China is famously resistant to lectures and harangues from foreign governments, but it is learning the hard way that making large investments abroad makes a country more vulnerable to foreign opinion.Once you’ve made large fixed investments in another country — mines, dams, factories — you become hostage to the politics of those countries. You don’t care what Zambia thinks about your foreign policy until you’ve bought a large mine there. But once you’ve invested, Zambia has a thousand new tools with which to torture you: it can raise taxes on ore exports, put new tolls on the highways, raise tariffs on mining equipment, allow unions to organize — the possibilities are as limitless as the greed of a developing world kleptocracy seeking to cash in on the ‘resource curse’. (The name Zambia was chosen at random with no intention of disparaging the government of that happy land.)China is learning the hard way how to deal with environmental regulations and political turmoil in countries where it makes big investments. China’s current (twelfth) five-year plan allocates trillions of dollars for development projects in foreign countries, but these projects have strings attached. As the FT reports:
Burma’s authoritarian government has suspended the construction of a $3.6bn Chinese-backed hydroelectric dam…The government has come under increasing pressure in recent months over the potential environmental and social impact of the 6,000mw Myitsone dam in Kachin state, northern Burma, which was to be built by the state-owned China Power Investment Corporation.There have been rare demonstrations in the country’s biggest city, Rangoon, against the dam, which would have flooded an area about the size of Singapore, and in an unprecedented move the government said on Friday that public opposition had swayed its decision on Friday.
Domestic public opinion in Burma or Pakistan or Sri Lanka matter to Chinese companies building dams or highways or ports. Officials in Beijing may not lose much sleep over the fate of rural Burmese displaced by dam construction, but Chinese development companies are certainly discovering that they can have a huge impact on business interests. As one analyst told the FT: “They have to deal with unfamiliar labor, environmental, tax, and other laws, local subcontractors and suppliers, and less friendly courts and regulators. It’s quite a different set of risk analyses.”This will continue to happen to other Chinese foreign development projects, especially high-impact projects like the Myitsone dam. Political turmoil in places like Burma and Libya can drastically change the outlook for Chinese business interests, and those business interests can and will translate the foreign pressure on their operations into pressure on the Chinese foreign policy system.As time goes on, China will become increasingly vulnerable to foreign pressure. Becoming the workshop of the world isn’t as easy or as fun as it looks. One of my undergraduate students comes from a country near China; I asked her how people in that country feel about China. Her answer was, “We like China except when it is exploiting our resources.”Did the Chinese steal those resources, I asked. No, she said, but the politicians in her country stole the money the Chinese paid for the resources. To her, and to many of her compatriots, China gets the blame for the corruption of local officials — just as protestors in Latin America hated the US companies who bought their resources more than the corrupt officials who sold them, just as people in Nigerian delta villages I’ve met blame the foreign oil companies more than the corrupt Nigerian officials.Welcome to the big leagues, China. The game is harder than it looks.