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2017 volume 3 CHINA STUDIES Featuring Articles by REVIEW Ned Collins-Chase Amanda Van Gilder Miaosu Li Benjamin Pollok Minh Joo Yi 2017 volume 3 CHINA © 2017 The China Studies Program of the Johns Hopkins University The SAIS China Studies Review is a Paul H. Nitze School of Advanced International Studies publication of SAIS China Publication of SAIS China and the China Studies Program and the China Studies Program All rights reserved. at the Johns Hopkins School of Advanced International Studies. Design: www.SchumannStudioCreative.com Printed on Rolland Hitech - with a minimum of 30% post-consumer fiber, STUDIES made using renewable biogas energy. The Review publishes interdisciplinary work by graduate students conducting research on China, The China Studies Program does not take institutional positions on public policy issues; including history, political science, economics, the views represented herein are the author’s own, and do not necessarily security, and regional studies, reflect the views of the Johns Hopkins University staff or trustees. with a focus on policy. For electronic copies of this report, visit: https://www.sais-jhu.edu/content/china-studies-review#about China Studies Program The Johns Hopkins University Paul H. Nitze School of Advanced International Studies (SAIS) Rome Building, Suite 606-612 REVIEW 1619 Massachusetts Avenue, N.W. Washington, D.C. 20036 Tel: +1 202 663 5816 http://www.sais-jhu.edu/content/china-studies#overview [email protected] CHINA STUDIES REVIEW STUDIES Editorial Board Editor-in-Chief vol 3 Kaj Malden | 2017 Executive Editor Adam Lee Student Editors Christina Connely-Kanmaz Alex Keyserling Kyle Schut Minh Joo Yi Yuqian Zhang Editorial Advisory Board Carla Freeman Madelyn Ross CHINA Table of REVIEW STUDIES Contents Letter from the Editors Research Articles vol 3 Kaj Malden & | Is the Wind Industry Helping 2017 Adam Lee China’s Environment? 1 A Preliminary Environmental Impact Report Miaosu Li Policy Briefs 10 China’s Challenges in Advancing An Analysis of the Capital Account Liberalization: U.S.-China Nuclear Balance The Case of the Qianhai Free Trade Zone Ned Collins-Chase Amanda Van Gilder 2 17 Evolutions in Chinese Attracting Foreign Direct Investment Foreign Policy through Diaspora Networks: A Comparative Review of under Xi Jinping China and India Minh Joo Yi Benjamin Pollok 6 30 SAIS China Studies Year-in-Review 39 About SAIS China 41 Editors 42 CHINA In the second section of this issue, we pres- Letter from ent three research articles spanning China’s REVIEW STUDIES environment, nuclear weapons strategy, the Editors and economy. Miaosu Li analyzes a little understood aspect of China’s wind energy development - the associated environmen- tal costs of rare-earth metal processing China’s evolving political and economic - and calls for a more nuanced assessment dynamics and international ambitions of Chinese energy policy and implemen- provide fertile ground for analysts in many tation. Amanda Van Gilder provides a sectors. China’s economic growth rate has comprehensive analysis of the nuclear bal- vol 3 moderated to a “new normal” of 6.5 per- ance between the United States and China. | cent, putting pressure on Beijing as the She concludes that while the United States 2017 country prepares to reshuffle its leaders at will maintain nuclear superiority for the next this fall’s upcoming 19th Party Congress. one to two decades, the gap will close as Meanwhile, a range of new policy initiatives, China gradually attains doctrinal and tech- from the Cybersecurity Law to the Made in nological parity. Benjamin Pollok compares China 2025 Plan, find China vigilantly mon- the homeward investment patterns of the itoring “hostile foreign elements.” Despite diaspora populations of China and India. these anxieties at home, China projects Pollok attributes China’s greater success in growing confidence and leadership attracting this investment to its active dias- abroad. Over the past year, President Xi Jin- pora engagement policies — a strategy not ping emerged as an unexpected champion yet meaningfully pursued by India. of globalization at the World Economic Forum in Davos against the backdrop of We in the China Studies Program are a new American administration bearing a excited to highlight the high quality of more inward-looking populist mandate. student scholarship at the Johns Hopkins China has also accelerated its ambitious School of Advanced International Studies Belt and Road Initiative, made progress in this publication. To provide a sense of the toward concluding a binding code of con- rich intellectual environment that fosters duct with ASEAN, and affirmed the leading this work, we close this issue with a selected role it can play in implementing the Paris list of speakers and topics presented in the Climate Agreement. past year at our programs in Washington, D.C. and China. Amid China’s dynamic transformations, we are excited to present the third edition of We would like to extend our gratitude to the the China Studies Review as a platform to student authors and editors for their commit- highlight the contributions of students at ment and hard work in advancing this young the Johns Hopkins School of Advanced publication, to the faculty and mentors who International Studies toward better under- supported this work, and to our faculty advi- standings of China, its relationships, and its sors, Carla Freeman and Madelyn Ross, for their evolving role on the world stage. expertise, advice, and unyielding support for the China Studies Review. The first section of this issue features two brief issue papers. Ned Collins-Chase examines the Qianhai Free Trade Zone and considers its prospects as a tool for Chinese capital Kaj N. Malden, Editor-in-Chief account liberalization. Minh Joo Yi surveys Shanghai, China China’s foreign policy calculus under Presi- dent Xi Jinping and notes Beijing’s growing Adam B. Lee, Executive Editor assertiveness in foreign affairs. Washington, D.C. 1 CHINA regulations and capital account liberaliza- of the total planned 28.2 square kilometers economic difficulties, this commitment is 1 China’s Challenges tion. The Chinese government disclosed of the larger Guangdong Pilot FTZ in Shen- far from given. As mentioned, recent devel- REVIEW STUDIES plans for the zone to the public just two zhen.7 The stated purpose of the zone is opments in the Shanghai pilot zone give in Advancing Capital days before its official opening in late to serve as a platform for modern service cause for concern that similar difficulties September 2013. The announcement was industry cooperation between Hong Kong may impede the success of Qianhai. Further Account Liberalization: followed by a three-month silence by the and the mainland as a part of the Mainland concerns arise from the poor performance government, and no official information and Hong Kong Closer Economic Partner- of one of the FTZs’ signature tools in pro- The Case of the Qianhai about the zone was provided to potential ship Arrangement (CEPA) and the broader moting capital flows: RMB-denominated investors. The three-month lag may have “Belt and Road Initiative” introduced by Xi bonds issued outside of China, popularly Free Trade Zone given officials time to win the support of Jinping. The government seeks to capitalize referred to as “dim sum bonds.” After a dif- skeptics within the government, as well as on Qianhai’s proximity to both Hong Kong’s ficult year for dim sum bonds and offshore vol 3 the opportunity to create further interest financial sector and Shenzhen’s manufac- RMB markets in 2016, prospects continue | among investors by strategically releasing a turing sector to attract corporations seeking to look bleak for their performance in 2017 series of information leaks regarding the FTZ.2 to develop a modernized service industry 2017.10 It will be difficult for Qianhai to in the region. be successful in broadening capital flows Ned Collins-Chase Salient policies implemented in the Shang- between the Hong Kong RMB market and hai pilot zone included fewer restrictions To incentivize participation in this project, Shenzhen if demand for dim sum bonds on foreign currency exchange; a “negative corporations and investors seeking to do remains weak. list” outlining industries in which foreign business in Qianhai receive preferential Introduction investment is still restricted, in order to facil- treatment, including a steep reduction in Beijing is truly walking a tightrope in itate the ease of investment in industries the corporate income tax rate. There is its attempts at capital liberalization. As China attempts to engage in meaningful without these restrictions; and simplified some disagreement among sources as to On the one hand, China would like to capital account liberalization, it faces a bal- company registration processes.3 Some of exactly how much of a reduction this will see its currency attain greater weight ancing act: implementing reforms to boost the experiments from the Shanghai pilot be; some sources say the corporate tax in the global financial system, not only productivity, spurring development of its ser- zone have since been approved for nation- rate will be 15 percent, while the official for the prestige it would bring, but also vice industry, and enhancing renminbi (RMB) wide implementation, including the use of project website lists the reduction as a 15 because of the belief that an increased convertibility, while at the same time avoiding a negative list and streamlined company percent decrease.8 Both tax rates are lower proportion of trade financed by RMB the risks of capital flight and threats to the via- registration procedures.4 There are also than the 25 percent national rate and the would help China better withstand bility of state-owned enterprises employing early indications that the effects of China’s 16.5 percent rate in Hong Kong. Qualified large-scale crises, such as the 2008 millions of workers. Pilot Free Trade Zones efforts to liberalize capital controls can be individuals within the zone will also receive global financial crisis which threat- (FTZs) have become one of the tools China seen in the Shanghai FTZ, with data show- tax subsidies.