How China’s Economic Zones Are Challenging Global Norms

Maria Adele Carrai is an Assistant Professor of Global China Studies at NYU Shanghai, with an impressive background in research and academia. Her work revolves around the history of international law in East Asia and how China's ascent as a global power is reshaping norms and international power dynamics. With a keen focus on the Belt and Road Initiative, her research delves into the economic, legal, and political implications of Chinese investments and economic engagements in Europe and Africa.

Recently, she conducted a study titled "China’s Overseas Economic and Trade Cooperation Zones" for the Hinrich Foundation. In this research, she explores how the overseas economic and trade cooperation zones, established by China as part of the Belt and Road Initiative, contribute to economic growth and international collaboration. These zones offer incentives and benefits to foreign companies, facilitating job creation, technological transfer, and local industry growth. However, her research also delves into the challenges and criticisms surrounding these zones, including concerns about labor rights violations, environmental degradation, loan dependence, land acquisitions, and transparency issues. Despite their potential benefits, addressing these challenges is essential to ensure the sustainable and responsible development of the host countries.

Carrai's expertise sheds light on the significance of COCZs as integral components of China's Go Global policy and the Belt and Road Initiative. These zones act as essential links in China's strategy to extend its global reach, fostering international collaboration and securing advantageous trading conditions for Chinese businesses abroad. However, she also emphasizes the need for collaboration between policymakers, businesses, and civil society organizations to ensure that COCZs uphold sustainable practices and contribute to the long-term development and well-being of the host countries.

Maria Adele Carrai

Looking ahead, she envisions COCZs playing a vital role in China's economic engagement with Europe and Africa. As these zones continue to facilitate the expansion of Chinese businesses, she sees potential in integrating digital technologies to transform COCZs into even more powerful tools for economic diplomacy and cooperation. With her insightful research, Carrai offers valuable perspectives on the complexities and opportunities surrounding China's overseas economic and trade cooperation zones.

Carrai’s interview with foreignpress.org is within the scope of AFPC-USA’s partnership with the Hinrich Foundation. The AFPC-USA is solely responsible for the content of this interview. 

The following conversation has been condensed and edited for clarity.

How do the overseas economic and trade cooperation zones (COCZs) established by China under the Belt and Road Initiative contribute to the promotion of economic growth and international collaboration?  

These zones offer incentives and benefits to foreign companies with the goal of creating jobs, attracting Foreign Direct Investment (FDI), facilitating technological transfer, and encouraging the growth of local industries. In the case of China, since the 2000s, they have become an integral part of its global reach. They serve as nodes of the infrastructure and economic network established by the Belt and Road Initiative. In 2006, the Chinese government announced its intention to establish more than 50 CPECs, and the MOCOM has recognized 20 so far. MOCOM reports that in 2019, the total investment in CPECs amounted to US$ 36.1 billion. This investment stimulated the export of goods worth US$ 18.2 billion, contributed US$ 3.5 billion in taxes and fees to the host countries, and generated 320,000 jobs. Research indicates that the establishment of a CPEC significantly boosts the direct investment of Chinese firms in the host country. However, detailed financial data on individual CPECs remain limited. Existing studies primarily leverage FDI data from the countries hosting CPECs and construct mathematical models to scrutinize the impact of FDI within these zones.

In your research, what have you found regarding the actual performance of COCZs and their impact on host countries' investments, trade, sustainability, and integration in the global supply chain?  

When evaluating the performance of COCZs and their impact on host countries, we must consider a range of factors. One major contribution of these zones has been in job creation and attracting investment. They have significantly bolstered the host countries' economies, generating billions in taxes and fees. However, the majority of these investments have been Chinese Foreign Direct Investment (FDI), with less domestic or foreign investment attracted. This imbalance could affect the perceived benefits of these zones and their economic integration with the host nations. It is also important to note that as of 2019, about 36 percent of COCZs remained unprofitable, largely due to the extensive initial investment required and lengthy construction periods. In terms of trade, COCZs have proven instrumental in promoting commerce between China and the host countries.

This is particularly true in instances where China needs to secure necessary resources and materials, such as in Zambia and Russia. They also facilitate the offshoring of lower-tech manufacturing from China to regions with cheaper labor costs, including countries like Cambodia, Ethiopia, Nigeria, Thailand, and Indonesia. Sustainability concerns, however, remain a significant challenge. There have been worries about the environmental impact of COCZs, especially those involved in the garment manufacturing or resource extraction sectors. Such activities could lead to considerable environmental degradation in host countries, raising sustainability issues that need to be addressed.  

The role of COCZs in the global supply chain is a double-edged sword. While these zones have been useful in expanding the global value chain and elevating China's position within it as envisioned in the "Made in China 2025" policy, they also raise concerns about over-reliance on China. Critics have warned that China's loans associated with these projects could potentially push poorer nations into a debt crisis, ultimately losing control over vital infrastructure and resources.

Could you elaborate on the significance of COCZs as an integral part of China's Go Global policy and the Belt and Road Initiative? How do they align with China's broader economic development goals?  

The COCZs are integral parts of China's "Go Global" policy and the Belt and Road Initiative (BRI) and align with China's broader economic development goals. It is almost like they're pieces of a much larger puzzle. In essence, the "Go Global" policy is China's strategy to encourage its domestic enterprises to invest overseas. Now, this is where COCZs fit in. They are specifically designed platforms that enable Chinese businesses to establish a presence in overseas markets, offering them a direct way to navigate, interact with, and ultimately succeed in foreign economic landscapes.

Similarly, the BRI is a massive project aiming to bolster a trade and infrastructure network connecting Asia with Europe and Africa along ancient trade routes. COCZs are key links of this infrastructure connectivity as they build a link, a physical presence, that helps connect Chinese businesses to local markets along these routes. In a way, you could say that the COCZs are an embodiment of the "brick and mortar" aspect of the BRI, literally planting Chinese commerce into the soil of participating nations. If we look at China's broader economic development goals—internationalizing Chinese enterprises, securing global supply chains, fostering trade relationships, and gaining influence—you can see how COCZs dovetail with these aspirations. By providing Chinese businesses a launchpad to go global, COCZs help foster the international presence and influence China's aspirations, while also strengthening trade relationships and securing global supply chains.

What are some of the concerns and criticisms surrounding COCZs, such as labor rights violations, environmental degradation, loan dependence, land acquisitions, and transparency issues? How do these challenges affect the perception of COCZs' positive influence on local employment and revenue generation?  

A 2019 report from the United Nations Development Program (UNDP) underlines the significant contribution of COCZs to the sustainable development—economic, environmental, and social—of host countries. It reveals that the majority of COCZs are economically sustainable, with 12 percent of these zones earning considerable profits, 33 percent being profitable, and 19 percent operating just enough to cover their costs. The National Development and Reform Commission of China, in a 2017 report, drew attention to China's regulatory efforts aimed at preserving the environment of host countries, protecting biodiversity, combating climate change, and encouraging corporate social responsibility. However, it's also apparent that a considerable number of jobs created are in pollution-intensive industries. Furthermore, several COCZs are situated in bioregions where natural environments are under significant threat.

As for labor rights violations, there have been several instances where Chinese companies operating within these zones have been accused of poor treatment of workers. This is particularly noticeable in the Zambia-China Economic & Trade Cooperation Zone. Despite creating thousands of jobs, there have been worker protests, indicating discontentment with conditions. As for environmental degradation, this is another significant concern. In Thailand's Thai-Chinese Rayong Industrial Zone, factories have been accused of polluting local waters and releasing toxic chemicals into the air and soil. Similarly, in Ethiopia’s Eastern Industry Zone, the thriving leather industry has posed substantial environmental challenges. Loan dependence and overreliance on China is another aspect we can't overlook. The lack of transparency surrounding the loan and management of the Zambia-China Economic and Trade Cooperation Zone, for instance, raised alarms about Zambia's debt and dependence on China. 

The fear is that this overreliance might lead to a debt crisis, with poorer countries losing control of important infrastructure and resources to repay their debts. Land acquisitions have also been problematic in areas such as Pakistan, where the China-Pakistan Economic Corridor has run into issues including land access and resettlement problems. Lastly, transparency issues are a recurring theme. It's been challenging to obtain detailed financial data on specific COCZs, making it tough to assess their real impact. Often, only aggregate data is available, which may not fully represent the situation on the ground.

These challenges and criticisms have affected the perception of COCZs' positive influence. 

Despite creating jobs and boosting the economy, these concerns have raised questions about the overall sustainability and fairness of these initiatives. So, while there are undeniable benefits to the host countries, it's clear that there's room for improvement in ensuring these zones are managed in a way that benefits all stakeholders and doesn't harm the environment or infringe on labor rights. It's a complex situation and one that needs careful management to ensure the best outcomes for everyone involved.

How can policymakers, businesses, and civil society organizations collaborate to ensure that COCZs uphold sustainable and responsible practices, mitigate negative impacts, and contribute to the long-term development and well-being of the host countries?

I think the success of COCZs should be thought of as a shared responsibility among Chinese and host countries’ policymakers and businesses, and civil society organizations. Each one of them has a unique role to play, and their collaboration can really push the needle towards making COCZs more sustainable, responsible, and beneficial to the communities they're in. Starting with policymakers, they're the folks who set the rules of the game. They can enact and enforce regulations to ensure labor rights, maintain environmental standards, and uphold fiscal transparency. It's not just about creating laws but ensuring these laws are being followed. They can also provide incentives for COCZs to adopt sustainable practices. This is also true for Chinese policymakers, who have already started to make more accountable Chinese economic actors overseas. Businesses are key players too. They're the ones in the field, after all. They need to prioritize social responsibility and sustainability, not just for the sake of regulations, but because it makes business sense too. By aligning their strategies with the Sustainable Development Goals or similar frameworks, they can ensure their operations are beneficial to the communities and the environment. 

It is significant to see how Chinese companies are increasingly incorporating corporate social responsibility and Environmental, social and governance framework in their operations abroad. But, of course, it's not just about top-down approaches. Civil society organizations have a big role here as well. They can serve as watchdogs, holding both businesses and policymakers accountable. They can help educate the community about their rights, raise public awareness on the potential impacts of these zones, and ensure the voices of the community are heard. In my research on Chinese-financed and built railways in Kenya and Ethiopia, it was clear how the more vibrant civil society of Kenya was an important driver in the better implementation of corporate social responsibility in Kenya. It's also crucial that there's open communication among all these groups. That means regular dialogues, consultations, and collaborative problem-solving. By working together, they can find solutions that balance economic growth with social and environmental well-being. Finally, international cooperation and oversight can provide additional layers of accountability.

How do COCZs contribute to China's efforts to secure advantageous trading conditions for its businesses abroad and create a safer environment for its economic development? In what ways do they enhance China's soft power?

Hinrich Foundation

COCZs reflects China’s ambitious strategy that's geared towards boosting its economic development and global influence. On the direct side, these COCZs provide Chinese businesses with a platform to extend their reach in foreign markets. They create a more favorable environment for these businesses to trade and invest. By establishing these zones, China is essentially setting up shop right in the heart of various global markets. This allows Chinese businesses to overcome barriers such as tariffs, customs, and logistics that they would otherwise face. Plus, it's easier to understand and cater to the local market demands when you're physically present there. It's like playing a home game on foreign soil. But there's also an indirect aspect. Establishing these zones also contributes to the local economy of the host countries. It can lead to job creation, infrastructure development, and technology transfer. This means that China is not just seen as a business partner, but also as a contributor to local economic growth. This enhances China's image, builds goodwill, and can make these countries more inclined towards forming favorable trade and political relationships with China. So, this aspect also feeds into China's soft power strategy. 

Moreover, by promoting China's successful model of development and Chinese culture through these zones, China also enhances its cultural influence and recognition abroad. This can lead to a greater appreciation of Chinese values and culture and further boost China's soft power. All of this contributes towards a safer environment for China's rise. By diversifying their markets and reducing reliance on any single region, China reduces the risks associated with economic uncertainties or political tensions. COCZs can thus be seen as a strategic tool that China is using to boost its economic interests and global influence. Of course, as mentioned before, there are also many push backs from host countries that can instead reduce China’s soft power. While these zones have created a significant number of jobs, they've also encountered resistance from local business leaders and workers due to contentious issues such as land acquisition, access to incentives, and workers' rights.

What role do you see COCZs playing in the future of China's economic engagement with Europe and Africa? Are there any emerging trends or developments that you find noteworthy in this regard?

COCZs are shaping up to be a critical component not only of China’s domestic economic development, but also of China's international economic engagement. Currently, there are four COCZs recognized by the MOFCOM in Africa: Ethiopia, Nigeria, Egypt and Zambia. These zones have been going on for some time, and they are an essential part of the maritime trade network of the BRI and are an expression of the vision of China to integrate supply and industrial chains. In Europe, Hungary hosts two COCZs and Belgium hosts the China Belgium Technology Center to foster European-Chinese innovation and cooperation in the field of High Tech. I expect that COCZs, especially in Africa, will continue to play a role in facilitating the expansion of Chinese businesses in these regions, especially in sectors like manufacturing, retail, and technology. 

This presence is not just about business transactions, but also about gaining an in-depth understanding of the local market dynamics, cultural nuances, consumer behavior, and regulatory landscape. This information is priceless when it comes to tailoring products and services that resonate with local consumers. So, it's a sort of on-the-ground learning experience for Chinese companies, which could lead to more successful business strategies and ventures. Additionally, I believe the integration of digital technologies in COCZs could be a game-changer. We're already seeing trends where COCZs are not just physical marketplaces but are also linked to e-commerce platforms. This opens up the potential for Chinese companies to reach a wider customer base and offer a more streamlined and personalized shopping experience. Moreover, by contributing to the local economies of the host countries, these zones can serve as a tool of economic diplomacy, fostering goodwill and potentially influencing these countries' stances on issues of mutual interest. Of course, the future is unpredictable, and geopolitical dynamics can be complex, especially in Europe, which is trying to de-risk from China. But if managed responsibly, COCZs can present opportunities for both China and the host countries, enhancing economic growth, and fostering cooperation.