and Murphee, “The Rise of China in Standards Coalitions,” Asia Policy 2 (2006): Technology Standards.” 41-42. 22 Ibid. 12 Ibid. 23 Scott Kennedy, Richard P. Suttmeier, and Jun 13 Wang Ping, “A Brief History of Standards Su, “Standards, Stakeholders, and Innovation: and Standards Organizations: A Chinese China’s Evolving Role in the Global Knowledge Perspective,” East-West Center Working Economy,” NBR Special Report 15 (2008): Paper Series 117 (2011): 2, https://www. 18-20, https://www.nbr.org/publication/ eastwestcenter.org/publications/brief-history- standards-stakeholders-and-innovation- standards-and-standardization-organizations- chinas-evolving-role-in-the-global-knowledge- chinese-perspective. economy/. 14 “Seven Safety Sign Proposals by CNIS Experts 24 “Several Opinions on Accelerating the Are Approved in the ISO/TC 145/SC 2/ Cultivation of New Competitive Edges in WG1 Meeting,” China National Institute of Foreign Trade 国务院关于加快培育外贸竞争新 Standardization, Nov 30, 2018, http://en.cnis. 优势的若干意见,” State Council of the People’s gov.cn/xwdt/bydt/201712/t20171227_23748. Republic of China, May 12, 2015, http:// shtml. www.gov.cn/zhengce/content/2015-05/12/ 15 “China Draws Up Plans to Promote content_9735.htm. Standardization in Electric Vehicles,” Reuters, 25 U.S. Chamber of Commerce, Made in China March 27, 2018, https://www.reuters.com/ 2025: Global Ambitions Built on Local article/us-china-autos-electric/china-draws- Protections (March 16, 2017): https://www. up-plans-to-promote-standardization-in- uschamber.com/sites/default/files/final_made_ electric-vehicles-idUSKBN1H30J4; “Blockchain in_china_2025_report_full.pdf. Technology and Application Development 26 Ying Zhan & Xuezhong Zhu, “Intellectual White Paper 中国区块链技术和应用发展白 Property Right Abuses in the Patent Licensing 皮书,” Ministry of Industry and Information of Technology Standards,” Journal of World Technology of the People’s Republic of China, Intellectual Property 10, 3-4 (2007): 187-200. March 12, 2018, accessed March 30, 2018, 27 “2017 Report to Congress on China’s http://xxzx.miit.gov.cn/n602427/c593017/ WTO Compliance,” United States Trade part/593018.pdf. Representative, January 2018, https://ustr. 16 Dan Breznitz and Michael Murphee, “The Rise gov/sites/default/files/files/Press/Reports/ of China in Technology Standards: New Norms China%202017%20WTO%20Report.pdf. in Old Institutions,” U.S.-China Economic and 28 “Final Comments on PRC Draft Standardization Security Review Commission, January 16, Law,” American National Standards Institute, 2013, https://www.uscc.gov/Research/rise- May 2017, https://share.ansi.org/Shared%20 china-technology-standards-new-norms-old- Documents/Standards%20Activities/ institutions. International%20Standardization/Regional/ 17 Dieter Ernst, “Indigenous Innovation and Asia%20Pacific/China/ANSI%20Comments_ Globalization: The Challenge for China’s PRC%20St%20Law_6.8.2017%20FINAL.pdf. Standardization Strategy,” 4. 29 “China’s Standardization Reform,” 18 Liu Sanjiang and Liu Hui, “The Thought Deutsches Institut für Normung, August and Path of China’s Standardization System 2017, https://www.din.de/blob/257494/ Reform,” China Soft Science 7 (2015): 1-12. ee0b06981acdd9e0e9ac342ff5f40b1a/china- 19 “Standardization Law of the People’s Republic s-standardization-reform-data.pdf. of China: Chapter I, Article 8,” Standardization 30 Kennedy, Suttmeier, and Su, “Standards, Administration of the People’s Republic of Stakeholders, and Innovation: China’s Evolving China, 2018. Role in the Global Knowledge Economy,” 20 “Standardization Law of the People’s 27-29. Republic of China: Chapter III, Article 31,”

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31 Dong Geun Choi and Erik Puskar, A Review Hubei KAIT Automotive Electronic & Electrical of U.S.A. Participation in ISO and IEC (2014): Systems Co., Ltd., October 11, 2015, http:// NISTIR 8007, https://www.nist.gov/sites/ en.kait.com.cn/news_detail/newsId=6.html. default/files/nistir_8007-reviewofusparticip_ 42 Stefan Timmermans and Steven Epstein, isoiec-2014_0.pdf. “A World of Standards but Not a Standard 32 Sebastian Heilmann and Oliver Melton, “The World: Toward a Sociology of Standards and Reinvention of Development Planning in Standardization,” Annual Review of Sociology China, 1993–2012,” Modern China, 39 (2013): 36 (2010): 69-89. 580-628. 43 “Advanced Standards to Help Promote 33 Christopher McElwain, “The World’s the Quality of Consumer Goods,” State

Laboratory: China’s Patent Boom, IT Standards, Council of the People’s Republic of China, vol 5 and the Implications for the Global Knowledge August 26, 2016, http://english.gov.

Economy,” Santa Clara Journal of Law 14 cn/policies/policy_watch/2016/08/26/ | 2019 (2016): 444. content_281475426347836.htm. 34 Ibid. 44 “ISO Member Profile: Standards Administration 35 “Several Opinions on Acceleration the of China,” International Organization for Cultivation of New Competitive Edges in Standardization, accessed March 11, 2019, Foreign Trade.” https://www.iso.org/member/1635.html. 36 Ibid. 45 Louise Lucas,“Huawei’s R&D Budget Hits 37 “The Central Committee General Office and $14bn as Next Generations Arrive,” Financial the State Council General Office Publish ‘The Times, March 30, 2018, https://www.ft.com/ National Informationization Development content/7abddaca-33dc-11e8-a3ae- Strategy’ 中共中央办公厅 国务院办公厅印发 fd3fd4564aa6. 《国家信息化发展战略纲要》,” The Ministry of 46 Wang Xiaodong, “ISO Assembly Held in Industry and Information Technology of the Beijing,” China Daily, September 9, 2016, People’s Republic of China, July 28, 2016, http://www.chinadaily.com.cn/cndy/2016- http://www.miit.gov.cn/n1146290/n1146392/ 09/19/content_26823740.htm. c5168620/content.html. 47 Ibid. 38 Covington and Burling LLP, Measures and 48 Chunding Li, Jing Wang, and John Walley, Practices Restraining Foreign Investment in “China’s Regional and Bilateral Trade China, Washington, DC, Prepared for the Agreements,” NBER Working Paper Series European Commission Directorate-General for (2014): 3-6, http://www.nber.org/papers/ Trade, 2014, accessed April 10, 2018, http:// w19853. trade.ec.europa.eu/doclib/docs/2014/august/ 49 Li Yang, “Belt and Road Initiative Prompts tradoc_152739.08.10.pdf. Chinese Standards to Go Abroad,” China Belt 39 Ibid. and Road Portal, November 9, 2017, https:// 40 “Outline of the Ningbo City 13th Five-Year eng.yidaiyilu.gov.cn/qwyw/rdxw/33898.htm. Plan for Social and Economic Development 50 Peter Cai, Understanding China’s Belt and Road 宁波市国民经济社会发展第十三个五年规划 Initiative (Sydney: The Lowy Institute, 2017). 纲要,” National Development and Reform 51 “Action Plan to Connect ‘One Belt, One Road’ Commission of the People’s Republic of Through Standardization (2015-2017) 标准联 China February 26, 2016, http://www.ndrc. 通“一带一路”行动计划 (2015-2017),” National gov.cn/fzgggz/fzgh/ghwb/dfztgh/201607/ Development and Reform Commission of P020160713600628829652.pdf; “Fujian the People’s Republic of China, October 22, Province ‘13th Five-Year Plan’ Digital Fujian 2015, http://www.ndrc.gov.cn/gzdt/201510/ Special Plan 福建省“十三五”数字福建专项规划), t20151022_755473.html. Fujian Provincial People’s Government, August 52 “Action Plan to Connect ‘One Belt, One Road’ 27, 2016, http://cs.fuzhou.gov.cn/xjwz/xxgk/ Through Standardization (2015-2017) 标准联 ghjh/zxgh/201608/t20160827_1408391.htm. 通“一带一路”行动计划 (2015-2017),” Section 3, 41 “The State Council Issued New Energy Article 4, “统筹规划，需求导向.” Automotive Industry Development Plan,”

Setting a New Standard: Implications of China’s Emerging Standardization Strategy 77 53 “Action Plan on Belt and Road Standard Into China’s Acts, Policies, and Practices Related Connectivity 标准联通共建“一带一路”行动计 to Technology Transfer, Intellectual Property, 划 (2018-2020),” Belt and Road Portal, January and Innovation Under Section 301 of the Trade 11, 2018, https://www.yidaiyilu.gov.cn/zchj/ Act of 1974 (March 22, 2018), https://ustr.gov/ qwfb/43480.htm. sites/default/files/Section%20301%20FINAL. 54 “Action Plan on Belt and Road Standard PDF. Connectivity 标准联通共建“一带一路”行动计划 65 Ibid. (2018-2020),” Section 4, “专项行动.” 66 European Union Chamber of Commerce in 55 “Action Plan on Belt and Road Standard China, China Manufacturing 2025: Putting Connectivity 标准联通共建“一带一路”行动计划 Industrial Policy Ahead of Market Forces (2018-2020),” Section 3, Article 4, “拓展对外贸 (2017), http://docs.dpaq.de/12007-european_ 易标准化合作.” chamber_cm2025-en.pdf. 56 Joseph A. Clougherty and Michael Grajek, 67 Ibid. “International Standards and International 68 “Action Plan to Connect ‘One Belt, One Road’ Trade: Empirical Evidence from ISO 9000 Through Standardization (2015-2017) 标准联 Diffusion,” National Bureau of Economic 通“一带一路”行动计划 (2015-2017),” National Research Working Paper Series (2012): 1-3, Development and Reform Commission of http://www.nber.org/papers/w18132. the People’s Republic of China, October 22, 57 Steve Charnovitz, “International 2015, http://www.ndrc.gov.cn/gzdt/201510/ Standards and the WTO,” GW Law Faculty t20151022_755473.html. Publications & Other Works, Paper 394 (2005), http://scholarship.law.gwu.edu/ faculty_publications/394. 58 Ayoub Mousefi and Mengyi Liu, “The Impact of Technical Barriers to Trade: The Cases of Trade Between China, Japan, Korea, and the US,” in Innovation in the High-Tech Economy: Contributions to Economics, ed. Chuan P., Khachidze V., Lai I., Liu Y., Siddiqui S., and Wang T (Berlin, Heidelberg: Springer, 2013). 59 “Agreement on Technical Barriers to Trade,” World Trade Organization, accessed March 11, 2019, https://www.wto.org/english/docs_e/ legal_e/17-tbt_e.htm. 60 American National Standards Institute, ANSI- USAID Standards Alliance Year Five (2017- 2018) Plan, 2017, https://standardsalliance. ansi.org/documents/StandardsAlliance-Year-5- Plan-2017-2018.pdf. 61 “US-China Business Council Comments on the Revised Draft Standardization Law,” The US-China Business Council, June 13, 2017, https://www.uschina.org/sites/ default/files/2017.06.13_us-china_business_ council_comments_on_the_revised_draft_ standardization_law-en.pdf. 62 Standardization Law of the People’s Republic of China, Section I, Article 8. 63 Ibid. 64 Office of the United States Trade Representative, Findings of the Investigation

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