The director of the Czech agency Sinopsis asserts that the Chinese Communist Party’s government is actively engaged in a project aimed at reshaping the global order. Within this context, he explains the role of free trade agreements and economic cooperation in the terms defined by China.
Martin Hála is a sinologist, professor, founder, and director of Sinopsis, a joint project between AcaMedia and the Institute of East Asian Studies at Charles University in Prague., Shanghai, Berkeley and Harvard. He was regional director for Asia Pacific at Open Society Foundations. Synopsis aims to present a periodic overview of developments in China and their impact on the outside world from the perspective of Czech, Chinese and international observers.
—Free trade agreements with China is a big topic. What recommendations would you offer to governments contemplating the implementation of such measures?
—I would probably tell you to be a little bit more careful, when considering an fta-arrangement with the People’s Republic of China for several reasons. One of them is that it would probably be a rather asymmetric relationship because there isn’t that much that Uruguay can export to China but there is a zillion kind of products that would be imported from the People’s Republic of China. I could imagine that an fta would lead to a flooding of the Uruguayan market with Chinese goods and the State in Uruguay would lose some of the basic leverage, like setting control on the imports of goods.
The second one is that agreements and trades in the People’s Republic of China are most of the times viewed slightly differently and have different legal values. The fact you have an international agreement does not necessarily mean that this is the ultimate solution that will be fully and equally observed on both sides. So apart from official trades or agreements, like potential ftas, the Chinese government, which is a party-state, basically a government that is run by a political party in a very concentrated top-down way, can impose a number of other arrangements that will actually undermine the commitments in the fta.
You might remember the Australian case when Australia fell out of favour with the Peoples Republic of China because they demanded an independent inquiry into the origins of the covid epidemic and this was after they had signed a Free Trade Agreement and a number of other trades with the People’s Republic of China. Yet the People’s Republic of China was able to implement undeclared limitations on neutral trade. Basically, undeclared boycotts, specifically in coal and some agricultural products like wine, despite the existence of an official trade or document. It’s the way the political system works and the way the political system defines the economic system in China. They are more than capable to impose non-economic obstacles and barriers in mutual trades.
So, for these two reasons I would be very cautious in thinking about ftas.
—You said that the enterprises in China are never only driven by economical thoughts but also by political ones.
—Yes. The Chinese companies, including the private ones, operate in a specific environment. This specific environment is a party-state, a Leninist social arrangement where a political party, which is not really a political party per se, essentially controls everything including the economy. They always need to take into consideration the preferences of that particular political party, in this case the communist party of China.
The economy in China is not independent of politics. The political system directly impacts the economics in a very direct way so Chinese companies can never consider only the economic aspects of their activities.
—Have you observed this kind of problems also in other countries in America?
—I grew up in a Leninist system, the communist Czechoslovakia before 1989. It is basically the same system. It is a Leninist system. But in the case of China, it has been “improved” a lot. It is like Leninist system on steroids. I have experienced the hard way how this system works. The innovation of the system in China is that they manage to coopt all sources of elements that would be sort of falling apart in the original Leninist system. The original Leninist system never really imagined that they would introduce market mechanisms. Lenin himself tried to do that on a much smaller scale in the 1920s when he introduced the New Economic Policy, you probably remember that from history. Soviet economy was collapsing, and Lenin tried to save it by introducing these limited market reforms. But they were very limited in the case of the Soviet Union. In the People’s Republic of China after 1978 that happened on a much larger scale. These reforms were so much bigger than the Lenin’s reforms in the twenties. The difference is in scale but not in substance.
Essentially you coopt supposedly foreign elements into the Leninist system, but you make sure that these foreign elements only operate within this sandbox. A limited space where the communist party is still in control and can change the rules whenever they find it necessary.
—You said that China’s rising should be observed as a global phenomenon. What is the role of South America?
—Yes. The rise of China, in particular the ambitions of China, or to be more specific the ambitions of the leadership of the communist party of China, are global. And there is something that may not be so clear ten years ago. Today it is expressed in a number of Chinese owned initiatives and documents. In the last year, three major initiatives have been introduced by the People’s Republic of China and they’re all being called global. Such as the global development initiative, the global security initiative, and the global civilisation initiative. The Communist Party of China now has these rather vague but nevertheless clearly expressed plans for a rearrangement of the global order. They have their own ideas about how the global development, the security arrangements and the civilizational relationships should be organized globally.
—There are some countries in South America which have very close relationships with China at this moment.
—It reminds me of the optimism and of the hopeful thinking that we had in eastern Europe ten years ago. I understand that it’s driven by similar motives, mostly economic and that a lot of people do not take into consideration the political aspects because they think it is a purely economic relationship. I think the experience of Eastern Europe could be helpful for Latin America because it has shown that it is never only about economy, there is always politics in the background.
—Others have created a special bond… like Venezuela.
—Personally, I am quite surprised that the case of Venezuela is not discussed more in Latin America. I would expect the people in Latin America to pay closer attention to what has been happening in Venezuela because it is a striking case. It is a case in which the Chinese footprint looks rather large. There’s been a huge investment in Venezuela, I think it’s valued around 60 billion dollars within the framework that the bri (Belt and Road Initiative) it’s not being fully accounted for. This certainly doesn’t seem to have improved the economic situation on the ground. An investment of that magnitude should leave some positive impact but I’m not sure that you can find that in Venezuela.
I was surprised how little attention people seem to pay to it. I was told that Latin America, despite of being one continent, sharing one language and having very similar cultures people do not often care much about what is happening in other Latin American countries, especially those who are far away. But not only, even in Colombia, which is Venezuela’s neighbour and has a large immigration and refugee population coming from Venezuela.
I could imagine that eastern Europe seems to be far away from this continent. But Venezuela is right here, right? So why doesn’t it resonate more?
—Two very interesting words: investment and acquisition.
—That was the case in the Czech Republic, where this one company that supposedly invested heavily in the country in fact was just buying stuff that was already there. So those are not investments but acquisitions. The distinction is important because investments stimulate the economy. Productive investments stimulate the economy by creating new wealth, creating new jobs. But if you acquire something just by acquisition, if you buy some real estate, nothing really changes in the economy. It is just a different owner, but it doesn’t have any direct impact on the economy.
—What about country security and communications-related investments?
—The first thing is that you have to understand the nature of the political system in the People’s Republic of China when you think about the security aspects of the economic relationships. For a very long time in Europe and in particular in Eastern Europe there have been very open economies with a very few requirements in terms of security. Nobody until recently thought about security in the context of economy. Nobody even thought about economic security. We had these 30 years of unfettered globalization, it was a flat world, the only thing that mattered was economic efficiency. If you can produce stuff cheaper in the People’s Republic of China or buy it cheaper there. That was all that mattered.
For instance, in Europe in most cases the public bidding was always based on price. So whoever offered the lowest price won the contract by default. And if they didn’t, they could take you to court for discriminating against them. That has changed recently so gradually these security concerns have been introduced even legislatively, giving the decision-makers the power to discriminate against certain venders on the base of their reliability. There is this notion in many European countries now of insecure or unreliable venders. Which makes a big difference because even if these venders offer you the lowest price you don’t have to automatically give them the contract. And they cannot take you to court, because you’re covered by this notion of unreliable or insecure vendor.
That was introduced in the debate about Huawei, a typical example. They come into a place where they usually undersell everybody else by some 30% so in most cases you just have to take them by default because you’re dealing with public money and as the cheapest offer you have to give it to them. If you don’t they can take you to court. Nowadays you can no longer do that because people realized that apart from the economic efficiency, apart from the price, there are other aspects that you need to take into consideration in long terms, especially in sensitive sectors as telecommunication and strategic infrastructure. It is not just about the price it’s about national security and in terms of price you have to think long terms.
Even though the contract may be cheaper today if it turns out that it is insecure in the future, and you have to rip it up and replace it with something else, it’s actually costlier that if you went from the very beginning for a more expensive option. So the thinking about security and economy and economic security has been changing certainly in Europe and the US and some other parts of the world. I´m not sure how it works in Latin America. But I would think that a lot of countries are still in that mode doesn’t consider economic security as important.
—The People’s Republic of China invites people from all political parties to visit them and learn about their model.
—We had a period of several years where there has been a massive movement of people under the rubric of 16 + 1, bri, strategic partnerships and so on. Everybody was taken to China. Even people who did not seem to have any particular influence on the society did travel to China. It was really massive. It was probably tens of thousands of people. And similarly, a lot of delegations came from the People’s Republic of China.
Now the people who went from Czech Republic very often didn’t recognize that this is an organized program, so they thought about it as a sort of exchanges that you could have with any other country like with Austria or the Netherlands. They thought that the city governments in China were exactly like their own city government. Or the universities exchanges who went from the Czech universities would think that the receiving party would be at the same level as their own. But it is not exactly like that. Everything is organized from the top. There are special agencies that specialize in organizing these exchanges, like The Chinese People’s Association for Friendship with Foreign Countries (cpaffc). This is an agency that is run by the United Front Work Department Central Committee of Chinese Communist Party (ufwd).
The basic problem with these exchanges is that there is an asymmetry again. You are not looking at you peer on the other side. The peer on the other side is part of a whole system that organizes these exchanges with the purpose of advancing the goals of the Communist Party of China. That does not exist on this side. If you go to China, it’s not like there is a whole bureaucratic structure in Uruguay or the Czech Republic that is going to prepare you. There is this basic asymmetry which kind of points out how dangerous it is.
—One word that is unfortunately very important in south America and Uruguay is corruption. What is the role of China in this topic?
—This is a huge topic. Corruption is an essential part of the Chinese political system exactly because of the concentration of power. Like they say absolute power corrupts absolutely. Corruption of course exists everywhere. It’s part of every society. But in most countries, it will be dealt with through checks and balances. The power would be controlled by others. That is the basic idea of division of powers. That different parts of the power establishment control each other. That is not existing in China. Everything, all the power is concentrated in the hands of the Communist Party’s leadership. Which leads to massive corruption.
The Chinese of course realize it themselves, they are quite worried about it, because they see that corruption is the one thing that could have toppled the ruling position of the Communist Party in the future. Because it creates a huge public dissatisfaction. There were times when they were experimenting with this division of power, especially in the times of Deng Xiaoping. He did not only introduce economic reforms but also some political reforms. He was trying to deal with the problem by empowering some other agencies other than the communist party to control the communist party. He was trying to reinstitute the division between the party and the government. The idea was that the party and the government would control each other.
He also experimented with the empowerment of the press to disclose cases of corruption. It was a very interesting period. This ended with Xi Jinping. If you read the specialized party magazine, they describe them in some detail. Xi Jin Ping thinks that division between party and state went to far and that you must bring it back so that the party can again control everything and that corruption can be controlled not by outside agencies but by the party itself. So that’s why he started with the anti-corruption movements, basically by the party itself. It’s like a party inquisition, a Central Commission for Discipline Inspection.
—Is China influencing corruption in South America?
—I could not dare to talk about south America because I do not know enough about it. Though in other places it is a feature of the system because of the concentration of political and economic power. If you take the bri as example, it’s mostly executed as a political deal between political players.
Normally companies talk to each other and make a deal to implement a project. In the case of the bri it’s always a political decision at the top level. It is not always driven by economic consideration. It is driven to a very logic sense by political considerations and in a very particular way. The bri is basically a contract for big infrastructural projects financed by the Chinese banks. So, the Chinese side offers the implementation of the projects through a statal. So, they basically offer the full package and that is a huge temptation for the politicians to negotiate these deals. The model is to inflate the overall price of the project because is financed by the Chinese policy banks anyways and then divide the spoils. It has been documented in Malaysia in major detail, in some parts of central and eastern Europe so you have to take that seriously.
—Small script to look at?
—I think you must look at the small script. The enthusiasm for China and the hopeful expectations are understandable because it’s a huge market. I understand Uruguay is also an export- oriented economy so it is obviously a very important market for you, but you must look at the small print. You must understand the systemic differences between your open society and open economy and the Chinese political system and the economic system that is dependent on it. That will matter in the bilateral economic relationship because it will not be just about economy. It will always be to certain extends about politics because of the nature of the Leninist one-party-system in the People’s Republic of China.
