Agatha Kratz is a Policy Fellow within the European Council on Foreign Relation’s (ECFR) Asia & China program, working on China’s economic policies, outward investments and reform process. She is also a PhD candidate at King’s College London’s Lau China Institute, studying China’s state-owned enterprise (SOE) internationalization. Until December 2015, Agatha was Editor-in-Chief of China Analysis, ECFR’s quarterly publication on China’s current affairs. Before joining the ECFR, she was a Research Fellow at Asia Center in Paris.
Agatha spoke for YCW London in November 2015.
Young China Watchers (YCW): After graduating with degrees in political science, finance, and international development, you initially decided to work in private equity. Now your doctoral research focuses on China’s state-owned enterprises (SOE). What triggered your interest in China’s economy?
Agatha Kratz (AK): My first contact with China was when I started learning Mandarin 12 years ago. Back in 2004, China was not yet the economic superpower it has since become, but many of my professors argued that it would soon become one of the most important international actors. So I started learning the language, and do not regret it obviously.
My interest in the economy came later, when I lived in China in 2007. My time there was fantastic; I loved the language, the country, and the people. But what impressed me most was the incredible economic dynamism. Anytime I left Beijing for a week, three or four new shops would have opened on my street by the time I was back. Once back in France, I started taking classes on the East Asian model of development—to put words and theories to what I had experienced first-hand. Since then, my interest in China’s economy has only grown.
YCW: Based on your research, how homogeneous is the European position on China’s “One Belt, One Road” (OBOR) initiative? On what areas do EU member states differ in opinion?
AK: Member states’ positions on OBOR are overall homogeneous, in that most, if not all, EU countries welcome the initiative—and its significant attached financing. However, some are of course more enthusiastic about it than others. Large countries like France or Germany tend to adopt more of a “wait and see” attitude, while countries like Poland or Hungary have already signed dedicated Memorandums of Understanding with China on OBOR. The UK has also been very active, hoping to become “China’s best partner in the West.”
At the EU level, the concern is that this huge inflow of Chinese investments might divide member states in a competition for badly needed capital and infrastructure investments. The challenge, therefore, is to build a common European strategy for bridging China’s forecast investments and the EU’s needs for capital. What should Chinese investments target: infrastructure or any sector? What form should they take: direct investment in particular projects and individual countries, co-investment vehicles, or participation in the European Fund for Strategic Investments? These are all questions that would benefit from EU-wide coordination.
YCW: How cohesive is OBOR as a grand strategy versus a bundle of varied projects? How can we understand OBOR’s central planning characteristics?
AK: OBOR aims for cohesiveness in that it brings together a series of pre-existing projects, and puts a brand name on a pre-existing trend—China’s economic diplomacy. It also lends wider meaning to future projects by including them in a grand strategy.
But China has been investing in infrastructure in Asia and throughout the world for some time already, using these investments and its financial firepower to build good diplomatic relationships. So there is not much novelty in OBOR, other than the method and efforts used to coordinate actors around the concept, building it up as the new cornerstone of Beijing’s foreign policy. It does, however, create new tools for China’s foreign policy—financing institutions and increased financial means dedicated to the initiative. Another notable change is its inclusiveness, welcoming nearly any country (but the U.S.) into China’s grand plan. This represents a novel development and illustrates President Xi Jinping’s vision for China’s renewed international role.
YCW: You recently completed a project on China’s high-speed rail diplomacy. Can you tell us about that research and its implications for OBOR?
AK: My research on China’s high-speed rail diplomacy fits quite nicely into the study of China’s OBOR for a number of reasons. First, high-speed rail projects are one kind of infrastructure investment that OBOR aims to promote. They are a useful means of linking and integrating Asian countries, as well as promoting economic and human exchanges on the continent—all of which are objectives in the OBOR Action Plan published March 2015.
Second, high-speed rail projects are a concrete illustration of China’s economic diplomacy, often initiated by high-level state visits and accompanied by substantial Chinese financing in the form of low-rate loans to host countries.
Third, they illustrate one facet of the perceived domestic economic rationale behind OBOR—opening up or even creating new markets for China’s companies (most of them, but not all, state-owned). In many instances, Chinese financing is linked to contracts for Chinese high-speed rail companies, which, faced with a diminishing domestic market, are looking for new projects beyond China’s borders. China’s commitment to invest in infrastructure in Asia is thus a welcome opportunity for them to venture abroad.
Finally, high-speed rail diplomacy validates some of the concerns surrounding Chinese investments abroad, now re-emerging with OBOR. In most cases, Chinese companies won international bids because they were backed by generous financial support from the Chinese government through its policy banks. This means that other international contenders were defeated not on quality or competitiveness, but on price and financing. This situation may have important long-term consequences for these competitors, many of which are European.
YCW: ECFR’s China Analysis relies exclusively on primary sources in Mandarin. As former Editor-in-Chief, can you tell us about this approach and the rationale behind it?
AK: China Analysis was created 10 years ago by François Godement, and has always relied exclusively on Chinese sources to cover China’s current affairs. Its rationale was to cover a greater range of issues by accessing more information than is available through English sources. It also aimed to understand the perspectives of Chinese academics, journalists, officials, lawyers, economists, and others. Historically, it gave us a head-start on a number of very important trends—not least the debate on the competing Guangdong and Chongqing models, and the growing controversy around Bo Xilai.
Sadly, our approach is losing a bit of ground, as more and more Chinese sources are translated into English. However, I do believe that paying continuous attention to how Chinese observers view current events, whether in English or Mandarin, is crucial to understanding what is happening in China.
YCW: Most of the YCW Community either follow China in a private capacity or work in a China-related profession. You moved from one to the other, restarting your career to become a China expert. Do you have any advice, regrets, or lessons from this shift?
AK: I have no regrets. I feel happy going to work every single day. China is so amazingly complex that you can never get bored. One piece of advice for those who want to dedicate their careers to China would be to learn—and then keep practicing—Mandarin. It gives you a real personal and professional advantage. I explained how using Mandarin helps us at China Analysis, but it is true of many more situations.
For those who are interested in China but don’t work on it in particular, I’d advise keeping in touch with friends in China and nurturing a network of people with a similar interest. China brings people together like few other countries do, and people with a Chinese experience often feel instantly connected. It’s a good way to connect and exchange on the topic. I would also advise going to as many events as possible, reading as much as possible, and of course, going there whenever an opportunity arises.
— Interview by Jan Philipp Pöter