Advertisement

Asia Europe Journal

, Volume 17, Issue 4, pp 437–451 | Cite as

China’s principal–agent problem in the Czech Republic: the curious case of CEFC

  • Jeremy GarlickEmail author
Original Paper

Abstract

Although it appears that China’s state capitalism model means that state-owned and private companies are utilised in the service of foreign policy goals such as international investments under the umbrella of the Belt and Road Initiative (BRI), the reality is more complex. The behaviour and interests of Chinese commercial actors do not always correspond with the stated aims and strategy of government officials. The article examines Chinese economic diplomacy in the Czech Republic from 2015 to 2018, assessing the extent to which the private company CEFC China Energy acted as an agent of the Chinese state as part of a coordinated strategy designed to increase Chinese economic and political influence via the use of economic incentives. CEFC was at the forefront of Chinese investments in the Czech Republic during this period but CITIC, a Chinese state-owned enterprise (SOE), took over these in May 2018 while the head of CEFC was reportedly being detained in China. The research is theorised in terms of the principal–agent problem, which posits that conflicts of interest and asymmetries of information affect coordination between principals (such as Chinese leaders) and agents (such as private companies). Since the case study reveals conflicts of interest between principals and agents in Chinese state-led economic diplomacy in the Czech Republic, it has implications for understanding the characteristics and practical implications of BRI-framed investment drives in the remainder of the Central and Eastern Europe region.

Notes

Funding information

This work was supported by the Czech Science Foundation (Grantová Agentura České Republiky, GAČR), as part of the research project “China’s multifaceted economic diplomacy in the era of the Belt and Road Initiative”, project no. 19-01809S.

References

  1. Allen-Ebrahimian B, Tamkin E (2018) Prague opened the door to Chinese influence. Now it may need to change course. Foreign Policy, 16 March. https://foreignpolicy.com/2018/03/16/prague-to-czech-chinese-influence-cefc-energy-communist-party/. Accessed 15 May 2019
  2. Baldwin D (1985) Economic statecraft. Princeton University Press, PrincetonGoogle Scholar
  3. Blackwill RD, Harris JM (2016) War by other means: geoeconomics and statecraft. The Belknap Press of Harvard University Press, CambridgeGoogle Scholar
  4. Blas, J, Mazneva E (2018) Qatar steps in to buy Rosneft stake after China deal collapses. Bloomberg, 4 May. https://www.bloomberg.com/news/articles/2018-05-04/china-s-cefc-won-t-buy-rosneft-shares-from-glencore-led-group. Accessed 13 May 2019
  5. Bozzato F (2017) Gifts that bind: China’s aid to the Pacific island nations. Asia Japan J 12:17–35Google Scholar
  6. Brautigam D (2009) The dragon’s gift: the real story of China in Africa. Oxford University Press, OxfordGoogle Scholar
  7. Cang A, Guo A (2017) Why an enigmatic Chinese company just spent $9 billion on a stake in Rosneft. Bloomberg, 2 Oct. https://www.bloomberg.com/news/articles/2017-10-02/why-cefc-spent-9-billion-on-rosneft-while-seeing-30-oil-risk. Accessed 5 Feb 2019
  8. Chan S, Drury AC (2000) Sanctions as economic statecraft: an overview. In: Chan S, Drury AC (eds) Sanctions as economic statecraft: theory and practice. Palgrave, Houndmills, pp 1–16Google Scholar
  9. Chen A, Lopatka J (2017) China’s CEFC has big ambitions, but little known about ownership, funding. Reuters. https://www.reuters.com/article/us-cefc-china/chinas-cefc-has-big-ambitions-but-little-known-about-ownership-funding-idUSKBN14X0B5. Accessed 22 Feb 2019Google Scholar
  10. Chen A, Rose A (2015) Private China firm to take control of unit of Kazakh state oil company. Reuters. https://www.reuters.com/article/us-china-kazakhstan/private-china-firm-to-take-control-of-unit-of-kazakh-state-oil-company-idUSKBN0TY1D320151215. Accessed 13 May 2019
  11. Cienski J (2011) Poland to China: you’re fired. Financial Times. https://www.ft.com/content/77f1d8c3-d258-3760-b035-6edee87cb6c2. Accessed 13 May 2019
  12. Dimitrijević D (2017) Chinese investments in Serbia – a joint pledge for the future of the New Silk Road. Baltic J Eur Stud 7(1):65–83Google Scholar
  13. Dobson AP (2002) US economic statecraft for survival 1933–1991: of sanctions, embargoes and economic warfare. Routledge, LondonGoogle Scholar
  14. Drezner DW (1999a) The sanctions paradox: economic statecraft and international relations. Cambridge University Press, CambridgeGoogle Scholar
  15. Drezner DW (1999b) The trouble with carrots: transaction costs, conflict expectations, and economic inducements. Secur Stud 9(1–2):188–218Google Scholar
  16. Fürst R (2013) The Czech experience with relations with China: nothing to win, nothing to lose. In: Fürst R, Tesař F (eds) China’s comeback in former Eastern Europe: no longer comrades, not yet strategic partners. Institute of International Relations, Prague, pp 60–68Google Scholar
  17. Fürst R (2018) Czechia’s relations with China: on a long road toward a real strategic partnership? In: Weiqing S (ed) China’s relations with central and Eastern Europe: from “old comrades” to new partners. Routledge, Abingdon, pp 117–136Google Scholar
  18. Garlick J (2015) China’s trade with central and eastern EU members: an analysis of Eurostat data, 2004-2014. Acta Oecon Prag 23(4):3–22Google Scholar
  19. Gill B, Reilly J (2007) The tenuous hold of China Inc. in Africa. Wash Q 30(3):37–52Google Scholar
  20. Goh E (ed) (2016) Rising China’s influence in developing Asia. Oxford University Press, OxfordGoogle Scholar
  21. Heath TR (2016) China’s evolving approach to economic diplomacy. Asia Policy 22(July):157–191Google Scholar
  22. High speed Belgrade-Budapest railway delayed by year (2018) B92. 19 Dec. https://www.b92.net/eng/news/business.php?yyyy=2018&mm=12&dd=19&nav_id=105796. Accessed 5 Feb 2019
  23. Hirschman AO (1945) National power and the structure of foreign trade. University of California Press, BerkeleyGoogle Scholar
  24. Hu A (2018) The Belt and Road: revolution of economic geography and the era of win-winism. In: Liu W (ed) China’s Belt and Road Initiatives: economic geography reformation. Springer, Singapore, pp 15–32Google Scholar
  25. Hu A, Honghua M (2004) The rising of modern China: comprehensive national power and grand strategy. Paper presented at the international conference Rising China and the East Asian Economy, Seoul, 19-20 March. (Original Chinese version published in Strategy & Management, No. 3, 2002). English translation available at: https://myweb.rollins.edu/tlairson/china/chigrandstrategy.pdf. Accessed 12 Feb 2019
  26. Hung M, Wong TJ, Zhang F (2015) The value of political ties versus market credibility: evidence from corporate scandals in China. Contemp Account Res 32(4):1641–1675Google Scholar
  27. iDNES.cz (2015) Zemanovi radí šéf čínské firmy, která koupila Slavii i pivovary [The head of the Chinese firm which bought Slavia and breweries is Zeman’s advisor]. 5 September. https://www.idnes.cz/zpravy/domaci/zemanovi-radi-sef-cinske-firmy.A150905_161811_domaci_jj. Accessed 19 Feb 2019
  28. Ji T (2018) Ye Jianming under investigation, what fate will befall CEFC? Caixin online, 1 March. https://southseaconversations.wordpress.com/2018/03/29/caixins-investigation-of-cefc-and-chairman-ye-jianming/. Accessed 15 May 2019
  29. Jones L, Zeng J (2019) Understanding China’s ‘Belt and Road Initiative’: beyond ‘grand strategy’ to a state transformation analysis. Third World Q. online 20 Feb., pp. 1–25Google Scholar
  30. Kaczmarski M, Jakóbowski J (2015) China on Central-Eastern Europe: ‘16+1’ as seen from Beijing. OSW Commentary No 166, 15 AprilGoogle Scholar
  31. Kurlantzick J (2007) Charm offensive: how China’s soft power is transforming the world. Yale University Press, New HavenGoogle Scholar
  32. Laffont J-J, Martimort D (2002) The theory of incentives: the principal-agent model. Princeton University Press, Princeton and OxfordGoogle Scholar
  33. Lai C (2018) Acting one way and talking another: China’s coercive economic diplomacy in East Asia and beyond. Pac Rev 31(2):169–187Google Scholar
  34. Li W, Yi S (2014) Understanding China’s economic diplomacy (lije zhongguo jingji waijiao, 理解中国经济外交). Waijiao pinglun (Diplomatic Comment), no. 4, 1–24Google Scholar
  35. Lidové noviny (2019) Petříček probere s Novákovou kauzu Tchaj-wan. [Petřícek takes up Taiwan’s case with Nováková]. 30 MarchGoogle Scholar
  36. Lieberthal K, Oksenberg M (1988) Policy making in China: leaders, structures, and processes. Princeton University Press, PrincetonGoogle Scholar
  37. Liu W, Dunford M (2016) Inclusive globalization: unpacking China’s Belt and Road Initiative. Area Dev Policy 1(3):323–340Google Scholar
  38. Marečková M (2015) Číňané kupují budovu bývalé Živnobanky [The Chinese are buying the former Živnobanka building]. Hospodářské noviny, 2 September. https://byznys.ihned.cz/c1-64541180-cinane-kupuji-budovu-byvale-zivnobanky-zbavuje-se-ji-cpi-miliardare-radovana-vitka. Accessed 13 May 2019
  39. Matsuda N, Obe M (2018) Alibaba’s Jack Ma is Communist Party member: official media, Nikkei Asian Review, 27 November. https://asia.nikkei.com/Politics/Alibaba-s-Jack-Ma-is-Communist-Party-member-official-media. Accessed 3 Feb 2019
  40. Menzelová, Kateřina (2017) Ze Zemanových slibů přitekly od Číňanů po roce jen dvě miliardy [Only two billion Czech crowns of Chinese money promised to Zeman have arrived one year later]. Lidové noviny, 27 March. https://byznys.lidovky.cz/cinske-investice-rok-pote-ze-slibu-jen-dve-procenta-fxg-/firmy-trhy.aspx?c=A170326_214916_firmy-trhy_ELE, Accessed 12 Feb 2019
  41. Meunier S, Burgoon B, Jacoby W (2014) The politics of hosting Chinese investment in Europe – an introduction. Asia Eur J 12(1):109–126Google Scholar
  42. Ng, Eric (2017) Sinopec chairman Wang Yupu steps down to take director’s role at national safety regulator. South China Morning Post, 22 Sept. https://www.scmp.com/business/companies/article/2112472/sinopec-chairman-wang-yupu-steps-down-take-directors-role. Accessed 5 Feb 2019
  43. Ng E, Yu X (2018) China detains CEFC’s founder Ye Jianming, wiping out US$153 million in value off stocks. South China Morning Post, 1 March. https://www.scmp.com/business/companies/article/2135238/china-detain-cefc-founder-ye-jianming-stocks. Accessed 5 Feb 2019
  44. Norris WJ (2016) Chinese economic statecraft: commercial actors, grand strategy, and state control. Cornell University Press, IthacaGoogle Scholar
  45. Novotný PP (2016) Čínská CEFC kupuje podíl v Invii, chce nabídnout servis čínským turistům [China’s CEFC is buying shares in Invia, it wants to offer its service to Chinese tourists]. iDnescz, 22 March. https://www.idnes.cz/ekonomika/domaci/cinska-skupina-cefc-ovladne-on-line-obchodnika-se-zajezdy-invii.A160322_173841_ekonomika_rts. Accessed 22 Feb 2019
  46. Reilly J (2013) China’s economic statecraft: turning wealth into power. Lowy Institute for International Policy, SydneyGoogle Scholar
  47. Reilly J (2017) China’s economic statecraft in Europe. Asia Europe Journal 15(2):173–185Google Scholar
  48. Reuters (2018) Czech J&T and China’s CITIC reach deal in CEFC debt dispute. 25 May. https://www.reuters.com/article/china-cefc-czech/czech-jt-and-chinas-citic-reach-deal-in-cefc-debt-dispute-idUSL5N1SW1EA. Accessed 22 Feb 2019
  49. Rychlík M (2019) Jie, ztracený poradce, prý není vězněn [Ye, the lost advisor, apparently is not in prison]. Lidové noviny, 29 AprilGoogle Scholar
  50. Santora M, de Goeij H (2019) Huawei was a Czech favorite. Now? It’s a national security threat. The New York Times, 12 Feb. https://www.nytimes.com/2019/02/12/world/europe/czech-republic-huawei.html. Accessed 23 Feb 2019
  51. Shambaugh D (2013) China Goes global: the partial power. Oxford University Press, New YorkGoogle Scholar
  52. Sorbello P (2018) Chinese investor disappoints Kazakhstan’s national oil company. The Diplomat, 9 July. https://thediplomat.com/2018/07/chinese-investor-disappoints-kazakhstans-national-oil-company/. Accessed 13 May 2019
  53. Stevenson A (2017) U.S. bribery case sheds light on mysterious Chinese company. The New York Times, 21 Nov. https://www.nytimes.com/2017/11/21/business/china-energy-cefc.html. Accessed 5 Feb 2019
  54. Tubilewicz C (2007) Taiwan and post-communist Europe: shopping for allies. Routledge, Abingdon, UKGoogle Scholar
  55. Xi J (2014) The governance of China. Foreign Languages Press, BeijingGoogle Scholar
  56. Xie Y (2018) Guosheng puts CEFC under state ward as crackdown intensifies on freewheeling private businesses. South China Morning Post, 2 March. https://www.scmp.com/business/companies/article/2135420/guosheng-puts-cefc-under-state-ward-crackdown-intensifies. Accessed 6 Feb 2019
  57. Yeh ET, Wharton E (2016) Going west and going out: discourse, migrants, and models in Chinese development. Eurasian Geogr Econ 57(3):286–315Google Scholar
  58. Yu X, Zhang P, Zheng Y (2015) Corporate governance, political connections, and intra-industry effects: evidence from corporate scandals in China. Financ Manag 44(1):49–80Google Scholar
  59. Zeng L (2016) Conceptual analysis of China’s Belt and Road Initiative: a road towards a regional community of common destiny. Chic J Int Law 15(3):517–541Google Scholar
  60. Zha D (1999) Chinese considerations of “economic security”. J Chin Polit Sci 5(1):69–87Google Scholar
  61. Zhang X (2015) Foreword: a research agenda for China’s economic diplomacy. In: Zhang X, Hongyu W (eds) China’s economic diplomacy: the PRC’s growing international influence in the 21st century. ACA Publishing, London, pp 5–8Google Scholar
  62. Zhang S (2016) Chinese economic diplomacy: decision-making actors and processes. Routledge, London and New YorkGoogle Scholar
  63. Zhang D (2018) The concept of ‘community of shared destiny’ in China’s diplomacy: meanings, motives and implications. Asia Pac Policy Stud 5(2):196–207Google Scholar
  64. Zhang X, Wang H (eds) (2015) China’s economic diplomacy: the PRC’s growing international influence in the 21st century. ACA Publishing, LondonGoogle Scholar
  65. Zhao Y, Xu H, Xing G (1994) Zhongguo Jingji Mianlin de Weixian: Guojia jingji anquan lun [Dangers facing China’s economy: considerations of China’s economic security]. Yunnan Renmin Chubanshe, KunmingGoogle Scholar
  66. Zhdannikov D (2018) China’s CEFC investigation hits $9 billion Russian oil deal. Reuters, 22 March. https://www.reuters.com/article/us-rosneft-cefc/chinas-cefc-investigation-hits-9-billion-russian-oil-deal-idUSKBN1GY1VO. Accessed 15 May 2019
  67. Zhen B (2010) Protecting China’s overseas national interests in changing international circumstances: experience of Western countries and what China should do. China Int Stud 21(March/April):80–97Google Scholar
  68. Zhou Y (2003) Opportunities and challenges faced by economic diplomacy: a study of economic diplomacy (jingji waijiao mianlin de jiyu he tiaozhan – jingji waijiao gainian yanjiu, 经济外交面临的机遇和挑战-经济外交概念研究) Shijie jingji yu zhengzhi (World Economy and Politics), no. 7, 2003, 39–44Google Scholar
  69. Zweig D, Jianhai B (2005) China’s global hunt for energy. Foreign Aff 84(5):25–38Google Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.University of Economics PraguePrague 3Czech Republic

Personalised recommendations