The Role of Chinese Corporate Players in China's South China Sea Policy.

• Author: Gong, Xue

At the 18th Party Congress in 2012, the Chinese leadership set a strategic goal to transform China into a strong maritime power. (1) In July 2013, Chinese President Xi Jinping reiterated this ambition at the 8th collective study session of the Politburo of the Chinese Communist Party (CCP) Central Committee. (2) Thereafter, China began a sustained effort to reinforce its control over the land features it had occupied in the 1970s and 1980s and expand its presence in the South China Sea. Beijing reformed its maritime administrative system and strengthened the capabilities of the navy and maritime law enforcement agencies in order to protect and promote its perceived interests in the South China Sea. (3) In 2013, China began to transform the seven atolls it controls in the Spratlys archipelago into large artificial islands equipped with extensive military infrastructure such as airfields, barracks, radars and communication systems. In mid-2014, the national oil company China National Offshore Oil Corporation (CNOOC) deployed the Haiyang Shiyou-981 (HYSY-981) drilling rig into disputed waters near the Paracel Islands, resulting in a severe confrontation with Vietnam. In July 2016, China rejected the ruling of an arbitral tribunal in a case brought by the Philippines against China in 2013 which had challenged the legal basis of Beijing's expansive claims in the South China Sea. In October 2017, at the 19th Party Congress, President Xi highlighted the "steady progress" that the artificialisland programme in the Spratlys had achieved and how this had helped the country safeguard its maritime rights. (4) These events demonstrate that China has become more assertive in the South China Sea since Xi became General Secretary of the CCP in 2012. (5)

Scholars have attempted to explain Beijing's increasing maritime assertiveness from different perspectives. In general, however, their analysis has failed to fully address the role of domestic actors in China's South China Sea policy. As has been acknowledged by many China experts, the growing pluralization of Chinese society has made China's foreign policy more complicated. (6) Traditional state-centric approaches to analysing China's foreign policy are no longer adequate to achieve a nuanced understanding of the country's external relations. It is necessary to pay more attention to the role of new actors in Chinese foreign policy, and in the case of the South China Sea in particular, the role of Central State-Owned Enterprises (CSOEs).

This article argues that Chinese CSOEs have become increasingly important actors in the formulation and execution of Beijing's policy in the South China Sea. However, while all CSOEs are required to follow central government commands, their roles vary. Some actors mobilize resources to influence state policy and even pursue their own initiatives in the name of building a strong maritime nation in order to secure economic and political benefits. As such, they proactively align their business interests with the country's maritime interests and present themselves as defenders of the national interest. Other actors only respond when the central government provides policy incentives. When the policy environment appears favourable to their corporate objectives, they become very active in policy facilitation. Other state-owned enterprises are simply policy takers that serve as a political tool to undertake strategic tasks for the state. However, it is important to note that their activities are not just aimed at fulfilling political tasks given by the state; these companies also take advantage of their policy-taker role to maximize commercial opportunities.

Exploring the role of CSOEs in China's South China Sea policy is important for four reasons. First, it provides a new perspective for understanding China's policy towards the South China Sea. In particular, it helps us better understand Beijing's economic interests in the South China Sea, the pursuit of which often complicates relations between China and the Southeast Asian claimant countries, i.e. Vietnam, the Philippines, Malaysia and Brunei. Second, it helps disclose how CSOEs collaborate with one another and even local governments in exploring business opportunities in the South China Sea. Third, it helps us understand how the Chinese state utilizes the different capabilities of CSEOs to support its assertive foreign policy. Fourth, the domestic political economy perspective reveals many empirical nuances in the dynamics of the South China Sea dispute.

This article relies on case studies, interviews, quantitative data and archival materials to analyse the involvement of Chinese corporate entities in the South China Sea dispute. It should be acknowledged at the outset that information on Beijing's South China Sea policy is not easily accessible due to the opaque nature of the policy-making process in China. Moreover, it is also difficult to accurately determine how much financial support Beijing has provided to CSOEs to support its policy in the South China Sea. However, evidence from the three case studies examined in this article strongly suggests that Chinese CSOEs play an increasingly significant role in Beijing's South China Sea policy.

The Role of CSOEs in Beijing's South China Sea Policy

Examining China's post-2012 assertiveness in the South China Sea, many security experts have focused on the military and political dynamics to understand China's policy. (7) However, the economic element--especially China's maritime economic interests--has been largely overlooked. According to Chinese official statements, the development of the maritime economy has become one of the country's top national priorities. Statistics from the State Oceanic Administration (SOA) show that from 2012 to 2016, China's maritime economy witnessed an average annual growth of 7.5 per cent; 0.2 per cent higher than the national economic growth over the same period. In 2016, the value of marine-related products reached 7.05 trillion yuan (US$1.08 trillion), accounting for 9.5 per cent of the national economy. (8) Accordingly, developing the natural resources in the South China Sea has become very important for China's economic development. Since the establishment of Sansha City as a prefecture of Hainan Province in Woody Island in the Paracels in 2012, business activities there have flourished. By 2017, a total of 216 companies had been established in Sansha in the areas of logistics, telecommunications, natural resource development, tourism, civil aviation and maritime technology. (9) The airport on Woody Island handled over 680 flights from December 2016 (when commercial flights began) to December 2017. (10) This shows that the business activities in the South China Sea can no longer be ignored.

The existing literature also emphasizes the significance of statecentric efforts to account for different aspects of Beijing's South China Sea policy. (11) However, scholars and analysts often fail to pay adequate attention to the role of non-state actors. It is true that some observers have attempted to trace China's assertiveness to various domestic actors, for example local governments, the maritime militia, the navy, energy companies, the media and even nationalistic groups. (12) However, such studies are rare and not systematic in that they only recognize the dichotomous functions of these domestic actors--either as policy shapers or policy takers in China's foreign policy (13)--without taking account of significant variations in their actual roles.

While China and the Southeast Asian claimants trade barbs over sovereignty and jurisdictional issues, the reality is that some Chinese CSOEs have been quietly engaging in economic activities in the South China Sea. For example, the tourism industry generally regards regional tensions and conflict as bad for business. However, some actors, such as the China Oceanic Shipping Company (COSCO) and the China Travel Service Group (CTSG), became very responsive when the state declared policy support for maritime-related industries in the South China Sea that included tourism, despite the fact that they understood this policy would almost certainly generate tensions in the South China Sea. Some actors, like CNOOC, have mobilized resources in an effort to influence state policy by aligning their business interests with the state's maritime interests and presented themselves as defenders of the national interest. For some CSOEs, such as the China Communications Construction Company Ltd. (CCCC), the construction of facilities on land features occupied by China became a political task to serve Beijing's South China Sea policy and strengthen China's presence in the disputed waters. (14)

In order to understand Beijing's policy in the South China Sea, it is important to understand the relationship between the state and CSOEs. In China, the special state-business relationship suggests that CSOEs are subordinate to the state. The CCP's Organization Department appoints CSOE executives, quite a number of whom may hold ministerial or vice-ministerial ranks, while some even serve as alternate members of the Party's Central Committee. (15) In general, CSOEs survive and prosper because they enjoy connections to state power and benefit from state-backed preferential policies. (16) For example, many CSOEs enjoy favourable access to bank loans and low-interest financing because of their privileged status vis-a-vis the state. (17) Because of these unique ties, Chinese CSOEs are often required to serve the interests of the state at all levels. Although business actors do not seek to dictate state policy, the scope and magnitude of their activities inevitably has an impact on China's actual behaviour in the dispute and consequently on regional security. (18) Also, the state can mobilize CSOEs to safeguard China's interests in the South China Sea by utilizing the capabilities and resources...