Matt Ferchen is an associate professor of international relations at Tsinghua University; he is also a resident scholar at the Carnegie-Tsinghua Center for Global Policy. His research focuses on the ‘China model’ of development, China’s urban informal economy, and its political and economic relations with Latin America.
Young China Watchers (YCW): You’ve a longstanding interest in Chinese political economy: In your PhD dissertation for Cornell University on China’s market governance, you mention this interest goes back to 1998. What initially drew you to study the Chinese model of development and how do you define it in your research?
Matt Ferchen (MF): As an undergraduate student at the University of Puget Sound, I was interested in the political economy of development, particularly in East Asia and Latin America. For my Master’s degree at Johns Hopkins’ SAIS in the mid-1990s, I continued to purse this interest by completing both the China and Latin American programs. By the time I arrived at Cornell for my PhD, I knew I wanted to research the changing state-economy relationship in China as the country deepened its economic reforms. At the time, no one was referring to a “China model”; even the first efforts to define a related “Beijing consensus” didn’t emerge until around 2004.
In my dissertation, I sought to explain the vigorous debate within China about the government’s role in regulating a more marketized economy, including the unexpected popularity of classical liberal ideas, like those of Friedrich Hayek (“Road to Serfdom”), and more conservative Chinese defenses of the Party’s and state’s role in the economy. I was also interested in how such theoretical debates played out at the “street level”: how the chengguan (city administration units) maintained stability over vendors and others in the informal economy. Always deeply skeptical that there was any one China model, I was keen to explore how much change there has been in China’s ongoing economic and political development. I’m quite critical of the idea that all-encompassing labels—like the “China model”, “Beijing consensus”, or more broadly “state capitalism”—are useful in describing a much more complex and contested reality.
YCW: In January this year, Chinese President Xi Jinping announced investment in Latin America would reach $250 billion by 2020, something that was brought into clearer focus with Premier Li Keqiang’s visit in May. China has declared that it is moving from primarily financing deals and mineral and energy imports to investment in infrastructure and possibly manufacturing. How does the Chinese approach in the region align with its increasing investment around the world, and is there anything you see on the horizon with China-Latin America relations that is different to say China-Africa, China-Central Asia or China-South Asia?
MF: For a number of years I’ve been arguing that the China-Latin America honeymoon is over. While few, if any, officials from either side would explicitly acknowledge this, President Xi’s and Premier Li’s comments this year are meant to mark a new phase of relations. In many ways this amounts to an effort to make a virtue out of necessity. What has largely been a relationship driven by rapidly growing trade and high-profile financing deals must respond to challenges posed by the end of the commodity boom and the mismanagement of political risk.
The end of the commodity boom, which is itself related to the Chinese economic slowdown and its attendant move away heavy industrial growth, is also a challenge for other resource-rich developing countries. This means some countries in Africa, the Middle East, Central Asia, and Southeast Asia will face similar challenges to those faced by Latin America.
What’s interesting is how China’s need for a new driver of commercial ties has coalesced around bilateral and multilateral efforts to finance infrastructure. From the New Silk Road to the Asian Infrastructure Investment Bank (AIIB) to the newly proposed Brazil-Peru transcontinental railway, China has been promoting high-profile investment and financing deals that are meant to usher in a new phase of commercial and political ties to developing countries. While many of these deals, if completed, might address important development needs, there is no guarantee of success and many involve a high degree of financial and political risk.
YCW: How do you see transparency and conditionality changing with China Development Bank (CDB) and Export-Import Bank’s (Ex-Im) loans around the world? How do you think this might change in response to the emergence of the AIIB and the eventually expected BRICS Bank?
MF: The transparency of bilateral CDB or Ex-Im loans is unlikely to change in the near future. There has been some discussion that Chinese state-owned enterprises’ (SOE) overseas investments, including those provided by these policy banks, will be audited by domestic and/or international accountants. If such audits were to expose major irregularities or corruption, it’s easy to imagine that their findings could be delayed or suppressed. In other words, it’s very unlikely that the policy banks, especially the CDB, will offer greater transparency on their own volition.
However, China’s involvement with multilateral development financing institutions, such as the AIIB or BRICS Bank, may provide the institutional setting to pressure its policy banks to become more transparent. At the very least, as part of multilateral institutions Chinese lenders will be required to be open to different kinds of loan and project evaluation criteria than exist on a bilateral basis.
YCW: You recently tweeted that China jumped the shark with its announcement of the transcontinental Twin Ocean Railroad megaproject in Latin America, linking Peru to Brazil. Could you elaborate?
MF: Over the last few years, China has been promoting high-profile infrastructure projects around the world, most prominently the New Silk Road (or OBOR) and the AIIB. When Li Keqiang visited South America in April 2015, it was unsurprising that more infrastructure deals were touted. My “jumping the shark” comment refers to the growing disconnect between the hype of such proposals and the reality that they will actually materialize. It is too early to declare China’s “all infrastructure, all the time” foreign economic policy a success; actually, the high-profile nature of such initiatives risks Chinese credibility.
There is little doubt that the potential for a productive match exists between Latin America’s infrastructure development needs and Chinese financing and know-how, however the real financial, human, and environmental costs of such projects needs to be carefully assessed. The Twin Ocean Railroad project may ultimately be built, but the obstacles are steep (the engineering challenges of crossing the Amazon and the Andes, for instance). Governments, business sectors, and civil society in all involved countries need to answer hard questions about whether this is the best use of scarce resources. For the Chinese government and state-owned companies deeper understanding of, and engagement with, local needs is crucial, even if this means learning new ways of doing business.
YCW: On a social level, Latin America is home to a historically strong civil society, with vocal environmental and human rights groups. On a political level, China’s lending practices are being vilified by opposition groups in debt-ridden countries like Venezuela, while the Argentine president recently mocked Chinese pronunciation of Spanish words. What sort of political and cultural challenges is Beijing encountering in Argentina, Ecuador, Venezuela, and other Latin American countries?
MF: The cultural gap between China and Latin America is significant and has real impacts on the commercial and, ultimately, the political relationship. At almost every meeting I’ve been to on China-Latin America relations, scholars, officials, and businesspeople on both sides have noted the shallowness of cultural understanding. This superficial aspect has obviously not inhibited the boom in trade relations over the last decade plus. Trade is different from investment and finance, however, in that the latter require a qualitatively deeper understanding. And despite the large promises emerging from high-profile diplomatic get-togethers, the amount of successful Chinese investment in Latin America to date is quite limited. Moreover, a number of deals have created conflict with local civil society (although non-Chinese firms in Latin America have long faced related criticism) or, in the cases of Venezuela and Argentina, become bound up in much deeper government dysfunction.
Venezuela presents a different and, in some ways, intractable cultural challenge for China. The huge loans-for-oil deals of recent years have attracted much media and policy attention, but rarely focus on culture. In my current project, which reviews China’s assessment and management of political risk, I focus on the role of political culture in forging a special relationship between China and Venezuela. The “elective affinity” of both political cultures brought them together, and is now driving their dysfunction. Both sides certainly played up South-South, socialist ties as the bedrock of their business deals, and no other relationship in Latin America initially fit so neatly with China’s “win-win” peaceful development policies. But mutual understanding and common interests now seem superficial at best and, as is also the case with China-Burma ties, airy talk of mutually beneficial relations underpinned by friendship has given way to deep mystification. The interesting question is how crisis, or at least serious anxiety of impending crisis, will prompt Chinese efforts to learn from past mistakes.
YCW: Having experienced academia in both the U.S. and China, what advice would you give to those teaching and studying (or seeking either) at Chinese universities? Looking particularly at China’s international relations, are there areas of research that you think are substantially underdeveloped at the moment?
MF: Based on many of my comments above, it’s clear that China’s universities need better research and teaching in area studies and comparative politics. I teach in an International Relations (IR) department and, not dissimilar to U.S. universities, the focus of most of my colleagues is on IR theory and international-level issues. As the Latin America example indicates, China’s economic and political ties around the world are becoming more complex. This requires more sophisticated understanding of regional and country-level phenomena, meaning Chinese universities need to invest in area studies and comparative politics, as well as history, sociology, and other areas of the humanities.
As far as I know, I teach the only class at Tsinghua University called “Area Studies,” in which I cover Latin American politics, economics, and history in order to help explain broader trends in China-Latin America relations. Given how many foreigners are studying and teaching in Chinese universities, there is a lot of unrealized potential for learning from such academic internationalization. Chinese universities need to find more practical forms of cooperation with foreign scholars and students in order to deepen Chinese understanding of the world beyond its borders.
– Interview by Joyce Lee
Photo credit: Piotr Spalek