Ithaca; London: Cornell University Press, 2016. x, 303 pp. (Tables, figures, maps.) US$39.95, cloth. ISBN 978-0-8014-5449-3.
China does not just officially engage with its economic partners. Its unofficial interactions are perhaps more important. William Norris’ Chinese Economic Statecraft: Commercial Actors, Grand Strategy, and State Control delineates between diplomacy and statecraft in this manner. Its first two chapters construct a generalized theory for evaluating the government-business dynamics of any state. The third chapter applies this theory to the particulars of China’s “grand strategy” (46), a classical realist term borrowed from international relations theory that Norris defines as the “rational strategic logic” (48) of a given nation. Together, these three chapters delineate a comprehensive theory and comprise part 1, “On Economic Statecraft.” The remaining three sections of the book each address an economic sector using case studies that examine the theory through various combinations of the politico-corporate nexus. Part 2 discusses state-owned natural resource companies; part 3 highlights the experience of private fruit farmers and pro-independence entrepreneurs in Taiwan; part 4 examines state finance. Especially with its last section on Chinese sovereign wealth funds, the book’s approach is illuminating to those scholars discerning the complex relationship between the Chinese Communist Party and the far-flung agencies of its unique financial regulatory regime.
Norris theorizes that the “direct, classical mercantilist power of the state to dictate policy” (18) has gradually given way to the state’s “intentional manipulation” (13) of commercial actors to incentivize them to behave in line with national strategic interests. In other words, economic statecraft is replacing economic diplomacy. To predict the extent to which such influence is successful, Norris rather ambitiously proposes a tidy two-by-two matrix, the kind that always seem to sneak into business school curricula. It neatly tries to forecast the outcome of any given interaction between corporate enterprises and the state. Whether or not state unity is monolith or fragmented and whether or not the goals of the state and private interests are compatible comprise the four potential regions of this rectangle.
Principal-agent theory anticipates the result of economic statecraft in the most troublesome quadrant of this matrix, where state unity is high but the goals of the state and commercial entity differ widely. This amalgam of modern economics and political science posits that institutions or people (agents) do not always work well with the governments or corporations (principals) tasked to supervise them. The agent’s condition persists until their own selfish desires are almost perfectly aligned with those of their principals. Thus, these situations, in which the constant subtle thrum of economic statecraft may deliver the most value to the principal in terms of agent interest transformation, are where the author attempts to develop a broad and instructive theory of economic interaction. As such, Norris posits five independent variables that explain a state’s likelihood of success in their unofficial economic pursuits. In addition to the aforementioned state unity and goal compatibility, market structure, the nature of the reporting relationship, and the balance of relative resources are examined in a series of case studies that explicate the theory. Though maybe a little forced in its theory building, the effort is admirable in its potential explanatory power and breadth.
The work is not without criticism, however. The model’s inputs rely on a highly stylized binomial variable: state control. The idealistic assumption that state control either exists or not oversimplifies an increasingly complex hybrid state capitalist structure and too easily dismisses China’s unprecedented international financial configuration. To his credit, Norris admits to this conceit, stating that “in reality state control varies continuously” along a spectrum, but claims that characterizing the variable in discrete terms is necessary to make the model more “manageable” (23). In his case discussion, Norris provides sufficient detail to compensate for this coding convention. However, the cases in this book—for example, state oil companies and Taiwanese entrepreneurs—are purposely selected for their extreme profiles on this particular variable. Yet, if a theory aspires to be truly robust, it must be useful in predicting the outcomes of interactions between government institutions and commercial actors that, increasingly in the modern Chinese politico-economy, have a complex and evolving relationship with the state at many different touchpoints. Would an examination of internet behemoth Alibaba, for example, with its offshore holding company and dizzying cross-ownership structure of myriad entities involving Chinese state funds and non-Chinese investors alike, break the model? More work is needed to test the limits of Norris’ otherwise illuminating framework. Another shortcoming of the book is the relative staleness of many of the case studies. The work itself is a refresh of Norris’ dissertation submitted to MIT in August 2010. A reexamination of the framework using more cases from the post-crisis Xi Jinping era would do much to prove the validity of the theory.
To this reviewer, the part of the book with the most promise lies in its prospective capacity to explain China’s recent moves to “effectively leverage the sovereign wealth aspect of its monetary power” (164). Part 4 examines China’s sovereign wealth funds (SWF) from the novel perspective of defining any state fund charged with the responsibility to invest excess foreign reserves as an SWF. Hence, Norris’ findings that the cross-purposes inherent in the design of semi-autonomous funds, like the State Administration of Foreign Exchange (SAFE), National Social Security Fund (NSSF), and China Investment Corporation (CIC), may result in institutional wrangling is novel and informative. Though the SWF universe has yet to provide too much empirical data for in-depth analysis, the Norris framework appears sufficient to explain and forecast that important monetary landscape as it changes in real time.
Advanced scholarly discourse on the Chinese political economy of this high quality is always welcome. Though not as statistically robust as the works of Nicholas Lardy, Norris’ broad-view interdisciplinary approach analyzing diverse issues, from state-owned extractive industries to cross-Strait relations to state-run investment funds, all from the perspective of the same unifying theory, is ambitious. Whereas such breadth may present complications when assessing model validity, the potential for the theory to be widely applicable is also one of the greatest strengths of Chinese Economic Statecraft.
Nicholas Krapels
East China Normal University, Shanghai, China
pp. 553-555