The Chinese Digital Silk Road: Analysis of Chinese State ...deutsch-chinesisches-forum.de/images/thinktank/Digital...2019/01/18 · Union (EU) in 2015 (Liu, 2015). Similar to the

The Chinese Digital Silk Road:

Analysis of Chinese State-Business Relations in New and Ongoing

Public-Private Projects Author: Barbara Pongratz

Master thesis submitted at Freie Universität Berlin, Institute for Chinese Studies

Submission date: 27/06/2019; Grade: 1,7

[email protected]

Table of Contents

List of Abbreviations ...............................................................................................................................1

List of Figures ..........................................................................................................................................2

1. Introduction .....................................................................................................................................3

1.1. Research Objectives and Motivation ......................................................................................4

1.2. Structure .................................................................................................................................6

2. Conceptual Framework ...................................................................................................................7

2.1. Definitions ..............................................................................................................................7

2.1.1. The ‘Digital Silk Road’ Concept ...................................................................................7

2.1.2. Chinese State, Business, and State-Business Relations .................................................8

2.2. Research on the Digital Silk Road .......................................................................................10

2.3. Research on State-Business Relations..................................................................................13

3. Methodology .................................................................................................................................16

3.1. Case Study Research Method ...............................................................................................16

3.2. Justification of Case Study Selection ...................................................................................17

3.3. Analytical Framework ..........................................................................................................19

4. Case Study: PEACE Submarine Fibre Optic Cable ......................................................................24

4.1. Project Information and Background ...................................................................................24

4.2. State-Business Relation Type...............................................................................................26

4.3. Determining Factors of State-Business Relation Type ........................................................27

5. Case Study: Electronic World Trade Platform .............................................................................30



5.3. Determining Factors for State-Business Relation Type .......................................................32

6. Case Study: Smart City ‘New Manila Bay - City of Pearl’ in the Philippines .............................35



6.3. Determining Factors of State-Business Relation Type ........................................................38

7. Analysis of State-Business Relationship in Comparison ..............................................................40

7.1. The Effectiveness of Chinese Political State Backing .........................................................41

7.2. Digital Silk Road Projects as a Manifestation of Chinese State-Capitalism ........................41

7.3. Further Case Comparison and Potential Future State-Business Tensions ...........................43

8. Conclusion ....................................................................................................................................45

8.1. Summary and Contribution to the Literature .......................................................................45

8.2. Policy Recommendations Directed at DSR Involved Governments ....................................47

8.3. Limitations of the Thesis and Final Remarks.......................................................................49

9. References .....................................................................................................................................51

10. Appendix ..................................................................................................................................60

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The Chinese Digital Silk Road: Analysis of Chinese State-Business Relations in New and Ongoing Public-Private Projects

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List of Abbreviations

ASEAN Association of Southeast Asian Nations

B20 Business 20

BRI Belt-and-Road-Initiative

CAIH China-ASEAN Information Harbor

CCB China Construction Bank

CCP Chinese-Communist-Party

CITIC (Group) China International Trust Investment Corporation (Group)

DSR Digital-Silk-Road

EU Europan Union

eWTP Electronic-World-Trade-Platform

FinTech Financial-Technologies

FYP Five-Year-Plan

G20 Group of 20

HKT Hong Kong Telecommunications

HKTDC Hong Kong Trade and Development Council

hpa Ho & Partners Architects Engineers & Development

Consultants Limited

ICE Information-and-communication-technologies

IT Information-Technology

IPO Initial-Public-Offering

MoU Memorandum-of-Understanding

MOFCOM Ministry-of-Commerce-of-the-People's-Republic of China

NDRC National-Development-and-Reform-Commission

PCCW (Global Limited) Pacific Century Cyber Works (Global Limited)

PEACE (Cable) Pakistan East Africa Connecting Europe (Cable)

PRC People’s-Republic-of-China

SASAC State-owned-Assets-Supervision-and-Administration

Commission

SMEs Small-and-medium-sized-enterprises

SOE State-owned-enterprises

USD US-Dollar

UK United Kingdom

UNDP United Nations Development Program

US United States (of America)

ZTE Zhongxing Telecommunication Equipment Corporation


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List of Figures

Figure 1. ‘Expanding Network’; adapted from RWR Advisory Group, 2019…………….…..3

Figure 2. ‘Emergence of the Digital Silk Road Concept’; created by the author…………....10

Figure 3. ‘China’s Digital Belt and Road’; adapted from RWR-Advisory-Group,

2019…………………………………………………………………………………………..11

Figure 4. ‘The Four-C’s of NGO-Government Relations’; adapted from Najam,

2000………………………………………………………………………………………......14

Figure 5. ‘Model for State-Business Relation Type Determination’; created by the

author…………………………………………………………………………………….…...22

Figure 6. ‘China’s Expanding Global Telecom Empire’; adapted from Gateway House,

2018...……………………………………………………… …………………………….….24

Figure 7. ‘Map of PEACE Cable’; adapted from PEACE Cable Website,

2019…..………………………………………………………………………………………25

Figure 8. ‘Case Study 1 – PEACE Cable Project’; created by the author……………………27

Figure 9. ‘Case Study 2 – eWTP’; created by the author………………………………...…..32

Figure 10. ‘Case Study 3 – ‘City of Pearl’ Smart City Project’; created by the

author..………………………………………………… ………………………………….....37

Figure 11. ‘Six key projects of Information Silk Road’; Liu, 2017, translated by the

author..…………………………………………………………… ……………….………....60


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1. Introduction

The Belt and Road Initiative (yidai yilu 一带一路; hereafter “BRI”) has become the defining

framework in the People’s Republic of China’s engagement with the global political economy

and since its launch in 2013, has emerged as the main Chinese foreign policy strategy. Some

of the countries that the BRI includes in its vast global network have welcomed the initiative

with open arms while others are hesitant to fully engage. As can be seen in the People’s

Republic of China’s (hereafter “China”) 13th Five-Year-Plan (FYP) that guides the country’s

development path from 2016-2020, China plans to alter the course of its development model

from an “export-driven and investment dependent economy to an economy based on domestic

consumption and innovation” (Hong, 2017b:p.1755). China is thriving to become an

innovation power-house. During these efforts, the country is putting emphasis on digital

connectivity within the BRI, with the aim of “[engaging] the world through commerce but also

through environmental protection and technological advancement” (Wu, 2017). Therefore, the

Chinese political leadership is strongly interested in the information and communication

technologies (ICT) sector and its potential to increase productivity within a slowing economy

(Wu, 2017). A whole section in the 13th FYP is consequently dedicated to the importance of

the ICT sector’s development as well as the “ascent of the Internet in China’s national strategy”

(Hong, 2017b). This represents the so far “often overlooked and underestimated” (Shen,

2018:p.2684) digital component of the BRI, the Digital Silk Road (shuzi sichou zhilu数字丝

绸之路; hereafter “DSR”) that has emerged as a “subset” of BRI (Prasso, 2019). An estimated

growing share of 79 billion USD is

flowing into DSR projects (Prasso,

2019), compared to the total global

BRI investment contribution of an

estimated 1 trillion USD (Perlez &

Huang, 2018).

According to the estimation of the

US-American RWR Advisory

Group, India is the biggest

destination for DSR investments

with a value of 6 billion USD

(Table 1). The for this thesis

relevant DSR investment target

countries rank third with 3.7 billion

USD, Malaysia; fourth with 2.6

billion USD, the Philippines; and

further below with 843.4 million

USD, Pakistan.

Figure 1. ‘Expanding Network’; adapted from RWR Advisory Group, 2019


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The DSR concept was first brought forward by Lu Wei, the former Director of the Cyberspace

Administration of China, at a Digital Cooperation Roundtable between China and the European

Union (EU) in 2015 (Liu, 2015). Similar to the overall BRI framework, the focus in the current

main DSR development phase lies on the construction of supportive network infrastructure.

At the 4th World Internet Conference in 2017, eight authoritarian countries, namely Saudi

Arabia, Turkey, the United Arab Emirates, Egypt, Laos, Thailand and Serbia have publicly

“agreed to cooperate with China in the digital economy to build an interconnected Digital Silk

Road” (Xinhua, 2017a). Even if not officially in the DSR framework, numerous other BRI

countries are implementing projects with China that involve sensitive technologies and critical

network infrastructure. Additionally, state unions such as the EU, which are not officially part

of the BRI/DSR framework, are cooperating closely with China in this field (European

Commission, 2015).

Within the DSR policy framework, the Chinese government has given its Internet companies

– “from equipment vendors and network operators to Web services and application providers”

– a main role in the implementation of DSR projects (Shen, 2018:p.2684; Zhao, 2015). By

heavily investing in initiatives such as ‘Made in China 2025’ or ‘Internet Plus’, “China not

only wants to technologically upgrade and digitise its [own] economic base, but also deploy

‘national players’ in telecommunications, e-commerce, and [IT] to secure access to untapped

markets abroad” (Kelkar, 2018). Domestic companies are facing a decrease in local demand,

and therefore, welcome the opportunity to explore new markets framed by a supportive state

agenda such as the DSR (Kelkar, 2018).

1.1. Research Objectives and Motivation

The literature on state-business relations (SBRs) in general is “vast and rugged” (Lang &

Tenbuecken, 2006), as every respective author’s work reflects a different viewpoint depending

on the role of business in state and society. There are numerous classifications of the Chinese

governance system and SBRs in China. While this thesis recognises ‘state-corporatist’ as the

most suitable description for SBRs in China (Landry, 2008), Chinese SBRs outside of the

country are most accurately classified as ‘state-capitalist’ (Xing & Shaw, 2013). Both

descriptions ultimately mean that the state exercises control over business activity and state

and business cooperate closely. While this does not lead to any issues in China itself, this

phenomenon can become problematic when companies described as non-state public or private

companies in China conduct business in countries where there is a clearer divide between the

public and private sector.

Therefore, governments of such countries have recently investigated state-links of private

companies such as Huawei and ZTE from authoritarian governed China and their potential

political intentions. This is because several industrialised Western countries are considering to

be supplied by Chinese telecommunication equipment companies in the deployment of their

critical high-technological network infrastructure – the national 5G telecommunications


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network. “Because of uncertainties around state control and state subsidies of private Chinese

companies”, it is very difficult to precisely determine the security, economic and political risks

which are associated with receiving Chinese DSR investment and using Chinese technological

equipment (Hemmings, 2017).

Huawei and ZTE negate to have any close connections to the Chinese state or to receive

funding by it (US House of Representatives, 2012). Hence, it is interesting from a practical

viewpoint to further analyse the relations between the Chinese state and non-state companies.

In addition, in the Chinese context, it is usually easier to get access to information about such

types of companies. Moreover, in the DSR context, where high-technological equipment is

used, non-state and particularly private companies are creating more technological innovation

than state-owned entities (Xinhua, 2018), and therefore, are most interesting.

As Chinese SBRs and potential state-links of the Chinese telecommunication equipment

providers Huawei and ZTE are a well-studied research topic in industrialised countries that are

not part of BRI/DSR, this thesis will concern itself with Chinese SBRs within the BRI/DSR

framework. Using a different analytical approach, the author intends to contribute to the above-

mentioned ongoing global discussion by analysing the actions of and interactions between the

Chinese state and three different non-state public and private companies in the context of three

DSR projects.

This thesis primarily asks: What types of Chinese state-business relations are emerging in the

implementation of public-private projects in the Digital Silk Road? As the analysed projects

are implemented in the undefined DSR framework, and for the sake of selecting projects that

are relevant to the current discussion, the query ‘Which are the main DSR development areas?’

can be considered an interposed question. As a second main research question, the author

asks: What degrees of Chinese state-capitalism do different the types of state-business relations

indicate?

The three analysed public-private DSR projects are implemented mainly in or across emerging

and developing countries within the official BRI/DSR framework. These three companies are

firstly, the Chinese power and fibre optic cable manufacturer Hengtong Group; secondly, the

globally active Chinese technology company Alibaba Group; and thirdly, the Hong Kong

Chinese investment company The Kho Group controlling UAA Kinming Group.

After determinig the SBR type, the author will indicate varying degrees of the manifestation of

Chinese state-capitalism in the DSR projects, and provides policy recommendations on how to

alleviate the risks. Examples of these risks and concerns are firstly, confidential data leakage

through infrastructure that provides Chinese backdoor access 1 , secondly, the strategic

1 Backdoor-access, “in computing, is-a-method-of-bypassing-authentication-in-a-piece-of-software-or

computer-system-which-can-be-used-for-accessing-the-software-without-being-detected.” (Computer Business

Review, 2017)


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acquisition and control of crucial supply chains operating with the concerned state (Huotari &

Gaspers, 2016), thirdly, the associated dependence on China. Examples for economic and

political concerns are unequal market access, “potential market distortions through […] state-

supported enterprises”, or China using its financial strength and the pledge of an investment as

a “diplomatic instrument” to reach a positive result in political negotiations (Hanemann &

Huotari, 2016:p.2).

The policy recommendations section focuses on providing guidance that alleviates concerns

over negative implications involving the national security of a DSR country receiving Chinese

and foreign investment. In this section, the author uses the well-studied security issues

regarding Chinese investments in liberal market economies that are not officially part of the

DSR framework, such as the US, the UK and the EU. Media reported that that DSR countries

who receive Chinese DSR investments, have similar security concerns of that in non-DSR

countries (Rej, 2019:para.5,6,7; Latiff, 2018). Therefore, the author aims to cross-reference

related developments and experiences of industrialised liberal markets for the below policy

recommendations that are mainly directed at emerging and developing countries within the

BRI/DSR framework.

The examined cases in this thesis will aim to act as a guide on where to look for Chinese state

involvement in investment projects that are implemented by non-state companies and

associated with security, economic and political concerns. These concerns, however, should

not hinder countries from seizing the undisputed large economic opportunities that come along

with Chinese investment. The opportunities, however, are not discussed in detail within the

scope of this thesis.

The author additionally intends to increase the knowledge base on the undefined DSR concept.

In current academic, media and policy discourse, the ambiguous DSR concept is referred to

with multiple terms and the development areas as well as the specific projects that belong to

the concept are not clearly defined. Due to this lack of conceptual clarity, it is interesting to

analyse the DSR concept and its projects from an academic viewpoint.

1.2. Structure

After this introductory chapter, the author maps out the conceptual framework of this thesis

containing a brief definition of the DSR concept and its geographical reach in the framework

of this thesis as well as further relevant terms such as ‘Chinese state’ and ‘business’. Thereafter,

relevant literature in the DSR research field as well as in the research on SBRs are presented.

The author firstly conducts a literature review on the existing research on DSR with a focus on

the identification of the DSR development areas, and DSR goals. Secondly, the author outlines

previous research on SBRs in general as well as in the Chinese context, and presents different

typologies used by previous research to classify SBRs.


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The third methodology chapter explains the suitability of the case study research method for

this thesis, provides a justification of the case study selection, and, based on the conceptual

framework, outlines the analytical approach of this thesis. This analytical framework section

entails the presentation of three SBR types – complementary, cooperative and confrontational

– as well as the description and an example of each SBR type.

In the following main part, the three case studies are undertaken by initially providing relevant

project background including information on the development area to which the project

belongs; then summarizing the findings and categorizing the SBR type; and lastly, outlining

the determining factors that led to the categorization of the SBR type using the described

analytical approach. In this third part of each case study analysis, the author firstly, introduces

the companies operating in the case study project by describing the companies’ background

including their relations to the state prior to the interactions within the case study, and secondly,

describes their actions and interactions in the case context with reference to the list of

determining factors of this thesis.

In the analysis chapter, the author then compares the case study features and presents two

principal findings. The first being that the Chinese state’s political support for its non-state

public and private companies is effective and supportive to DSR implementation. The second

being that not only are DSR projects implemented by Chinese SOEs a manifestation of Chinese

state-capitalism, but so are the DSR projects implemented by non-state public and private

Chinese companies; they indicate varying degrees of Chinese state-capitalism. In this analysis

chapter, the author additionally points to potential future Chinese state-business tensions with

reference to previous researchers’ findings.

In the conclusion, the author summarizes the findings and the contribution of this thesis to the

literature. This chapter moreover provides guidance that alleviates concerns over negative

implications involving the national security of a DSR country receiving Chinese and foreign

investment. The author takes the initially mentioned experiences of industrialised countries as

an example. Prior to the concluding remarks, the research limitations of this thesis are

addressed, and a suggestion for further research is provided.

2. Conceptual Framework

2.1. Definitions

2.1.1. The ‘Digital Silk Road’ Concept

The ‘Digital Silk Road’ is the digital component of the BRI. ‘Digital’, in this sense, describes

tangible as well as intangible components of the ICT industry. Included are, for example,

physical network connections such as terrestrial or fibre optic cables, other infrastructure such

as smart cities where frontier technological solutions are key, or intangible virtual digital

platforms and applications.


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With regards to defining the scope of DSR partner countries, this thesis not only considers the

above-mentioned 7 states that have signed a DSR agreement with China, but also the states in

the list of BRI members including more than 120 countries (HKTDC, 2019). Not all of these

countries have signed an official DSR agreement, but numerous of them cooperate with China

in the digital economy and the below described DSR development areas. Even though projects

in three main DSR development areas are implemented in some non-BRI member states such

as in some EU countries or the UK, the author does not consider these countries to be DSR

involved countries, because they are not official BRI member countries.

2.1.2. Chinese State, Business, and State-Business Relations

The Chinese State

In this thesis, the term ‘Chinese state’ is mostly interchangeably used with ‘government’ and

represents the administrative apparatus responsible for framing and executing public policy

(Kostka & Zhou, 2013:p.248). When mentioning the “Chinese state”, the author refers to the

national government, and not to the local governments on the five lower administrative levels

(Kostka & Zhou, 2013:p.248). The term ‘Chinese state’ involves not only government

administrations such as state agencies and ministries, but also includes the Chinese Communist

Party (CCP).

The Chinese Business Sector

In comparison to a business sector in a country with a freer market system, the Chinese business

sector including SOEs as well as public and private companies are closer connected to the state.

As this thesis focuses on the relation between the state and non-state companies, the term

‘business’ in the title of this thesis, only includes entities that are not fully owned by the state.

A private business firm generally is operated and controlled by one or more private individuals

that in their role operates on a for-profit basis and has no governmental affiliations. No Initial

Public Offering (IPO) has been issued at a stock exchange as in the context of a public company.

Under Chinese Company Law, there are different types of private companies owned either by

a single individual or two or more persons in a partnership whereby the owners are unlimitedly

liable for debts; or a single individual or more persons contribute capital with limited liability

(Ltd.) (Lardy, 2014:pp.63–66).

A relevant type of a Chinese SOE is a ‘national champion’ company. These are companies that

are supervised and owned by organs of the central Chinese state (Lin & Milhaupt, 2013:p.702).

The majority shareholder of a national champion’s core company is the State-owned Assets

Supervision and Administration Commission (SASAC). Usually, the company has “one or

more publicly traded subsidiaries – the global face of the national champion” and the executive

managers serve as government officials at the same time (Lin & Milhaupt, 2013:p.702). The

Chinese government supports the development of companies like these through creating a


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“friendly international environment” by means of policy frameworks such as the BRI or DSR;

the aim is to make this circle of companies “internationally competitive” (Shen, 2018:p.2688).

When referring to ‘non-state public’ companies in this thesis, the author refers to entities in

which the state has no majority share in as opposed to a national champion company. National

champions and other types of Chinese companies can be corporations, which are a group of

companies or one large company privately or publicly owned by its shareholders and acting as

one legal entity. Another commonly seen type of non-state public or private business in the

Chinese context is a holding company, which normally does not produce goods or provides

services, but holds most shares of other firms. These types of companies exist to control other

companies, which may also be a corporation, public or limited liability company (Kenton,

2019).

With regards to defining the geographical scope of Chinese companies’ origins in this thesis,

the author also includes Hong Kong Chinese companies when referring to the Chinese business

sector. The author does so, as the People’s Republic of China and its Special Administrative

Region Hong Kong are economically closely connected.

General Definition of State-Business Relationship

SBRs are interactions between the public and private sphere. They are formed by the interactive

approaches of both the public and the private sector, hence, they can vary greatly from being

formally and regularly coordinated to informal and unplanned interactions (Leftwich, 2009).

They can focus on a specific sector or on an entire economy. Under certain conditions, public-

private interactions consist of thoroughly organized communication procedures, in which the

formal aspect is most important. In other situations, the public-private relationship is relatively

loosely set up through agreements, or informal arrangements (Lemma & te Velde, 2015;

Bardhan, 2005).

Definition of Actors in New and Ongoing Public-Private DSR Projects

The DSR concept itself has only reached an age of 4 years at the time of writing, therefore, the

selected projects are all defined as new or ongoing projects. In the title of this thesis, the term

‘public’ in “public-private DSR projects” refers to the state actors from the investment

receiving DSR partner country and to the Chinese state. In the analysed DSR projects, state

actors from the investment receiving countries are cooperating with Chinese publicly and

privately owned companies, and this thesis finds that the Chinese state supports this

cooperation to varying degrees. The existing dynamics within this triangular relationship are

also analysed. Companies from the investment receiving countries are also involved in the

project, however, the focus lies on Chinese non-state companies’ activities and to what extent

they are supported by the Chinese state.


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2.2. Research on the Digital Silk Road

As the DSR is a relatively new concept, there is limited research carried out on this topic. The

author identified several thematic foci in the research on DSR. However, this section focuses

on the identification of the most important DSR development areas and previous research

conducted on the goals that China pursues through the implementation of DSR.

Research on the Undefined Digital Silk Road Development Areas

In March 2015, the Chinese government released a White Paper on ‘Jointly Building Silk Road

Economic Belt and 21st-Century Maritime Silk Road’, which initially mentions the notion of

an ‘Information Silk Road’ (xinxi sichou zhilu 信息丝绸之路) in an official document. This

White Paper puts strong emphasis on the different aspects of the construction of

transcontinental network infrastructure (NDRC et al., 2015). The topic was re-approached

using the new notion of the ‘Digital Silk Road’ at the above-mentioned China-EU Digital

Cooperation Roundtable in Brussels in July 2015. Lu Wei, the former Director of the

Cyberspace Administration of China proposed to the participants to “build a digital silk road,

a silk road in cyberspace” (Liu, 2015; Brown, 2017). The Chinese President Xi Jinping made

his first reference to the digital component of the BRI in his opening speech at the Belt and

Road Forum in May 2017:

We-should-pursue-innovation-driven-development-and-intensify cooperation in frontier

areas such as digital economy, artificial intelligence, nanotechnology and quantum-

computing, and-advance-the-development of big data, cloud computing-and-smart-cities-

to turn them into-a digital silk road of the 21st century. (Ministry of Foreign Affairs of the

PR China, 2017)

Apart from giving the concept a name, Xi initially defines the development areas that he

associates with the Digital Silk Road. Considering the Chinese president’s speech and official

documents, different notions such as ‘Information Silk Road’, ‘Digital Silk Road’ or ‘Online

Silk Road’ are used since it was first referred to by the BRI White Paper:

Figure 2. ‘Emergence of the Digital Silk Road Concept’; created by the author


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The notion ‘Digital Silk Road’ (shuzi-sichou-zhilu 数字丝绸之路) is predominantly used in

official Chinese policy discourse. Therefore, this notion and its abbreviation ‘DSR’ are used in

the framework of this thesis.

After analysis of official documents, there is no clear consensus on what precisely is defined

under the DSR and which development areas are currently most important. Consequently,

analysts find it hard to define the concept (D’Addario et al., 2018) and declare the DSR to be

a “catchall-phrase” (Brown, 2017). According to the above cited RWR Advisory Group, the

following four development areas are most important:

Figure 3. ‘China’s Digital Belt and Road’; adapted from RWR-Advisory-Group, 2019

As the-consulting-company-illustrates, compared-to-the-activity-in other development areas

within the DSR framework, China appears to be most active in the areas deployment of

“Internet cables (fiber)” as well as “’Smart city’ initiatives: surveillance”. This partly matches

with the author’s findings from the review of further literature in this field, that finds the

following three DSR areas to be prioritised.

1. International-Network-Infrastructure-Construction

The construction of a “China-centred transnational physical network infrastructure” (Shen,

2018:p.2683) is considered as currently the most important DSR development area by most

analysts and by this thesis (Xiang, 2017; Shen, 2018; Brown, 2017; The Economist Intelligence

Unit, 2018; Xinhua, 2017a; Kelkar, 2018;). The 2015 BRI White Paper considers this type of


12

infrastructure, which includes submarine fibre optic cables, terrestrial and satellite links, and

global telecommunication infrastructure as priority in the current DSR development (NDRC et

al., 2015). The author Liu initially compiled a table entailing different fibre optic cables and

broadband networks as “key projects” in DSR (2017:p.16) (Appendix 1). The listed projects

include, for example, the fibre optic cable ‘Asia-Pacific Information Superhighway’ (yazhou

xinxi gaosu gonglu亚洲信息高速公路).

The communication and navigation satellite system ‘BeiDou’, which represents the Chinese

alternative to the US-American GPS system, is also a part of this growing Chinese network

infrastructure (Shen, 2018; Liu, 2017). In addition, the above-mentioned international

deployment and export of telecommunications equipment by Chinese manufacturers for the

fifth-generation (5G) telecommunications network belongs to this DSR development area

(Chan & Rawat, 2018; Kania, 2018).

2. Transnational-E-Commerce

The second main DSR development area identified by the author is the Transnational E-

Commerce and the construction of international trade platforms such as the electronic World

Trade Platform (eWTP). Analysts praise the eWTP’s aim in supporting Chinese and foreign

small and middle sized companies (SMEs) to ‘go global’ and promote e-commerce between

China and BRI countries (Wang, 2018; Li, 2018; Lin, 2018; SIIA, 2018).

3. International-Smart-City-Construction

The third most important DSR action field in the eyes of most above cited analysts and in the

framework of this thesis is International Smart City Construction. Most authors recognize that

this field includes all frontier technologies and touches upon most topics, which the Chinese

president listed in his speech. China is currently investing in and co-developing smart city

projects in 56 countries, therefore, the export of this technology is of utmost importance (Prasso,

2019).

Apart from these, other identified DSR development areas were the promotion of financial

technologies (FinTech) along the DSR, the improvement of cloud solutions and the related data

centre construction (The Economist Intelligence Unit, 2018), or the export of Chinese

survaillance technology and systems (Prasso, 2019).

Research on China’s Digital Silk Road Goals

A scientific contribution inspiring this thesis deals with the five “multifaceted aims” of DSR

and the critical role of Chinese Internet companies in DSR implementation (Shen, 2018). The

journal article is structured-according to these five-DSR-dimensions, namely cutting industrial

overcapacity, enabling the global Chinese corporate expansion, accelerating the RMB

internationalization, building a “China-centred transnational-network-infrastructure”, and

“promoting an Internet-enabled inclusive globalization” (Shen, 2018:p.2683). In the

framework of these five DSR aims, Shen “maps out China’s state-capital partnership and

critically interrogates its contradictions” (2018:p.2686). Her main argument is that a “growing-


13

and-complex” alliance has been formed between the Chinese leadership and its Internet

companies in the DSR construction, however, tensions between these two sides continue to be

prevail (Shen, 2018). She concludes that the DSR “involves-dynamic, complex-and sometimes

unpredictable power relations-between-different state agencies and various units of capital”,

which deserve closer examination (2018:p.2695). Shen also emphasises the crucial role of

Chinese Internet companies as an “increasingly internationalized corporate arm”

(2018:p.2695). Hence, the author aims to take up the topic at this point.

2.3. Research on State-Business Relations

Research on SBRs is much older than the research on DSR. Empirical research on the subject

of SBRs in developing countries only began in the mid-1990s, it was then further developed in

the 2000s and achieved universal acceptance in the political and economic literature in the

2010s (Lemma & te Velde, 2015). Whereas political scientists analyse the formation and

development of SBRs, a large number of economists, mainly from capitalist states, explore the

reasons why certain SBRs are more profitable than others (Lemma & te Velde, 2015). The

authors Lin (2010) and Lemma & te Velde (2015) point out the lack of understanding that

exists about SBRs, and the struggle they face when trying to establish a persuasive political

framework for private and public actors. The analysis of SBR’s theoretical landscape by Lang

and Tenbuecken (2006) is based on a quantitative citation analysis and interprets the SBR

literature as “vast and rugged”. This appears to be the case, as “images of business and its role

in society and the state” are diverse and differ dependant on the viewpoint of the author (Lang

& Tenbuecken, 2006:p.2). Moreover, in regards to how SBRs are shaped, it is important which

“politico-economic purpose” SBRs are shaped to serve and which “ideology of the dominant

political forces” they advocate (Chingaipe & Leftwich, 2007:p.13).

General Classifications of State-Business Relations

Previous research has suggested several categorizations or types of SBRs. Te Velde et al. (2013)

declared SBRs to either be “formal and regular, or informal and ad hoc”, “passive or active”,

“direct or indirect”. Charles et al. (2017:p.112) list further SBR categorisations that

differentiate between SBRs that lead to “sustained inclusive growth” or hindering it, namely

“predatory” or “developmental”, “malign” or “benign” (Evans, 1995), “ineffective” or

“effective” (Qureshi & Velde, 2013), “collusive” or “collaborative” (Maxfield & Schneider,

1997) SBRs. Charles et al. further point out that these relations sometimes are a mix of both

and not clearly or easily distinguishable (2017).

Another contribution, which suggests a helpful set of relationship typologies of inner-state

relations, proposes an SBR classification according to the overlap or discrepancy of means and

goals set out by the state and non-governmental organisations (NGOs). The author Najam

derives the “4 C’s” outcome: “Cooperation, Confrontation, Complementary, and Co-optation”

(2000), which is relevant for this thesis:


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Figure 4. ‘The Four-C’s of NGO-Government Relations’; adapted from Najam, 2000: p.383

Corporatist State-Business Relations in China

In 1848, Marx and Engels in line with their critical attitude towards capitalist developments

within a political system had advised to avoid the “inevitable capture” of the state by a

dominant class within a political system; they advised the state to take precautions so that it

does not only serve the will of the business sector (as cited by Chingaipe & Leftwich,

2007:p.12). As basic elements in China’s political system are based on the thoughts of these

two theorists, Chinese-style state corporatism has developed as a system, in which the state and

corporate business powers are strongly integrated giving the state control over the business

sector in an authoritarian and locally decentralised governance structure (Landry, 2008).

There are numerous classifications of Chinese SBRs within the country, such as “regulatory”

(Pearson, 2007, 2005), “developmental” (Shue, 1988) or “managerial” (Kostka & Hobbs,

2013). What the large amount of research on SBRs within China has in common, however, is

the finding that the state’s influence reaches deeply into the business sector, and the border

between these two sphere’s capital interests are complex and blurred (Wang, 2016). The state

exercises control over the market, market entry, market rules as well as resource access,

therefore, “business typically seek to establish close ties to state agents” (Hochstetler & Kostka,

2015:p.5; Oi, 1992).

According to some authors, this phenomenon especially applies in the Chinese ICT sector

(Zhao, 2010:p.278; Hong, 2017a; Wang, 2016), and consequently in the DSR context. The

researchers Hong (2017a) and Shen (2018), who are renowned in the field of the Chinese digital

transformation, found that through close state-business ties the Chinese state has constructed

large internationally competitive ICT companies.

State-Capitalist State-Business Relations Outside of China

In many-countries-around-the-world-the-assumption-of a clear divide between the-

public-and-private-sectors-is-a-strong-one-but-it is especially problematic in economies

like China where the state retains tight control over many aspects-of-economic-activity.

(Kostka & Zhou, 2013:p.250)

Because of this “strong assumption” in numerous countries in the world, Chinese non-state

public and private business activities outside of China are viewed critically. In comparison to


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SBRs within China’s borders, there has been less research done on Chinese SBRs abroad. Most

research on Chinese SBRs outside of China has been conducted on Chinese business and

development aid activities in Africa, and by governments of liberal and more open market

economies.

The US, the UK and some EU countries are wary of Chinese non-state owned equipment

suppliers potentially being indirectly backed by the Chinese state in their international

commercial activities. According to a policy paper by the Federation of the German Industry,

a “challenge of a systemic competition” is arising (BDI, 2019). Governmental investigations

were examining potential state links of Chinese private companies such as Huawei and ZTE,

and are investigating which consequences Chinese state backing could have for their critical

national infrastructure (UK Intelligence and Security Committee, 2013; US House of

Representatives, 2012; Deutsche Welle, 2019). Within these investigations, governments came

to different conclusions by applying qualitative research methods involving interviews with

company executives and thorough due diligence. Such liberal market economies fear state-

links of private companies like Huawei, as “China is suspected of being one of the main

perpetrators of State-sponsored attacks, which are focused on espionage and the acquisition of

information” (UK Intelligence and Security Committee, 2013:p.5). As mentioned above,

contrary to this, Huawei and ZTE negate to have any close connections to the Chinese

government or to receive funding by it (US House of Representatives, 2012).

With the aim of understanding Chinese investment projects outside of China, the authors Gu

et al. in their valuable journal contribution on Chinese SBR’s in Africa describe how Chinese

state and business interact:

The-Chinese ‘state’, just-as-Chinese ‘business’, does-not-exist-in-a-singular, unitary

form, with-a-standardized-or-even-coherent-position. The‘state’ and ‘business’ take

on many forms according to the way Chinese […] businesses are organized, reflecting-

diverse business-cultures-and-forms-of ‘state-capitalism’ (2016:p.32).

Because “state and business take on many forms”, Gu et al. (2016) in their analysis also point

out that analysing this field is a matter of high complexity. Gu et al. state that Chinese SBRs

abroad can be best described as “state-capitalist”. Chinese companies in their business

activities abroad export the Chinese domestic state-led economic system (Conrad & Kostka,

2017). The government has been known to cooperate intimately with SOEs and rather less

openly and directly with private companies.

In regards to the specific actors in Chinese SBRs abroad, Bremmer (2009) states that the three

main actors conveying state-capitalism outside of China are SOEs, sovereign wealth funds and

privately owned ‘national champions’. Gu et al. (2016) identified the Ministry of Commerce

(MOFCOM) as the main political actor responsible for all trade-related and foreign aid matters.

Apart from MOFCOM, the State Council’s SASAC, the chambers of commerce including the

provincial governments and private enterprises all play a role in shaping Chinese SBRs abroad


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(Gu et al., 2016). The main financial actors are the state backed policy banks such as the China

Export and Import Bank, the China Development Bank, and commercial banks (Gu et al., 2016).

Determining Factors for State-Business Relation Types

To break down complex SBRs into different parts for their analysis, prior research has

proposed specific dimensions of state-business interactions. In their study of Chinese SBRs in

Africa, the approach of Gu et al. (2016) consisted of analysing a list of interactive dimensions

(called determining factors in this thesis).

Within 6 case studies, Gu et al. (2016:p.26,28,29) explored, how the enterprises “negotiated

their entry into the country”; the organisations and companies involved in the cases and their

connections and networks; the political backing which the companies received; and the “ways

in which [...] processes were completed within the political business and social contexts” of

the investment receiving country. The study further investigated how the economic policy

framework or economic diplomacy including state support through agreements and political

mechanisms of public-private dialogue with the partner country supported the enterprises

abroad (Gu et al., 2016:p.25). Included in the list of Gu et al. are additional incentives, which

are “of a symbolic, supportive character and do not amount to huge financial sums” (Gu et al.,

2016:p.26).

Sen (2015) offers another relevant list of “approaches to improving the effectiveness” of SBRs

in his ‘Topic Guide’, which is a policy consulting paper for practical use, supported by the

British government. The paper provides valuable specifications to Gu et al.’s list of “interactive

dimensions”. Sen points out that format, participant level, and frequency of certain political

mechanisms of public-private dialogue are of importance when analysing the effectiveness of

SBRs (2015:chapt.4). Investment climate reforms or investment facilitation provided by the

state are also important factors where he additionally considers state-business interactions

within special economic zones (2015:chapt.4).

3. Methodology

3.1. Case Study Research Method

A qualitative research approach is adopted. Due to the unexplored nature of the field of SBRs

in DSR projects, the author applies the suitable explorative research strategy (Yin, 1984) and

the involved comparative case study design. The comparative case study strategy distinguishes

between ‘most similar’ and ‘least similar’ cases (Yin, 1984). Due to the complexity and novelty

of the research on SBRs in DSR projects, the author found neither of these system designs

(relevant), but instead formulated a typology and adopted a typological theory approach that

“[identifies] the qualitative types of a single multidimensional dependent or independent

variable” (George & Bennett, 2005:p.238). This means that typologies do not necessarily


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provide causal links between dependent and independent variables (George & Bennett,

2005:p.239). In a typology, researchers “partition events into types that share specified

combinations of factors” (George & Bennett, 2005:p.237/238). “In contrast to a general

explanatory theory of a given phenomenon, typological theory provides a rich and

differentiated depiction of a phenomenon and can generate discriminating and contingent

explanations and policy recommendations” (George & Bennett, 2005:p.235). Therefore, this

approach can be best applied to a topic such as SBRs in DSR that still requires a detailed

analysis to guide policy makers’ and investors’ decisions.

As the inquiry of this thesis asks for “types of SBRs”, more than one case studies are selected

for comparison. Prior research has found that, given the freedom problem within case study

selection, the comparative method forces controls and limitations by the careful choice of

potentially comparable cases (Lijphart, 1975:p.163). Given the high causal complexity of cases,

this works most efficiently with a little amount of comparable cases (Lijphart, 1975:p.163).

Therefore, three case studies are chosen for analysis.

The analysis is based on both primary and secondary sources, however, there has been more

emphasis on the latter. Primary sources such as political documents and quotes from media

articles are studied. Publicly accessible secondary sources that have been used range from

extracted data from company websites and reports including Chinese and international English-

language online newspapers and magazines, government websites, academic journal articles

and book content. This data is relevant, as the mix of sources provides insights on a company’s

actions and interactions with the state from two different angles: Firstly, from an angle of how

the company presents facts and information about itself and the DSR project on the company

website; secondly, from an outsider perspective through a media report or a scientific analysis.

The unit of analysis studied in this thesis are new and ongoing DSR projects implemented by

Chinese and Hong Kong Chinese non-state public and private companies.

3.2. Justification of Case Study Selection

The author identified three DSR projects based on three selection criteria: The DSR projects

had to be (1) each implemented in and representative for one of the three selected main DSR

development areas; (2) located in the official BRI/DSR region; (3) not mainly implemented by

a state-owned enterprise (SOE), but by Chinese or Hong Kong Chinese non-state public and/or

private companies.

In order to select the DSR projects that are most relevant to policy makers, the author not only

chose projects that are implemented in the current main DSR development areas, but also, that

are representative for each of the the selected main DSR development areas. This means that

these three projects were previously associated with DSR in media and classified as ‘flagship’,

or comparably large projects within their development area.


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Regarding the second selection criteria, the student identified several projects in the three main

DSR development areas, that were implemented outside of the official BRI/DSR member state

region. However, as mentioned above, the focus of this thesis lies on projects that are

implemented in the official DSR member state region. As it proofed difficult to identify

projects in line with the third selection criteria, the author did not prioritize any regions within

the large BRI/DSR region for project selection. The fact that two of the projects are carried out

across different BRI/DSR regions is due to the transnational nature of the projects themselves

and the author did not select them because of this characteristic.

With regard to the third selection criteria and the background of China’s domestic state-

corporatist governance structure, the author identified only few DSR projects with little state

involvement including no SOE involvement during case study selection. The author chose

projects with reportedly predominant non-state company involvement and, in comparison to

other projects, the least state or SOE involvement.

To-provide a comprehensive assessment of Chinese SBRs in DSR projects, the companies

involved are different sized, operate globally or regionally and are organised through different

non-state ownership structures (non-state public or private). The selected projects and the

involved companies are:

• Firstly, the globally active Chinese power and fibre optic cable manufacturer Hengtong

Group Co. Ltd. involved in the development of the ‘Pakistan East Africa Connecting

Europe’ submarine fibre optic cable project (hereafter “PEACE cable”) spanning from

Asia to Africa, and up to the European continent. This project was chosen for analysis,

because the author categorises it under the current main DSR development area,

International Network Infrastructure Construction, and because current research

considers it a Chinese undersea cable “flagship project” (Hillman, 2019). Hengtong

Group, China’s biggest system integrator and network service provider in fibre optic

and electric power networks, is a large corporation consisting of numerous wholly

owned companies and 3 stock listed companies (Hengtong Group, 2019). The

privately-owned company that develops the PEACE cable is among the company’s

wholly-owned subsidiaries.

• Second, the internationally operating public technology company Alibaba Group

Holdings Ltd. and its executive chairman Jack Ma developing the Electronic World

Trade Platform Initiative (eWTP) project, which is implemented in different locations

in Asia, Africa, and Europe. In these regions, agreements for eWTP ‘digital hubs’ have

been signed off or are currently being executed. The initiative is implemented in the

current second main DSR development area, Transnational E-Commerce, and was

chosen for analysis, because it is considered the biggest current Chinese initiative

regarding international e-commerce.


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• Thirdly, compared to Alibaba and Hengtong Group, the smaller privately owned Hong

Kong Chinese investment holdings company The Kho Group Ltd. controlling UAA

Kinming Group in the development of the ‘City of Pearl’ smart city in the Philippines.

This project is categorised under the current third main DSR development area:

International Smart City Construction. UAA Kinming Group is a regionally active

corporation created to develop the ‘City of Pearl’ and is owned as well as led by the

members of the family-run The Kho Group. This project is considered as “one of the

biggest investments in the [BRI]” (Cheng, 2017). During the research process, the

author did not identify another similar sized smart city project along the BRI or DSR

implemented by Chinese non-state public and private companies, therefore, this smart

city was chosen for analysis.

Due to the fact that the state has put forward the DSR policy framework in the first place and

encourages its technology companies to do business abroad, the student expects the Chinese

government to provide some form of backing for for all projects. The author expects to identify

common indicators but potentially different types of SBRs – some more close, some rather

distant – that could occur in a larger amount of DSR projects in the three development areas.

Chinese fibre optic cable manufacturer companies such as the Hengtong Group or the company

Huawei Marine (which is a co-developer of the PEACE cable) are already well experienced in

constructing network infrastructure and developing under water sea fibre optic cables.

Therefore, the author expects that the SBRs in the case study in the development area

International Network Infrastructure Construction are potentially most distant and that

Hengtong Group receives the least state backing.

Due to the obvious contradiction between the Chinese promotion of a liberal global trade

system and the the country’s own authoritarian Internet governance approach (Shen,

2018:p.2694), the student chose the eWTP case study to potentially uncover a conflicting SBR

type in the development area Transnational E-Commerce.

As the international construction of smart cities on a large scale still is in its initial development

phase, the student expects to identify comparably close SBRs within the project in the

development area International Smart City Construction.

3.3. Analytical Framework

During the explorative research process of this thesis, the author identified three suitable SBRs

types using the existing literature. First, a cooperative SBR, second, a complementary SBR,

and third, a confrontational SBR type. As George and Bennet explain: “Typological theories

specify the pathways through which particular types relate to specified outcomes” (2005:p.238).

In the context of this thesis, the three SBR types (dependent variables) indicate, as an outcome,

three varying degrees of the manifestation of Chinese state-capitalism in DSR projects

implemented by Chinese non-state public and private companies.


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Theoretical Basis and Analytical Approach

The three SBR types are derived from the findings in the above-mentioned paper by Najam

(2000) that deals with the “4 C’s” of inner-state relations between government and non-

governmental organisations. The co-optive relationship type is not part of the typology of this

thesis. According to Najam, this type applies if “governmental and non-governmental

organisations share similar strategies but prefer different goals” (Najam, 2000:p.388). In the

political science literature, one side ‘co-opts’ if it influences or supports the other side in a

certain way, usually for its own gain.

From the perspective of a freer market system, this co-optive SBR type is reflected by Chinese

state and non-state business’s adopting the same strategy of going abroad within the DSR

framework. However, the two sides pursue dissimilar goals: the state’s intentions abroad are

to implement its foreign political and diplomatic strategy; as opposed to that, the non-state

company’s intentions abroad is too achieve for-profit business. The non-state company

welcomes the fact that its business acitvites abroad are framed by a supportive state narrative.

Thereby, the non-state companies are ‘co-opted’ by the state, because the companies’ overseas

expansion is also in the state’s interest. Hence, this thesis considers all Chinese companies as

co-opted when they proceed abroad and do business within the DSR framework.

In the context of this thesis, and in the Chinese context, where there is an unclear divide of the

public and private sector, the question is not whether the state co-opts/influences/supports its

non-state companies’ business activities abroad. Instead, the question is how and to what extent

the non-state companies are co-opted by the state and pursue the state’s political goals.

Therefore, only the three SBR types, that indicate degrees of co-optation are left within the

typological framework.

What Najam (Najam, 2000) defines as strategies or means are, in the context of this thesis, the

state-business actions and interactions, which represent the determining factors for the

dependent variables, the SBR types. These state-business actions and interactions are contained

in a by the author created list of determining factors.

The author compiled this list based on previous literature in the research field on SBRs and

Chinese state-capitalism abroad. The list is based on the above outlined “interactive dimensions”

in the paper on Chinese SBRs in Africa by Gu et al. (2016), Sen’s (2015) approaches for the

improved effectiveness of SBRs, and the author’s own additions, which are marked with an

asterisk (*) below. 2 For better comprehensibility and to order the different “interactive

dimensions”, the author divided the state-business actions and interactions into the spheres

‘Political’, ‘Economic/Political’, and ‘Financial’ state backing. This division is not based on a

2 Due-to-the-complexity, the-author-has-neglected-the-otherwise important role of business associations as-well-

as-the-role-of-provincial-governments-in-Chinese-SBRs-outside-the country.


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theoretical concept. The determining factors are not listed in any order, as their importance for

the project outcome is dependent on the individual case context.

Determining Factors for the Classification of SBR Types

(1) Political backing:

a. How-the-enterprise-negotiated-its-entry-into-the country

b. Inclusion in political document supportive to the non-state company’s project

implementation abroad

c. Formal or informal favourable institutional arrangements; political

mechanisms of public-private dialogue, their format, participant level and

frequency

d. State-support of a symbolic character that does not amount to, for example,

huge financial sums, such as *public political support at high-level events

(2) Economic/Political backing:

a. Prior connections or mutually supportive relations between state and business;

or *prior economic cooperation with SOE or state-owned bank in past projects

b. A policy framework or economic diplomacy (BRI/DSR)

c. State-enabled favourable processes in the political/regulatory business or

social context in the target country, *or the home country, e.g. within a special

economic zone

d. Favourable investment climate reforms or investment facilitation

(3) Financial backing:

a. *Funding by state bank or state-related actors at any project implementation

stage

b. *State-shareholding in the involved company

The author determines the three SBR types based on whether the identified determining factors

and the included state-business actions and interactions were crucial, or merely beneficial for

the DSR project’s initiation or further development. If the author deems one of the determining

factors identified in a case context crucial for the DSR project’s initiation or further

development, the SBR type is consequently of a cooperative nature. If several determining

factors are identified and neither of them is crucial, but merely beneficial for project initiation

or development, the SBR type is of a complementary nature.

Since all the examined cases are DSR projects, the determining factor 2c: ‘A policy framework

or economic diplomacy’ applies to all case studies, and is classified as beneficial to the projects’

outcomes. This determining factor will not be explained in detail within the case analyses.

A cooperative SBR type indicates a high degree of Chinese state-capitalism, a complementary

SBR type indicates a moderate degree, and a confrontational SBR type involves no

manifestation of Chinese state-capitalism in a project context. This distinction can be identified


22

simply as – the higher the indicated manifestation of Chinese state-capitalism in a project the

higher the risk of negative implications concerning security, economic, political issues. This

distinction will be referred to below in the policy recommendation section.

Figure 5. ‘Model for State-Business Relation Type Determination’

Descriptions of the Three SBR Types and Case Examples

The state-business relation in a DSR project that receives political, political/economic, or

financial state backing in the framework of the above listed determining factors is classified as

cooperative, if the state backing provided is crucial for the project’s initiation or further

development. As the state crucially contributed to the project’s success through an action or an

interaction with the involved non-state company, the author identifies high degree of Chinese

state-capitalism.

Several Saudi Arabian companies and a private Chinese company are jointly implementing a

smart city project in Saudi Arabia. Due to the high calculated investment risks for the private

Chinese company, the project is progressing at a slow pace. At a state visit, the Chinese

president explicitly endorses the further development of the project, and includes the project’s

name in a joint statement after the state visit. Two determining factors (1b and 1d: Political

backing) are identified, which are considered beneficial for the project’s development. If the

author finds no other determining factors and considers none of the identified factors to be

crucial for the project’s initiation or further development, the SBR type is of a complementary

nature. Moderate degree of Chinese state-capitalism is indicated so far.

Afterwards, media reported that in the framework of this state visit, the private Chinese

company as well as Chinese and Saudi Arabian state representatives negotiated favourable

customs regulations for the smart city equipment imported by the Chinese company


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(Determining factor 2c: Economic/Political backing). Without these favourable customs

regulations, the Chinese company would not have been able to further develop the smart city

project. This interaction between Chinese state and business in these negotiations is deemed

crucial to the project outcome, the SBR type is therefore classified as cooperative and high

degree Chinese state-capitalism is indicated.

This thesis identifies a confrontational SBR type, if a project’s initiation or further

development is discouraged or hindered by the state, because the project’s execution by the

non-state company stands in conflict with the state’s policy goals.

For example, a private company sees high profit potential in the deployment of a

telecommunication network in an African country. The private company establishes contact

with the Chinese embassy in this country and hopes for support with the country entry. The

Chinese embassy, however, points out, that this African country does not recognise the

Republic of China, Taiwan, as a part of the Peoples Republic of China and therefore, for this

political reason, strongly discourages the private company from doing business in this country.

The Chinese state and the Chinese private company’s goals stand in conflict with each other,

and the project initiation will probably not take place. If the project is executed anyway, the

SBR type is classified as confrontational and consequently, no manifestation of Chinese state-

capitalism is indicated.

Just like in Najam’s paper, there is also a fourth possibility in this thesis – non-engagement –

where no evidence is found to suggest that there was a state-business action or interaction

(2000:p.384). The two sides happen, or decide, not to act or interact in a project context

(2000:p.384). Such a case is beyond this framework’s scope, as no state-business action or

interaction takes place, no action or interaction can be analysed, and no Chinese state-

capitalism is manifested.


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4. Case Study: PEACE Submarine Fibre Optic Cable

4.1. Project Information and Background

The 2015 BRI White Paper promotes the deployment of “transcontinental submarine optical

cable projects” (NDRC et al., 2015). Submarine fibre optic cables are underwater connections

laid on the sea bed to transfer telecommunication signals and Internet data. Such cable

networks are of global strategic importance, as more than 95% of global data flow is carried

by submarine fibre optic cables and the current global telecommunications network is US-

dominated (as cited by CAICT, 2018). In addition, the Chinese optical fibre and cable

industry’s overcapacity surpassed 50% in 2015, therefore, the expansion into new markets was

an urgent matter for China (Zhou, He, Li & Zhang, 2015).

For these reasons, China’s priority is to promote the construction of an independent global

network infrastructure in its first DSR implementation phase. Both non-state and state-owned

companies are engaged in numerous transcontinental cable projects to build the country’s

“expanding global telecom empire”: across the Arctic Circle in cooperation with European

countries such as Finland, the Pacific Ocean in cooperation with South American countries

such as Chile, and across the Indian Ocean in cooperation with various African countries (Giri,

2018).

Figure 6. ‘China’s Expanding Global Telecom Empire’; adapted from Gateway House, 2018


25

While several projects are funded and owned by Chinese state-owned companies and the

government (alongside foreign state stakeholders), innovative private Chinese companies such

as Huawei are mainly involved in project implementation. Huawei is currently constructing or

improving almost 100 such cables (Hillman, 2019). In the above image, the third listed and

orange coloured fibre optic cable is a Chinese “flagship project” (Hillman, 2019). According

to its website, it is “privately owned” and involves a variety of non-state owned and private

stakeholders (PEACE Cable, 2019).

The Pakistan & East Africa Connecting Europe (PEACE-hai-lan-xiangmu海缆项目; hereafter,

“PEACE cable”) is a 12.000 km submarine fibre optic cable project. When completed, it will

connect China and its starting point in Pakistan to numerous countries in the BRI target

continents of Africa and Europe, on the shortest alternative routes (Huawei Marine, 2018).

Figure 7. ‘Map of PEACE Cable’; adapted from PEACE Cable Website, 2019

Pakistan was an early BRI partner country, as the plans for the now BRI showcase project, the

‘China Pakistan Economic Corridor’ (CPEC), preceded the BRI launch in 2013. Through the

construction of pipeline infrastructure, railroads, and highways, CPEC’s goal is to connect

China with the Pakistani Chinese-leased port of Gwadar in the south (Eder & Mardell, 2018),

where the PEACE cable has its beginning. The cable will apply an innovative “open cable

design principle”, which provides novel open cable access to potential new investors and

services through carrier neutral data centres (Hengtong, 2018).

In an initial project planning phase, the project was called “Pakistan & East Africa Cable

Express” (PEACE) and comprised a mere 6,800 km cable route from Pakistan to Djibouti and

Kenya. As more investors joined, overseeing further development of the project, this initial

plan was declared to be just the first project phase (shown in the image above). In a second


26

project phase, of which completion is expected in the first quarter of 2020, the cable is to be

extended to South Africa and Europe (PCCW Global, 2018). In October 2018, the project

entered the material and cable manufacturing stage (Huawei Marine, 2018; CCIDnet, 2018).

At the time of these developments, a diverse range of stakeholders joined the project. A look

at the investor profiles and other actors reveals several state-business actions and interaction

within the scope of the list of determining factors of this thesis to classify SBR types.

4.2. State-Business Relation Type

The below background analysis of the changing project developers reveal three determining

factors. In two identified project development phases, no Chinese state-business interaction of

crucial value for the project initiation or further development took place, but partial financial

and indirect economic/political backing was provided by the state. Therefore, the SBR type is

classified as complementary.

The first determining factor being the state connections and networks of the privately owned

China-ASEAN Information Harbor (CAIH) (which was involved in the first project phase) and

Hengtong Group (from the second project phase) represent indirect economic/political state

backing. More concretely, the author identified the political background of the private CAIH

director, and the company Hengtong Group is a Chinese “national innovation enterprise” that

openly promotes the state’s goals.

Second, one of the four main financial project initiators was the state-controlled commercial

China Construction Bank (CCB), which represents financial state backing. The CCB only

partially contributed to the project initiation through financial support and the author did not

deem this contribution crucial to the project initiation.

The third determining factor is the minor state shareholding in one of the publicly traded

subsidiaries of Hengtong Group, which represents further financial backing of the DSR project.

This financial support is considered not to be crucial for the project’s initiation or further

development, thus the SBR is of a complementary nature.


27

Figure 8. ‘Case Study 1 – PEACE Cable Project’; created by the author

4.3. Determining Factors of State-Business Relation Type

There has been continual change in the PEACE cable investor and actor portfolio over time.

As the PEACE cable reaches from Pakistan to two other continents, there is a variety of African

and European companies involved; however, the focus of this chapter lies on the Chinese

companies involved and their relations and links to the Chinese government through ownership

structure, shareholding, or managerial backgrounds. While analysing the project-involved

Chinese companies, the author presents the three determining factors for SBR type

classification in two identified cable development phases.

First Cable Development Phase

Determining Factors 3a and 2a: Partial Initial Project Funding by State-Controlled CCB and

State Connection of Initiating Company CAIH

The first phase began at the 3rd Asia Pacific Submarine Networks Forum organised by Huawei

Marine, with the signing of the Memorandum of Understanding (MoU), through which funding

was secured by the companies Tropic Science Co. Ltd., the privately owned CAIH, the state-

controlled CCB, and the private company Huawei Marine Networks in October 2017 (Qiu,

2017).

The initial PEACE cable investor first mentioned in media reports was Tropic Science Co. Ltd.

(hereafter “Tropic Science”). The author did not find any information about leadership or

ownership structure for the company. No website or company profile exists and references to


28

the company name were only found in the context of the PEACE cable project. Huawei

Marine’s Chief Operating Officer Mao Shengjiang expressed thankfulness, at the beginning of

the project, in particular to Tropic Science and “other partners” for their trust (Huawei Marine,

2017). Questions remain in regards to the background of this main initial project investor.

The second main financial backer of the PEACE cable is CAIH. This private corporation

(Bloomberg, 2019a) is a platform-based Information Technology (IT) enterprise. The

accelerated development of this major initial PEACE cable investor was explicitly promoted

in the 13th Five Year Plan (FYP) policy document (Central Committee of CPC, 2016:chap.25).

The founder and director of CAIH has a clear connection to the Chinese Communist Party

(CCP), as well as an entrepreneurial background at one of China’s major state-owned

telecommunications operators, China Unicom (Sina News, 2011). In addition, at its launch in

June 2016, CAIH was referred to as a “national strategy”, closely aligned with BRI goals

(Guangxi News Net, 2016).

The CCB additionally provided initial funds for the PEACE cable. CCB is one of the four

major Chinese state-owned banks, established under the direction of the PRC’s Ministry of

Finance. Since 2004, it has been a joint-stock commercial bank (China Construction Bank,

2019) under the control of the State Council, which is a majority shareholder (Nikkei Asian

Review, 2019).

The cable project implementer Huawei Marine Networks Co. Ltd. (Huawei Marine) was

established through a joint venture by the private companies British Global Marine Systems

Limited (Bloomberg, 2019b) and Huawei Technologies Co. Ltd. (Partingtion, 2012).3 Based

on the above-mentioned US government report, it is understood that Huawei Marine’s mother

company, Huawei Technologies, is backed by the Chinese state (US House of Representatives,

2012). There are no investigative reports of state backing of the company Huawei Marine, a

connection to the Chinese state remains unclear.

For two of the four major initial financial backers, ties to the Chinese government became

apparent. The author identifies two relevant determining factors for analysis of SBR type:

firstly, initial financial state backing by one of the main privately owned investors, CAIH, as

well as partial funding by the commercial state-controlled CCB; and secondly,

economic/political backing through close state connections and networks of these two project

initiators.

Consequently, this thesis finds that the privately owned PEACE cable is financially and

politically supported by the Chinese government. However, as the author was unable to locate

any information regarding the ownership structure or background of the cable’s main investor,

3 The-British-Global-Marine-Systems-is-a-successor-of-the-company-that-constructed-the-first transatlantic-

telegraph-cable-in-1866; Huawei-Marine-strategically-partnered-with-the-in-this field experienced and-high-

skilled-company-that-built-the-first-undersea-telegraph cable, as the author Hillman points-out-in-an-article-that-

compares Britain’s “wrapping [of] the world with telegraph cables” around-150-years-ago-with-China’s

construction-of-undersea-fibre optic cables today (Hillman, 2019).


29

the company Tropic Science, and the state-owned CCB only partially provided funds to the

project, these determining factors are classified as complementary to the project’s initiation.

Second Cable Development Phase

Determining Factors 2a and 3b: Close State Connections and State Shareholding in Hengtong

Group

The second cable development phase began in 2018 and was marked by changes in the PEACE

cable stakeholder portfolio. Joining Huawei Marine, which began construction of a first

segment of the cable in 2017 (Huawei Marine, 2017), the stock-listed PCCW Global and the

Chinese Hengtong Group Co. Ltd. – through its wholly-owned subsidiary Hengtong Marine

Cable System Co. Ltd. became the main actors in the PEACE cable project (PCCW Global,

2018). The former is a division of Hong Kong’s globally active telecommunications service

provider Hong Kong Telecommunications (HKT). Hengtong Group is a leading Chinese

“national innovation enterprise” that owns 70 private and holding companies, three of which

are stock-listed (Hengtong Group, 2019). Government institutions such as the SASAC are

shareholders in Hengtong’s major stock-listed company (MarketScreener, 2019c), called

Hengtong Optic-Electric Co. Ltd. A Chinese businessman, who was not identified to have

connections to the CCP, owns the majority of stock, serving as the group’s chairman and

president.

Hengtong Group, as a “national innovation enterprise”, openly promotes its support for state

goals. In response to the government’s public request to Chinese technology companies to

support the construction of the DSR (Zhao, 2015), Hengtong Group publicly broadcasted its

“overseas vision” (Fan & Cang, 2016). On its website, the company additionally claims to be

a global brand “under the national strategy of One Belt One Road” (Hengtong Group, 2019).

During the PEACE cable’s second development phase, the author identifies two relevant

determining factors representing economic/political state backing. Firstly, openly promoted

support of state initiatives point to a mutually supportive relationship; and secondly, minor

state-shareholding in one of Hengtong Group’s major stock-listed companies represents

financial state backing. Such state support is deemed beneficial for project initiation or further

development, therefore, these determining factors lead to an SBR classification as

complementary.

Media coverage from October 2018 reported that Hengtong Group and PCCW Global had

signed a cooperation agreement to develop the overall PEACE project through a new Hengtong

Group subsidiary, the privately owned Peace Cable International Network Co. Ltd. (hengtong-

jituan-zi-gongsi 亨通集团子公司). The stock-listed PCCW Global is responsible for the

commercial management of the cable, and alongside unidentified “other investment and equity

participation from fund companies”, Hengtong Group is the owner of the new PEACE cable

enterprise (Hengtong, 2018; Submarine Cable Networks, 2019).


30

In summary, significant changes are observed through analysis of the PEACE cable’s

stakeholder and investor portfolio. In the first project phase, the PEACE cable development

was financially supported by, among other investors, the private and closely state-linked CAIH

and the state-controlled CCB. The author did not find any information about Tropic Science

Co. Ltd., which was notably first listed as an investor in media reports. In the second

development phase, the PEACE cable project’s funding and implementation was primarily

managed by the privately owned subsidiary of the Chinese “national innovation enterprise”,

Hengtong Group, which promotes the BRI and of which the state is a minor shareholder.

During the first and second development phases, Huawei Marine has been funded by different

stakeholders since initiation of the project. The PEACE cable, on its website and media articles,

is broadly advertised as “privately owned”, and media attention went away from the state-

owned CCB after Hengtong Group’s takeover through its subsidiary Peace Cable International

Network Co. Ltd.

5. Case Study: Electronic World Trade Platform


The electronic World Trade Platform (shijie-dianzi-maoyi-pingtai-gainian世界电子贸易平

台概念; hereafter ‘eWTP’) is a “private sector led” and multi-stakeholder initiative, aiming to

combine a liberal commercial policy with the latest internet technologies (eWTP, 2019). In

2016, Jack Ma, the chairman of Alibaba Group Holding Ltd., the globally leading company in

e-commerce, first proposed the concept (eWTP, 2019). Jack Ma and the initiative’s website

cite the need to increase the participation of small and medium enterprises (SME) in global

value chains and to mitigate the constraints that SMEs face, such as access to information,

finance, technology, and trade facilitation (eWTP, 2019). Alibaba also naturally seeks to

expand its own global digital trade revenue. The eWTP website, however, states that the

initiative is of a “non-profit” nature (eWTP, 2019). Nevertheless, the eWTP offers all the

company’s core businesses (Alibaba, 2016). Alibaba is selling various e-commerce services,

operating several e-commerce platforms, offering payment, logistics and computing services,

and owning and operating a diverse range of other businesses in numerous sectors worldwide

(MarketScreener, 2019a).

eWTP consists of numerous digital free trade zones, called “digital hubs”. As a self-declared

“natural complement to the World Trade Organisation” (Alibaba, 2016), the concept quickly

received support by the Chinese state, as well as interest from foreign governments. The first

digital free trade pilot zone in China was launched in Alibaba’s headquarter city, Hangzhou,

and the first overseas hub was established in Malaysia in 2017. This was followed by a smart

digital hub “in line” with eWTP in Thailand, and the signing of agreements for an African hub

in Rwanda and a European hub in Belgium (Jaipragas, 2017). The first overseas eWTP hub in


31

Malaysia, of which construction is to be completed by the end of 2019, contains an e-commerce

platform with digital payment and finance services, alongside a regional logistics center

reaching out to Southeast Asian countries (Jaipragas, 2017). This chapter analyses the eWTP

but focuses on the first overseas hub in Malaysia, and in particular, the state-business actions

and interactions preceding this first overseas launch in the first Chinese eWTP hub in

Hangzhou.

China-Malay ties are close in terms of BRI as well as trade and digital cooperation, as reflected

by the first stop on the new Malaysian prime minister’s first China visit, which was a meeting

with Jack Ma (CGTN News, 2018). Through eWTP, Malaysia hopes to boost its own trade, as

well as easing and speeding up cross-border trade, particularly for its SMEs (Jaipragas, 2017).

Critical voices state that eWTP could harm Malaysian firms through strong Chinese market

competition and that Alibaba holds too much power over the digital trade process in eWTP

hubs (Chandran, 2018).


Below analysis identifies three determining factors from the analytical framework of this thesis.

Two determining factors in this case context were deemed beneficial, and one of them was

deemed crucial for project outcome. In line with the analytical approach of this thesis, the SBR

type is consequently of a cooperative nature.

One of the determining factors is the for eWTP’s development crucial interaction between the

Chinese customs offices and Alibaba in the first eWTP digital hub in China, which is the

deciding factor in the economic/political sphere for classifying the SBR as cooperative.

Chinese customs offices collaborated closely with Alibaba within a special economic zone, the

Hangzhou Cross-border E-commerce Comprehensive Experimental Zone, in which Alibaba

could test trans-border retail procedures and numerous e-commerce transactions with

continuous regulatory support. Through this strategic cooperation, Alibaba was able to launch

its first overseas eWTP hub in Malaysia and make the “online Silk Road start to take shape”

(Wang, 2017).

Two further state-business actions and interactions in the economic/political and political

sphere reflect determining factors beneficial to project outcome. One of these involves the prior

state connections of the involved firms and institutions. The author interpreted the prior

encounters of Alibaba and the Chinese government outside of the eWTP context as mutually

supportive and complementary to eWTP’s development. The last determining factor involves

the inclusion of eWTP in the final statement of the G20 Summit in Hangzhou in 2016, this fell

within the scope of another determining factor leading to a complementary SBR type.


32

Figure 9. ‘Case Study 2 – eWTP’; created by the author

5.3. Determining Factors for State-Business Relation Type

To analyse the determining factors in this case, the author briefly introduces the main actors

Jack Ma and his company Alibaba, followed by a description about what is known about their

previous connections and relations to the Chinese government. Afterwards, the author explains

the Chinese state-business interaction within the first eWTP hub in China, which enabled the

initiative to expand overseas. Finally, the author describes the inclusion of the initiative in a

political document and deems it a determining factor complementary to the project’s

development.

Introduction of Actors in the eWTP Initiative

The main actor in this case is Jack Ma, the executive chairman of Alibaba. The company used

to be a privately-owned and became a public stock company in 2014 (Pisani, 2014). Currently,

Jack Ma serves as the only Chinese individual stakeholder and is among one of just three with

controlling stakes (Zucchi & CFA, 2018), which makes him the strongest controlling individual


33

voice in Alibaba.4 Further actors in the eWTP initiative are primarily the highest level political

figures in the respective hub countries, such as the serving prime minister in the context of

Malaysia’s eWTP hub. The Chinese government is another important actor, which, as this

thesis argues, is crucial to the success of eWTP.

Determining Factor 2a: Prior Connections and Shared Attitudes of Alibaba and the State

Jack Ma explicitly promotes BRI in his public speeches, praising President Xi’s vision and

declaring the project a “good opportunity for individuals and countries” eWTP, he called for a

“transfer [of] the Silk Road to an e-road” (Jaipragas, 2017), which highlights his support for

DSR. Moreover, the Chinese government uses Alibaba’s platforms to conduct transactions

between government agencies, and very recently, joined forces with the company to develop a

state propaganda application (Li & Cadell, 2019). Even if the careful handling of government

relations in China’s favour-based system is of the utmost importance for every company, the

author suggests a supportive stance of the Chinese government towards Alibaba.

The fact that there were connections between Alibaba and the Chinese government preceding

their interactions in the eWTP context, indicating a mutually supportive attitude, represents the

first determining factor in the sphere of economic/political state backing.

Determining Factor 2c.: Cooperation between Alibaba and Chinese Customs Offices in

Hangzhou’s Special Economic Zone

In addition, the author identified a state-business interaction that was crucial for project

development in the first eWTP hub in Alibaba’s headquarter city, Hangzhou. The interaction

took place in the context of a Chinese special economic zone, in the form of preparatory support

for the eWTP overseas expansion. A director at the Chinese National Development and Reform

Commission (NDRC) described this interaction in an essay: In 2016, a Chinese special

economic zone5 in Hangzhou and Alibaba joined forces to construct the first Chinese Cross-

border E-Commerce Comprehensive Experimental Zone (zhongguo kua jing dianzi shangwu

zonghe shiyan qu中国跨境电子商务综合试验区) (Wang, 2017). In this Experimental Zone,

the Chinese government worked in cooperation with Alibaba to create numerous “national

firsts” in e-commerce business management, adapting customs supervision and introducing

measures, such as online verification and simplified customs clearance procedures (Wang,

2017a). In addition, Hangzhou customs worked in cooperation with Alibaba to create a tailor-

made paperless process, covering all the above aspects, as well as “enterprise filing, reporting,

4 The-other-two-main-corporate-investors-with-controlling-interests-are-a-Japanese-and-a-US technology-

company. Before-Alibaba-went-public-in-2015, Jack-Ma-owned-the-company. Media reports-in-October-

2018-indicated-that-he-would-step-back-from-his-position-as-executive chairman-in-October-2019 (Li,

2018a). At-the-time-of-writing, he-remains-the-executive-chairman and-the-company’s top-figure.

5 Since-the-1980s, the-Chinese-state-in-special-economic-zones-allowed-business-to-comply-with-more free-

commercial-policies-than-in-mainland-China-and-gives-companies-the-opportunity-to-experiment with-policies-

and-measures; these-zones-have-been-a-powerful-tool-in-China-to-attract-foreign investment, promote-export-

oriented-growth, and-promote-the-infusion-of-new-technology (Yeung, Lee & Kee, 2009).


34

taxation, inspection [and] release” (Wang, 2017). Wang adds that he hopes that this

Experimental Zone is to become an international digital trade centre and the strategic base for

the DSR (2017). He further explains that Alibaba’s experience tells the story of a successful

cooperation between the Chinese government and a private enterprise (Wang, 2017). From the

government perspective, the NDRC director adds that the Hangzhou test zone continues to

collaborate with Alibaba to expand cooperation to other countries along the BRI. As mentioned

above, the overseas expansion of the first eWTP digital free trade zone to Malaysia

consequently took place in 2017.

The article by the NDRC director sheds light on the strategic collaboration of government and

private enterprise within a special economic zone. This state-business interaction was essential

for Alibaba to that extent that it enabled testing of trans-border retail procedures, as well as

numerous e-commerce transactions, with continuous regulatory support. Without the support

of Hangzhou customs, Alibaba would have been unable to launch its first overseas eWTP hub.

Equally, Wang states that the rapid development infusion of domestic and cross-border e-

commerce, in line with government interests, heavily depended on Jack Ma’s “wisdom” and

Alibaba’s business exploration (2017).

This cooperation between Alibaba and the Chinese customs office was crucial for the

development of the eWTP. This state-business interaction in the economic/political sphere and

leads to the classification of the SBR type as cooperative.

With regards to the determining factor entailing the aspect of how the enterprise “negotiated

its entry into the country”, which is in this context closely related, the author was unable to

gather information about whether the government had been involved in the decision to launch

the first eWTP hub in Malaysia. The reasons why Malaysia was chosen possibly lie in Alibaba

and the Malaysian government’s shared openness to trade cooperation. In the context of the

most recent Belgian eWTP hub launch, the eWTP website notes that the Belgian prime minister

showed an interest in joining eWTP at a meeting with Jack Ma, and that Alibaba consequently

signed an agreement with its first European partner country (eWTP, 2018). In this case, there

is no evidence to suggest that the Chinese government was involved, thus the related

determining factor does not apply.

Determining Factor 1b: Inclusion of eWTP in Final G20 Summit Statement

The inclusion of eWTP in the final statement at the G20 leaders’ communique from the 2016

Hangzhou summit matches with a third determining factor of this thesis. In 2016, Jack Ma

served as the chair of the B20 SME Development Taskforce at the G20 summit (Wang, 2017).

The “Business 20” (B20) aspect of the dialogue gives recommendations to the leaders and is

“the private sector’s voice of the G20 community” (B20, 2018). The author considers Jack Ma

to act in the interest of Alibaba. At the summit, Jack Ma reportedly met with numerous foreign

heads of state to discuss eWTP and his idea of an inclusive globalisation. The author did not

identify details of a meeting between Jack Ma and the Chinese President Xi Jinping at the G20

summit. In his opening speech, Xi did not mention eWTP. Furthermore, no information was


35

found regarding promotion by the Chinese government of Jack Ma’s election to chair the B20

advisory group.

However, the common statement ultimately reached by the G20 leaders explicitly refers to Jack

Ma’s concept: “We welcome the B20’s interest to strengthen digital trade and other work and

take note of its initiative on [eWTP]” (European Commission, 2016). As a G20 member, the

Chinese government “takes note” of the concept through an explicit reference in a globally

visible political document. The author concludes that the Chinese state encourages the eWTP

initiative.

The inclusion of eWTP in the G20 summit statement is considered the third determining factor

in this case context, representing backing by the state. This state support was likely to have

been important for the initiative’s further development, increasing its international visibility.

However, as this state backing is not deemed crucial for the project’s further development, this

determining factor is considered to be of a complementary nature.

6. Case Study: Smart City ‘New Manila Bay - City of Pearl’ in the

Philippines


Half of the more than 1000 global smart city pilots are located in China, and large private

companies are reportedly the driving force of these projects (Chia, 2018). China can be

considered a frontrunner in this field – keen to export its technology within the BRI/DSR

framework. A Hong Kong Chinese newspaper states that the BRI “serves as a highway for

smart cities” and the ‘New Manila Bay – City of Pearl’ smart city project (xin manila wan guiji

shequ新马尼拉湾国际社区; hereafter ‘City of Pearl’) is implemented in this context (Ho,

2017).

The ‘City of Pearl’ is a mixed-use business and tourism development project in its early

development phase. It is one of the biggest planned Chinese international smart city projects

(Cheng, 2017), and the largest Chinese BRI infrastructure project in the Philippines (de la Cruz,

2017). The smart city will be well located on the coast of the Philippine capital city on a man-

made island, with a total value of estimated 100 billion USD/87 billion Euro (Espejo, 2017). It

is the result of a longstanding dialogue between Beijing and Manila (Ho, 2017), led by the

Hong Kong-based company UAA Kinming Development Corporation (UAA jianming jituan

建明集团, hereafter ‘UAA Kinming Group’) (Talavera, 2017).

Given the involvement of a variety of governmental and private sector stakeholders, there

remains uncertainty about who will ultimately control the city. According to an Philippine

newspaper article, “China [is] willing to bear all the initial cost, despite a large amount of risk


36

without any returns” (Espejo, 2017). Other media commentators question the aim that China

is pursuing by its financing of the large smart city development project. With the background

of Chinese-Philippine conflict in the South China Sea, sceptics state that the Chinese side may

wish to use the new land for military purposes; proponents negate this, emphasising the

potential of the city to lower Manila’s unemployment by creating new jobs (Espejo, 2017). In

any case, the project is expected to improve Philippine-Chinese economic relations and

stimulate political capital within the BRI/DSR framework (Espejo, 2017).6

In February 2017, Manila’s mayor, the Philippine Reclamation Authority (PRA), and UAA

Kinming Group signed a MoU at the smart city “project kick-off ceremony” (Araneta, 2017).

Land reclamation, according to different media reports, began in 2017 or 2018 (Espejo, 2017;

Gonzales, 2017). The whole project is expected to be completed in approximately 20 years

over seven phases (Ho, 2017).


In the below analysis, the author identified three determining factors for analysis of SBR types.

Two of them were deemed beneficial to the project outcome, and one of them was deemed

crucial for project outcome, therefore, the SBR type in this case study is declared to be of a

cooperative nature.

The main determining factor for classifying the SBR in this case as cooperative is that the smart

city project was initiated by the Chinese government, paving the way for the Hong Kong

Chinese private architectural firm Ho & Partners Architects Engineers & Development

Consultants Limited (hereafter “hpa”) and the private investment company The Kho Group

leading UAA Kinming Group.

In addition, even though little information is available regarding the longstanding negotiations

prior to the MoU signing ceremony, several media reports indicate that Chinese government

representatives and Chinese non-state and private business actors mainly from The Kho Group

investment company took part (Espejo, 2017; Talavera, 2017). The involvement of both the

Chinese state and non-state business side in the negotiations leads the author to classify the

SBR type as cooperative.

The author interpreted two further determining factors in the political and economic/political

sphere to be beneficial and complementary to the project initiation and development. Firstly,

the two main project actor’s prior connections to the Chinese government: In the past, the

privately owned The Kho Group cooperated closely with a Chinese state-conglomerate, the

CITIC Group (Agustin, 2017). In addition, the author found prior interaction between a

Chinese mainland ministry and the smart city’s second main actor, the privately held

6 Chinese-Philippine-relations-have-seen-improvements since the Duterte-Administration’s “change-in the-

approach-towards China”, which-was-followed-by-the-welcoming-of-high-Chinese-investments sums-into-the-

country, as-well-as-mutual-state-visits-and-China-Philippines-joint-statements (Estrada, 2017). The-most-recent-

joint-statement-highlights-BRI-cooperation-between-the-two-states (Xinhua, 2018).


37

architectural planner hpa. The company was awarded a specific high-level qualification as the

first company from Hong Kong.

Secondly, this thesis identified public political support for the smart city project and the

participating Chinese and Hong Kong Chinese private companies during the Chinese

President’s state visit to the Philippines. This indicates another determining factor and

represents state support complementary to the project outcome.

Figure 10. ‘Case Study 3 – ‘City of Pearl’ Smart City Project’; created by the author..


38

6.3. Determining Factors of State-Business Relation Type

The author firstly introduces the involved two main actors, their background, their prior

connections and cooperation with Chinese state actors; and secondly, presents the identified

additional two determining factors in the political sphere: Chinese state support with the entry

into the BRI/ DSR target country and high-level political support at an official state visit.

Introduction of Actors in the Smart City Project

The main project investor and developer is the aforementioned UAA Kinming Group, and the

second main actor and project planner being the privately held hpa (Bloomberg, 2019c). hpa is

a Hong Kong-based multi-disciplinary architectural practice that won the tender for the large

smart city project in 2017 (Cheng, 2017). Further unidentified global partners from “Southeast

Asia, Europe and other regions” (Talavera, 2017) are reportedly involved in the project. This

chapter’s focus lies on these two main Chinese and Hong Kong Chinese project actors.

Determining Factor 2a.: Main Actor UAA Kinming Group’s Prior Connections and Economic

Cooperation with Chinese SOE

UAA Kinming Group is a group of Philippine-Chinese developers, formed during the

negotiations preceding the signing of the smart city MoU (Espejo, 2017). The corporation is

individually owned by Xu Mingliang, or Jose Kho, a Chinese businessman (Ramontulfo, 2017).

His son, Kitson Kho, serves as the executive director of UAA Kinming Group (Ramontulfo,

2017). Kitson Kho and his brother lead a privately owned investment holdings company, The

Kho Group, which is a financial backer of the smart city, advertising the project on its website

as its current work (The Kho Group, 2019). Although UAA Kinming Group is not considered

a private or a non-state company, examination of its managerial structures reveals that it is

owned and led by the Kho family and their private family business The Kho Group. The

available information leads the author to suggest that UAA Kinming Group is controlled by

family-led The Kho Group.

With regards to The Kho Group’s prior connections to the Chinese state, the author found that

the Hong Kong-based company ventured into a prior project in the Philippines with one of the

biggest Chinese state-owned conglomerates, the CITIC Group (Agustin, 2017). According to

a media report, the CITIC Group was referred to as the “mother company” of The Kho Group

in a previous publication (Agustin, 2017). Hence, the author assumes close prior relations

between The Kho Group, UAA Kinming Group, and the Chinese state, which aligns with a

determining factor in the sphere of economic/political state backing: “prior state connections

or mutually supportive relations between state and business” and “prior economic cooperation

with an SOE”. This previous interaction between the Chinese government and the privately led

The Kho Group, however, took place prior to the cooperation within the smart city project,

thus, it is classified as complementary to the smart city project.


39

The author identified only a few further actors in the project-leading corporation, UAA

Kinming Group. At the MoU signing event, the ‘Inaugural Reclamation Banquet’, Manila’s

mayor only named the aforementioned principal actors of the Hong Kong-based The Kho

Group investment company (Araneta, 2017). No other Chinese or Hong Kong Chinese actors

were named in the ceremony.

The author also found, through an industry source cited in a newspaper report, that the China

Harbour Engineering Corporation is to offer landfilling services (Agustin, 2017). The

company is a subsidiary of the publicly owned company China Communications Construction

Co. Ltd., a building and engineering corporation consisting of an international group of

shareholders and a group of Chinese managers (MarketScreener, 2019b). The chairman and

the executive director have links to the Chinese government (such as party membership), but

they are primarily identified as businessmen with strong technical backgrounds, rather than

political backgrounds through which state links could be assumed (MarketScreener, 2019b).

The author was unable to identify further actors within UAA Kinming Group. According to

media reports, “Beijing” and “Manila” negotiated through discussions “led by UAA Kinming

Group” (Espejo, 2017). It remains unclear which specific Chinese governmental actors were

involved; it is clear, however, that both Chinese government representatives and Chinese non-

state business actors (hpa, China Harbour Engineering Corporation, The Kho Group)

cooperated within UAA Kinming Group. Hence, an interaction took place between Chinese

state and non-state actors that was crucial to the project’s further development, which clearly

points to a cooperative SBR type.

Determining Factor 2a.: Second Main Actor hpa’s Prior State Connections

The project’s architectural planner hpa’s focus on smart city development is clearly in line with

BRI/DSR developments. The company promotes itself as a “strategic partner with [the] Hong

Kong Trade Development Council (HKTDC) on [BRI]”. The deputy managing director,

Nicholas Ho, who appears to be the main public commentator in the media on the ‘City of

Pearl’, chairs the HKTDC BRI working group (hpa, 2019b). Another indicator of a mutually

supportive relationship between the second main business actor and the Chinese government

is that hpa was the first Hong Kong Chinese wholly-owned architectural firm to be awarded a

Grade A qualification by the mainland Chinese Ministry of Housing and Urban-Rural

Development (hpa, 2019a). This prior state-business connection meets the criteria for the

determining factor “prior state connections”. This prior connection was most probably

conducive to the winning of the smart city project tender of hpa, and therefore, is classified as

complementary to the project outcome.

In summary, both the two main smart city project actors, UAA Kinming Group controlled by

The Kho Group and hpa, had connections and cooperated with Chinese government actors

prior to interacting in the smart city project. This points to a mutually supportive state-business

relationship that was complementary to project initiation.


40

Determining Factors 1a. and 1d.: Help with Entry into the Country and Public Support by the

Chinese President at State Visit

Media state that the smart city project is the result of longstanding discussions between Beijing

and Manila “under Beijing’s initiative” (Ho, 2017). The smart city project was initiated by the

Chinese government, which matches with a determining factor from the analytical framework

of this thesis: “How the enterprise negotiated its entry into the country”. The Chinese

government essentially helped the privately led architectural firm hpa and the family-run and

family-owned The Kho Group through UAA Kinming Group negotiate entry into the

Philippines. This determining factor leads this thesis to classify the SBR as cooperative.

In addition, the smart city project received high-level political backing during a state visit of

the President Xi to his Philippine counterpart, Duterte, at the end of last year. Their bilateral

discussions “[seem] to have catalysed the project” (de la Cruz, 2017), with the two men

expressing their “wholehearted approval” for the smart city project (Espejo, 2017). This state

support is deemed crucial for project development as, according to media reports, the

aforementioned land reclamation began after this state visit (Espejo, 2017). Therefore, this

determining factor leads to classification of the SBR type as cooperative.

7. Analysis of State-Business Relationship in Comparison

The findings from the case studies show two of the three proposed types of SBRs in public-

private DSR projects. In each case study, three determining factors were identified. By

evaluating these with regard to their importance for project outcome, the author identified one

complementary SBR type in the first case study, the PEACE cable project. The second and

third case studies, the eWTP initiative and the ‘City of Pearl’ smart city project, each included

a cooperative SBR type.

The cases show how, and to what extent the Chinese state supports its non-state public and

private companies in their DSR projects abroad. The three case relationships differ in terms of

the involved number of stakeholders, the ownership structure of these involved stakeholders,

and the spheres in which the state-business actions and interactions took place. In the first case,

the complementary SBR type, the state support in the financial sphere was predominant,

whereas in the second and third cases, two cooperative SBR types, where state backing was

mainly provided in the political and economic/political sphere.

The findings from the case studies lead this thesis to two main assumptions. First, political

support by the Chinese state in the DSR narrative is recognized as effective and supportive for

DSR implementation. Even more so than Chinese financial state support. Second, not only

DSR projects implemented by SOEs, but also by Chinese non-state public and private

companies indicate a manifestation of Chinese state-capitalism. They convey varying degrees

of Chinese state-capitalism.


41

7.1. The Effectiveness of Chinese Political State Backing

The Chinese state is eager to promote and support the business activity of its emerging, home-

grown, non-state companies abroad. It has given these companies an essential role in

implementing the state’s foreign political vision abroad, and has been successful in supporting

them, especially through political backing. In two of the three cases, the state backing in the

political and economic/political spheres were interpreted as crucial for project outcome, which

shows the effectiveness of Chinese political state support in its different forms in the DSR

projects.

In the first case, the PEACE cable project, the complementary SBR type, the overall state

backing was deemed not crucial for project outcome, however, the state financially supported

the project in its initial phase which was beneficial to project initiation.

In the second case study, the eWTP initiative, a cooperative SBR type, economic/political

backing was provided to Alibaba within China’s borders in a special economic zone as a crucial

preparatory support to go abroad. The initiative was additionally politically backed by its

inclusion in a high-level document, that increased its global visibility.

In the third case, the ‘City of Pearl’ smart city project, another cooperative SBR type, the

essential political support was provided through project initiation by the Chinese government

itself which enabled project development by the two Hong Kong Chinese private companies,

The Kho Group and Ho & Partners. Furthermore, the Chinese president expressing his

encouragement at a state visit to the receiving country represented further political backing that

was crucial for further project development.

These findings lead the author to the assumption that Chinese state backing, particularly in the

political sphere through supportive policy framework of the DSR and BRI, is effective and

supportive to the implementation of the DSR. Moreover, these findings confirm the above-

mentioned hypothesis by the author Shen stating that a “growing and complex alliance” (2018)

is formed between the Chinese state and its Internet companies.

7.2. Digital Silk Road Projects as a Manifestation of Chinese State-Capitalism

A UNDP report on BRI points out that the Chinese state’s SOEs “[hope] to pave the way for

private firms to set up their businesses [abroad]” (UNDP, 2017:p.54). The case studies illustrate

how Chinese non-state public and private companies tread this path effectively. The findings

show, however, that the state still plays an important role in DSR projects that are implemented

by non-state companies. In two out of three case studies, the state backing was crucial for

project initiation or further development. In one case study, the financial state backing was

deemed beneficial for project initiation, which also represents state support to the project. This

leads the author to suggest that not only DSR projects implemented by SOEs, but also by

Chinese non-state public and private companies are a manifestation of Chinese state-capitalism.


42

Chinese state-capitalism and the corresponding type of SBR is reflected in different forms and

degrees in the three case studies. As outlined in the analytical framework of this thesis, a

cooperative SBR type indicates a high degree of Chinese state-capitalism, a complementary

SBR type involves a moderate degree, and a confrontational SBR type indicates no

manifestation of Chinese state-capitalism in a project context.

Given the characteristics of the Chinese state-capitalist system, it is seemingly logical that the

author found the determining factor ‘prior connections and a mutually supportive relation’

between the Chinese state and Chinese non-state public and private companies in all three cases.

The author additionally identified other forms of state backing in the financial, political or

economic/political sphere that led the author to suggest the corresponding manifestation of

state-capitalism in the project context:

In the first case context, the PEACE cable project, the author found political ties of a director

at one of the privately owned investment companies that initially funded the project. Also, the

present main project developing company, Hengtong Group, strongly promotes BRI and

describes itself as a “national innovation enterprise” on its website (Hengtong Group, 2019).

The involvement of large companies like Hengtong Group, owning 70 wholly-owned private

companies, probably occurs in a larger amount of cases within BRI/DSR. Several features of

Hengtong Group match with the typical features of a ‘national champion’ company. As

mentioned previously ‘national champions’ are SOEs, that are supervised and owned by organs

of the central Chinese state (Lin & Milhaupt, 2013:p.702). Typically, the majority shareholder

of a national champion’s core company is the SASAC (Lin & Milhaupt, 2013). The majority

shareholder of Hengtong Group’s stock listed core company, however, is an individual person,

and the SASAC merely ranks as the seventh shareholder without controlling stakes

(MarketScreener, 2019c). Another feature of Hengtong Group that matches with the features

of a ‘national champion’ is that the company consists of 3 publicly traded subsidiaries, the

“global faces” of the company, and alongside these, it consists of numerous other privately

owned subsidiaries. However, because of its shareholder structure, Hengtong Group is not a

typical ‘national champion’; nevertheless, it possesses features of a ‘national champion’

company typically standing in close connection to the Chinese State.

Concerning further state backing of the PEACE cable project, the author noted that one of the

four initial funding parties was a state-controlled bank and partially contributed to project

initiation, therefore, this DSR project and the engagement of the involved bank and companies

indicates a manifestation of Chinese state-capitalism to a moderate degree.

In regards to further ‘state connections and mutually supportive relations’, the author, in the

second case study, found that the executing company Alibaba closely collaborated with the

Chinese government, in and outside of the eWTP case context. Outside of the eWTP context,

Alibaba’s executive chairman has openly promoted the state’s goals and cooperated closely

with the state by providing platforms for government transactions and projects such as the

development of a propaganda application. In the eWTP context, the author found that Chinese

customs offices have provided crucial regulatory support in a Chinese special economic zone,

without which Alibaba would not have been able to launch the eWTP. Therefore, the company


43

and its business activity along the BRI/DSR indicates a manifestation of Chinese state-

capitalism to a high degree.

In the third case study, the Chinese state itself reportedly initiated the smart city project and

took part in the longstanding negotiations preceding the project launch which indicates a high

degree of Chinese state-capitalism. The company that led these long discussions, UAA

Kinming Group, is controlled by the Kho family and their private investment company The

Kho Group, which closely collaborated with a major Chinese state conglomerate in a past

project and publicly called it “mother company”. Consequently, the author considers project

engagement of the involved private companies as well as Chinese state actors as a

manifestation of Chinese state-capitalism to a high degree.

In addition to the above concluding case analyses, these results confirm Gu et al.’s above-

mentioned previous findings (2016) that “the Chinese ‘state’, just as Chinese ‘business’, does

not exist in a singular, unitary form, with a standardized or even coherent position. The ‘state’

and Chinese ‘business’ take on many forms according to the way Chinese […] businesses are

organized, reflecting diverse political and business cultures and forms of ‘state-capitalism’”

(Gu et al., 2016:p.32).”

7.3. Further Case Comparison and Potential Future State-Business Tensions

The three case studies differ in that some situations it is clear where government links have

been developed, while in others they have been more difficult to identify. The financial backing

of non-state public and private companies were easily visible in the first case study, the PEACE

cable project, as one of the four initiating parties was a state-controlled bank. In the second

case, the eWTP initiative, the author found it harder to define whether state links had been

formed and was only able to do so by tracing the eWTP’s state-business cooperation back to

its initial dealings within China’s borders. In the third case, the state support was again obvious

as the smart city project in the Manila Bay was initiated by the state.

In this regard, the first case study, the PEACE cable project, and the second case study, the

eWTP initiative, are broadly advertised as “privately-led” or “privately-owned” initiatives

(PEACE Cable Website, 2019; eWTP, 2019). The findings from the case studies show that

these descriptions can be misleading. Through the Chinese state-capitalist governance structure

a certain degree of state involvement with non-state public and private DSR projects still exists.

Furthermore, the three cases showed a variation regarding the project initiators. The first case

was initiated by three private Chinese companies and one state-controlled bank as a partial

initial funder. In the second case, the eWTP initiative was kick-started by non-state company

Alibaba’s serving executive chairman Jack Ma. The third case was initiated by the Chinese

government who paved the way for two Hong Kong Chinese private companies to do business

abroad. Two of the case studies were mainly initiated by non-state companies, which, confirms

the above-mentioned author Shen’s hypothesis that the state is successful in giving its


44

technology companies an increasingly important role in implementing DSR projects

(2018:p.2684).

The case study analyses show that the Chinese state continues to maintain influence over the

involved non-state companies through economic cooperation, personnel control and state

ownership. Several authors have, however, pointed out that the corporate structure and

diversified financing models of the Chinese companies in the global stock market is

increasingly exposing them globally and subjecting them to market pressures (Gu et al., 2016:

p.32; Shen, 2018: p.2692; Zhao, 2010: p.278).

In the case study analysis, the author found indicators that confirm this assessment. Within the

PEACE cable project as well as the eWTP initiative, the involved companies Hengtong Group

and Alibaba currently cooperate with numerous global partners from the PEACE cable landing

countries or eWTP ‘digital hub’ countries. Within the smart city project, the author additionally

found that landfilling services are provided by a company (China Harbour Engineering

Corporation) that is owned by an international group of shareholders and a group of Chinese

managers. Such Chinese led business structures that involve diverse international influences in

a complex global market will probably ultimately diverge with Chinese state policy goals (Shen,

2018:p.2692). In the future, this could create tensions in the companies’ complementary and

cooperative relationships with the state.

The eWTP represents a great example as a meeting point of the government’s policy goals and

the Internet companies’ commercial priorities (Shen, 2018:p.2694). As mentioned earlier, it

remains interesting to see how the contradiction between the eWTP’s and China’s promotion

of global trade liberalisation in the Internet industry will finally present itself alongside China’s

own authoritarian Internet governance approach (Shen, 2018:p.2694). In this context, a

Chinese cyber security law passed last year created tensions between the Chinese private

company Huawei and the state because the company expressed its concerns about negative

global trade implications through the law (Shih, 2015). In the second eWTP case study,

however, such tensions did not become evident and the author only found a strong regulatory

state support for Alibaba’s business. However, with the advancing development of the Internet

and e-commerce sector, the imposition of further laws and regulations in this field that could

ultimately be disadvantageous for Alibaba or other companies in this sector cannot be avoided.

Therefore, this thesis points to the possibility of future tensions also between other Chinese

internationalised companies such as Alibaba and the state in regulatory issues.


45

8. Conclusion

8.1. Summary and Contribution to the Literature

In this thesis, the author offers a list of actions and interactions between state and business that

helps decision makers in DSR involved states identify and categorise Chinese SBRs in a project

context, and thereby, assume the manifestation of Chinese state-capitalism to three different

degrees.

The author applied a typological theory approach described by George and Bennett

(2005:p.235). Based on previous literature in the research field on SBRs, the author proposed

three Chinese SBR types – cooperative, complementary, confrontational. There was also a

fourth possibility, non-engagement, which would apply if there was not enough evidence to

classify an SBR type within the scope of this thesis. These types were proposed to indicate the

varying degrees of the manifestation of Chinese state-capitalism in DSR projects implemented

by Chinese non-state public and private companies. A cooperative SBR type involves high

degree of Chinese state-capitalism, a complementary SBR type indicates moderate degree, and

a confrontational SBR type involves no manifestation of Chinese state-capitalism in a project

context. The higher the manifestation of Chinese state-capitalism in a project the higher the

risk for negative implications concerning security, economic, political issues. This distinction

will be referred to below in the policy recommendation section.

The author identified one complementary SBR type and two cooperative SBR types in the three

analysed public-private DSR projects implemented by Chinese non-state public and private

companies. While the PEACE cable project involving a complementary SBR type can be

considered a manifestation of Chinese state-capitalism to a moderate degree, the ‘City of Pearl’

project and the eWTP initiative involving cooperative SBR types indicates Chinese state-

capitalism to a high degree.

These results have led this thesis to two main findings. Firstly, through cooperative and

complementary SBRs in projects implemented in the DSR policy framework, the Chinese

state’s political support for its non-state public and private companies is effective and

supportive to DSR. Secondly, not only are DSR projects implemented by Chinese SOEs a

manifestation of Chinese state-capitalism, but so are DSR projects implemented by non-state

public and private Chinese companies. They indicate varying degrees of Chinese state-

capitalism.

The SBR types expressed in these DSR projects were identified through a list of determining

factors, that the author compiled based on previous literature in the research field on SBRs and

Chinese state-capitalism outside the country. This list of determining factors contain state-

business actions and interactions that lead to one of the three defined SBR types. The SBR

types were determined based on whether the identified determining factors were deemed

crucial, or merely beneficial to the project’s initiation or further development. If one of the


46

identified determining factors in a case context was deemed crucial for project development,

the SBR type was classified cooperative.

While Chinese state backing was provided to develop all three projects, it is important to note

that the political state backing was deemed crucial for the eWTP initiative’s and the ‘City of

Pearl’ smart city project’s initiation or further development while the financial state backing

for the PEACE cable project was merely beneficial for project initiation.

In all three case studies, the author identified ‘prior connections and mutually supportive

relations’ between the state and the involved Chinese companies as determining factors for the

SBR types. These supportive relations have been classified as beneficial to the projects’

initiation or further development. Examples that support these findings are the political

backgrounds of company directors or the close cooperation of a non-state company with a

state-owned conglomerate in a prior project.

In the first case study, the PEACE cable project, the state support was deemed beneficial for

the project initiation. The author identified partial initial project funding by a state-controlled

commercial bank, and minor state shareholdings in a subsidiary of the main implementing

company, Hengtong Group, as determining factors for a complementary SBR type.

In the second case, the ‘Electronic World Trade Platform’ (eWTP), the direct interaction

between the state’s customs offices and Alibaba in a Chinese special economic zone was

crucial for the company to go abroad, therefore, the SBR type was classified as cooperative.

In the third case, the smart city ‘New Manila Bay – City of Pearl’ project, the author identified

as a main determining factor for a cooperative SBR type the crucial project initiation by the

state, that paved the way for the two private Hong Kong Chinese companies The Kho Group

and Ho & Partners (hpa) to implement the project.

The fact that the SBR type varies within the case studies, is potentially connected to China’s

different priorisations of the DSR development areas. Since the emergence of the DSR concept,

China prioritises the strategically important development area International Network

Infrastructure Construction over the other two development areas International Smart City

Construction and Transnational E-Commerce. Therefore, Chinese non-state companies were

most active in this devleopment area, and are comparably more experienced and independent

from the state in their implementation of such types of projects. Therefore, the author identified

the most distant type – a complementary SBR – in this case and close (cooperative) SBRs in

the less prioritised development areas, where Chinese non-state companies require more state

support for implementation.

In this thesis, the limited existing knowledge in the current DSR research field was extended

as was the literature on Chinese SBRs within the DSR foreign policy framework.


47

Apart from the creation of the list and model to categorise Chinese SBRs in DSR projects, the

author described the emergence of the presently undefined DSR concept and the different

notions which are being used to refer to it. For a better display, a timeline was developed, which,

to the author’s knowledge, has not been produced by previous research. Furthermore, the

author determined three current main DSR development areas in which the three selected case

studies are implemented.

8.2. Policy Recommendations Directed at DSR Involved Governments

While a cooperative SBR type in a DSR project is an indication of high degree Chinese state-

capitalism, a complementary SBR type is a manifestation of Chinese state-capitalism to a

moderate degree. A confrontational SBR type involves no manifestation of Chinese state-

capitalism. To emphasise again, this distinction can be identified simply as – the higher the

manifestation of Chinese state-capitalism in a project the higher the risk of negative

implications concerning economic, political and security issues.

The author advises governments that are planning to conclude a contract with a Chinese non-

state public or private company in a DSR project to thoroughly investigate the SBR type of the

involved Chinese company, or, if possible, research prior development projects that involved

the company in question. The author suggests to use the list of determining factors developed

in this thesis as a reference point for this investigation.

If a complementary SBR type is identified in a development project, the political, economic

and security concerns are kept within limits. As the state does not crucially (directly) contribute

to the project’s success and does not directly affiliate itself with the company in a project

context, the DSR country is advised to engage in the project. However, the concerned

government should conduct careful due diligence and be aware of the natural proliferation of

Chinese business practices in a project context as these may differ from the concerned

government’s practices.

Given a cooperative SBR type in a prior project, the concerned government from a DSR

country, and particularly its IT department, should make sure to carefully examine any past

indications or allegations that suggest a Chinese company of espionage, indications of

backdoor accessibility in its equipment or any history regarding the gathering of data through

the equipment that has been supplied. The concerned government is advised to do this on an

evidence-based and unbiased manner. Examples are the above-mentioned investigations by the

US, the UK, or recently by Germany (UK Intelligence and Security Committee, 2013; US

House of Representatives, 2012; Deutsche Welle, 2019).

If reasons exist to suggest negative implications for the public safety of a country, such as in

the case of the US regarding the telecommunications equipment supplied by Huawei (US

House of Representatives, 2012), the DSR country is advised to choose another equipment

provider.


48

If no cogent evidence is found, such as in the case of Germany’s and the UK’s investigations

(Nienaber, 2019; Stubbs, 2019), the decision maker is advised to engage in the project with

consideration of the following points.

1. The government serving in a DSR country should contractually stipulate that the

national security of their public is not endangered through potential fraud and data

breaches or invasion of privacy when awarding a project contract to a Chinese or

foreign company.

2. Included should also be a contractual assurance of the Chinese and foreign company’s

compliance and operational conduct regarding such matters as transparency, data

storage, technical knowledge transfer concerning the involved software and hardware,

and clearly defined network access rights for its operation and maintenance including

remote access conditions.

3. The DSR involved government should seek new technological initiatives and security

measures such as encryption solutions or legal data protection frameworks to safeguard

data rights. Included should be, for example, preventing the Chinese and foreign state

from accessing data through Chinese products operating in international countries

(where different data laws exist).

In the long term, the DSR country is advised to set up an investment screening mechanism.

While doing so, developing and emerging countries in the DSR framework can learn from the

experiences of industrialised regions such as the US or the EU. Such investment screening

mechanisms ought to be set up through a structured unified framework, or a legislative state

agency, that thoroughly weighs economic benefits against potential negative long-term

implications of foreign and Chinese investments. Negative implications include the above-

mentioned risks concerning economic dependence on China, political influence regarding the

concerns that China uses its financial muscle as a “diplomatic instrument” and risks posed to

the national security of the country.

An example is the established EU investment screening mechanism, which itself is still in an

initial development phase, but can serve as a learning object for developing and emerging

countries within DSR. In this context, the author emphasises the guidance of the authors

Nouvens and Legarda (2018) to implement a more solid EU investment screening mechanism

in strategic sectors, as the screening mechanism that is in place right now has no binding

character. The authors Nouvens and Legarda comprehensibly suggest that in case all state

union members are incapable to come to an agreement regarding a screening mechanism in the

short term, “like-minded” state union members are advised to coordinate their national

approaches and steadily include other member countries through incentive mechanisms

(2018:sec.5.1).


49

Potentially planned screening mechanisms in DSR countries should optimally aim at being

harmonized within a state union e.g. in the ASEAN or the African Union. The author advises

that governments from countries with currently high DSR investment rates (see Image 1) such

as Malaysia or the Philippines in the ASEAN state union, or Ethiopia in the African Union

should take the lead in initiating such efforts. Governments from DSR countries need to

enhance their information channels and set up regular meetings that deal with security concerns

when facing foreign and Chinese investments related-to-their-digital-economies.

If a government has decided to award a DSR project contract to a Chinese company, and

equipment is deployed by a Chinese company, governments are advised to gain full control

over the project’s equipment. DSR involved governments should thoroughly investigate each

part of the received equipment, and IT departments should regularly check data systems after

each update and each cable connection for backdoors.

8.3. Limitations of the Thesis and Final Remarks

There are advocates as well as opponents of the in this thesis applied case study research

strategy. A weakness condemned by opponents is the lack of consistency or thoroughness (Yin,

2002:p.9/10). In particular, because a lot of freedom is given to the researcher within a case

study strategy and, the danger of “sloppy” investigation based on vague or ambiguous evidence

is fairly high (Yin, 2002:p.9/10). Also, the potential biases of a non-Chinese researcher,

however much one may try to stay objective, such as in this thesis, may be driven by cultural

European or Western influences that could lead to flaws during the data collection process, and

thereby influence the direction and outcome of the analysis.

In regards to the ergodicity of the analysed case study projects, the author emphasises that the

three selected cases are new and ongoing projects, that can be classified in the emerging

Chinese DSR policy framework. The short timeframe and early development phase of these

projects yield little data to fully predict what outcomes will emerge and how they will affect

all stakeholders involved. However, as they develop over time, more information about the

involved companies and their relation to the state will become available. Consequently, results

from the analysis could be altered or proven wrong. This, however, represents a common

limitation issue regarding research on current topics.

In addition, the quality of data could be improved by collecting more primary source

information through interviews with company representatives. The valuable internal opinion

and insights about the company’s cooperation with the state would provide better qualitative

data for the SBR type classification. In addition, the quality of data extracted from online

newspapers from autocratic governed states such as China, where the state controls media

outlets, is generally questionable. However, the author tried to circumvent this problem through

the careful choice of media, and by confirming the accuracy of information from such sources

through multiple reports.


50

Due to the lack of quality in data, the two main arguments of this thesis cannot be generalised.

To do so, future DSR projects, including the involved non-state companies and state backing

in the financial, political and economic sphere need to be analysed with consistent primary data.

With regards to the list of determining factors compiled in this thesis, the author points to its

potential incompleteness when applying this analytical approach to the analysis of other

Chinese investment projects for the classification of SBR types. It is possible, that there are

state and business actions and interactions that are not covered in the list of determining factors,

but are still of importance when classifying an SBR type. Therefore, the author emphasises that

the compiled list of determining factors can be further built upon. Consequently, this analytical

approach to classify SBR types can also be used and adapted to examine SBR types in other

investment projects involving Chinese non-state companies, for example, other BRI

investment projects such as construction of a port, railway, or investment projects implemented

outside of the official BRI framework such as in Germany, or the US.

The concept that was used as a basis to classify SBR types in this thesis (Najam, 2000) included

a confrontational SBR type, which – against the expectations of the author – was not identified.

Due to the Chinese state-corporatist governance system, it may proove rather disadvantageous

for a Chinese company that also operates within China, to confront the powerful Chinese state

abroad. This could be a reason for why it prooved difficult for the author to identify a case

study project involving a confrontational SBR type. However, according to George & Bennett,

not addressing every “cell in a typology […] is often useful for researchers to offer suggestions

for future research on unexamined types” (2005:p.83). Thus, the author suggests to examine

DSR projects that were discouraged by the Chinese state. The examination of cases entailing

confrontational Chinese SBR types, and the analysis of the state-business frictions represents

an interesting assignment for future research. The planned DSR projects – finally implemented

or not – could serve as comparable cases for the cooperative and complementary SBR types

identified in this thesis. The identification of conflicting areas would provide a more holistic

understanding of Chinese SBRs outside of the country.

Chinese SBRs are a matter of high complexity and eventuality. It is clear, however, that China,

in the digital age, has high ambitions and strategic goals in its foreign political agenda. With

this in mind, it is worth considering the Chinese proverb: “fengxiang zhuanbian shi, youren

zhu qiang you renzao fengche风向转变时,有人筑墙,有人造风车”, literally meaning “When

the wind of change blows, some build walls, while others build windmills.” The proverb

suitably expresses the current global situation and the emerging power shift from the US to

China. While a wall may indicate rivalry, a windmill symbolises potential and transformation,

all of which could be generated through an increased cooperation with China. It is up to each

government to take concrete measures that minimise the negative impact of the potentially

imported Chinese state-capitalism in their country, while using the opportunity to develop

windmills with China in fields that are of common interest.


51

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10. Appendix

Figure 11. ‘Six key projects of Information Silk Road’; Liu, 2017, translated by the author

Documents

The Chinese Digital Silk Road: Analysis of Chinese State ...deutsch-chinesisches-forum.de/images/thinktank/Digital...2019/01/18 · Union (EU) in 2015 (Liu, 2015). Similar to the