China Needs to Rethink its Game

Dr. Scott MacDonald's picture

One factor that has allowed China to expand its global role has been financial diplomacy in the form of loans, business deals and other investments. However, in overlooking issues such as public discontent with dictatorships, corruption and economic mismanagement, Chinese companies have also assumed considerable risk.

This was evident in Libya when the Gaddafi regime fell in 2011 and China was forced to evacuate its workers and take a hit on its investments. It is now looming as a major problem in Venezuela, where the economy has imploded and Beijing's lending of $60 billion to the Chavez and then Maduro regimes over the past decade looks as though the benefits of such maneuvering are not likely to materialize. Indeed, China's state-owned oil company, Sinopec, has moved to take Venezuela's state-owned oil company, PDVSA, to court in the U.S. for breach of contract and conspiracy to defraud. Additionally, when the Maduro regime eventually falls, the country's opposition is keenly aware that it has been Chinese money that helped prop up an unpopular, amazingly economic inept and corrupt regime. As China expands outwards through Eurasia with its One Belt, One Road Initiative it will need to give its approach of using capital without proper consideration of all the risks more thought as many of the same type of regimes await Chinese largesse, hoping for Beijing's willingness to overlook their problematic track records of corruption, lack of rule of law, economic mismanagement and questionable legitimacy in the eyes of their people. In many ways China has made a positive use of soft power options to expand its influence, but bad investments are just that - bad investments and bad government is one more factor that China and its companies are going to have to give greater consideration.