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Chen, Zhaoyuan. (2023). Investing in state capacity: FDI structure and state building in the developing countries. Shanghai People's Publishing House

Chen, Zhaoyuan. (2023). Investing in state capacity: FDI structure and state building in the... Luxin Asian Review of Political Economy (2023) 2:3 Asian Review of https://doi.org/10.1007/s44216-023-00013-1 Political Economy BOOK RE VIE W Open Access Chen, Zhaoyuan. (2023). Investing in state capacity: FDI structure and state building in the developing countries. Shanghai People’s Publishing House 1* Liu Luxin *Correspondence: Bookdetails liuluxin09@ruc.edu.cn Liu L, Investing in State Capacity: FDI Structure and State Building in the Developing School of International Studies, Renmin University of China, Countries (in Chinese: 投资国家能力：外国直接投资结构与发展中世界的国家建 Beijing, China 设), by Chen Zhaoyuan, Shanghai People’s Press, 2023,328 pages, ¥85 (paperback) As we enjoy the fruits of free capital flows around the globe, some wonder what have been brought to the world’s backward corner by the wealthy multinationals. At the beginning of the development of International Political Economy (IPE), some realist scholars saw foreign investors as exploiting the host countries, and mercantilists saw them as an extension of the national interests and foreign policies of the developed countries, so that the backward regions were caught in “sovereignty dilemma”, “depend- ent development” and even labelled as “banana republics”. This is the old era and how its scholars portrayed it. Now, some former debtor coun - tries have instead grown into major sources of capital, whose companies are equally equipped to go abroad and are rewriting the structure of global capital flows and their content. As China has become one of the largest capital lenders in the world, what are the changes brought about by overseas investment from Chinese firms? This is the central question that Dr. Chen Zhaoyuan addresses in his new book. The IPE and Comparative Political Economy (CPE) literature has long debated the extent to which international capital mobility constrains state autonomy, but has mainly focused on private capital flows. Incorporating China’s state-led capitalism into this political economy framework, Chen’s book makes a substantial contribution to the extensive literature. First, on the theoretical front, “Investing in State Capacity” provides a valuable contribution to the study of CPE: the absence of a modern com- parative model of financial markets. CPE has remained largely stuck with a long- standing dichotomy between bank-based and financial-market-based systems. There has been very limited attention to state actors in the international financial market © The Author(s) 2023. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the mate- rial. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen ses/ by/4. 0/. Luxin Asian Review of Political Economy (2023) 2:3 Page 2 of 3 and patient capital. The author argues that  patient capital from China’s state actors contains special characteristics that are said to be more risk-tolerant, facilitate long- term investment and closer investor-host government relations. In turn, patient capital is complementary to other institutional domains of developing economies, supplying more jobs, higher wages, and better public services that have become the basis for many governments’ political survival. Second, the author elegantly bridges the research field of IPE and Comparative Poli - tics. Scholars of Comparative Politics who study state-building in Third World coun - tries often overlook the important role of FDI as an explanatory variable, while IPE scholars who study FDI have been less concerned with state capacity as an explained variable. In the Introduction Chapter, the author presents a fine-grained literature review about state capacity and demonstrates that the dependent variable is undoubt- edly a subject of great importance for developing countries, as a pillar of regime legitimacy, economic development, and social protection. In Chapter  2, the author develops a theory about how China’s emergence as a global creditor affects host coun - tries. Using the Euclidean spatial model, the author argues that with China’s FDI coming into developing countries, the diversification of foreign investors enhances the national government’s “room to maneuver”, and therefore its capacity to preserve order, extract tax and provide social protection. Specifically, the longer time horizon of Chinese capital allows the host country to plan and develop its capacity to rule on a longer time scale, including a more rational drive to build up its military and police forces. Chinese investors are generally more cooperative with tax increases in host countries due to the pursuit of long-term productive benefits, whereas Western investors are more likely to choose to divest in response to tax increases. Moreover, Chinese investors have closer ties to the host government and are more motivated to take an interest in the stability and sustainability of the local workforce. The author verifies the hypotheses through self-established database, well-designed quantitative research in Chapter 3 and 4, as well as an in-depth case analysis about Chinese invest- ment in Ethiopia in Chapter  5. Therefore, the book compellingly demonstrated that China’s rise in the world economy has not only changed international politics but has also largely influenced many countries’ domestic politics. Finally, Chen’s book reveals a profound truth that dependency results from a process of opening, which differs from the structural determinism of traditional dependency theory that emphasizes the stable feature of international power allocation. Through in-depth case analyses of different recipients of FDI among the developing countries Chen  finds that within the similar countries of dependency, there is a range of possi - ble responses that depend on the structure of foreign investors. So if the structures of dependency draw the boundaries of oscillating change, then the political struggles of local governments and social groups can reproduce and change these structures, and may even replace them with structures that are not predetermined. In this respect, the book resembles much of the thrust of Peter Evans’ classic published in 1979, Dependent Development, and applies it to the case of a new structural relationship, the one between a rising power and its third-world partners. There has been a long history of research in IPE on the impact of global capital flows on latecomers in the world economy. Chen’s book explores the new implications for L uxin Asian Review of Political Economy (2023) 2:3 Page 3 of 3 developing countries from the perspective of the unique nature of China’s FDI. However, host country policies also play a decisive role in the exercising of foreign capital, such as an open trade policy, a competitive domestic market, and a supporting talent policy, all of which decide whether foreign investors can accommodate the domestic political climate and  induce sustainable economic and political improvements. In this respect, the book looks more through the lens of the nature and structure of foreign capital, but is less concerned with the policy initiative of the host country. In addition, a system- atic comparison between Chinese and other traditional investors would help the reader to better understand how Chinese investment differs, which should also be the future direction of research. Overall, this book is an inspiring and a must-read work for students of IPE. It demon- strates the author’s solid research ability as a young scholar and his enlightening ideas about the new issues coming along with China’s rise in the world economy. More impor- tantly, the book shows the patience the author invested in studying the political econ- omy of the vast backward countries in the world, where the scholarly concern has been far from enough. For young scholars like Dr. Chen Zhaoyuan who are investing their research capabilities in this area, their works deserve high attention and strong support from the academic community. Acknowledgements N/A. Author’s contributions The author read and approved the final manuscript. Funding Open access funding provided by Shanghai Jiao Tong University. N/A. Availability of data and materials N/A. Declarations Ethics approval and consent to participate Yes. Consent for publication Yes. Competing interests The author declares that there are no competing interests. Received: 21 May 2023 Accepted: 7 June 2023 Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian Review of Political Economy Springer Journals

Chen, Zhaoyuan. (2023). Investing in state capacity: FDI structure and state building in the developing countries. Shanghai People's Publishing House

Luxin, Liu
Asian Review of Political Economy , Volume 2 (1) – Jun 28, 2023
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Abstract

Luxin Asian Review of Political Economy (2023) 2:3 Asian Review of https://doi.org/10.1007/s44216-023-00013-1 Political Economy BOOK RE VIE W Open Access Chen, Zhaoyuan. (2023). Investing in state capacity: FDI structure and state building in the developing countries. Shanghai People’s Publishing House 1* Liu Luxin *Correspondence: Bookdetails liuluxin09@ruc.edu.cn Liu L, Investing in State Capacity: FDI Structure and State Building in the Developing School of International Studies, Renmin University of China, Countries (in Chinese: 投资国家能力：外国直接投资结构与发展中世界的国家建 Beijing, China 设), by Chen Zhaoyuan, Shanghai People’s Press, 2023,328 pages, ¥85 (paperback) As we enjoy the fruits of free capital flows around the globe, some wonder what have been brought to the world’s backward corner by the wealthy multinationals. At the beginning of the development of International Political Economy (IPE), some realist scholars saw foreign investors as exploiting the host countries, and mercantilists saw them as an extension of the national interests and foreign policies of the developed countries, so that the backward regions were caught in “sovereignty dilemma”, “depend- ent development” and even labelled as “banana republics”. This is the old era and how its scholars portrayed it. Now, some former debtor coun - tries have instead grown into major sources of capital, whose companies are equally equipped to go abroad and are rewriting the structure of global capital flows and their content. As China has become one of the largest capital lenders in the world, what are the changes brought about by overseas investment from Chinese firms? This is the central question that Dr. Chen Zhaoyuan addresses in his new book. The IPE and Comparative Political Economy (CPE) literature has long debated the extent to which international capital mobility constrains state autonomy, but has mainly focused on private capital flows. Incorporating China’s state-led capitalism into this political economy framework, Chen’s book makes a substantial contribution to the extensive literature. First, on the theoretical front, “Investing in State Capacity” provides a valuable contribution to the study of CPE: the absence of a modern com- parative model of financial markets. CPE has remained largely stuck with a long- standing dichotomy between bank-based and financial-market-based systems. There has been very limited attention to state actors in the international financial market © The Author(s) 2023. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the mate- rial. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http:// creat iveco mmons. org/ licen ses/ by/4. 0/. Luxin Asian Review of Political Economy (2023) 2:3 Page 2 of 3 and patient capital. The author argues that  patient capital from China’s state actors contains special characteristics that are said to be more risk-tolerant, facilitate long- term investment and closer investor-host government relations. In turn, patient capital is complementary to other institutional domains of developing economies, supplying more jobs, higher wages, and better public services that have become the basis for many governments’ political survival. Second, the author elegantly bridges the research field of IPE and Comparative Poli - tics. Scholars of Comparative Politics who study state-building in Third World coun - tries often overlook the important role of FDI as an explanatory variable, while IPE scholars who study FDI have been less concerned with state capacity as an explained variable. In the Introduction Chapter, the author presents a fine-grained literature review about state capacity and demonstrates that the dependent variable is undoubt- edly a subject of great importance for developing countries, as a pillar of regime legitimacy, economic development, and social protection. In Chapter  2, the author develops a theory about how China’s emergence as a global creditor affects host coun - tries. Using the Euclidean spatial model, the author argues that with China’s FDI coming into developing countries, the diversification of foreign investors enhances the national government’s “room to maneuver”, and therefore its capacity to preserve order, extract tax and provide social protection. Specifically, the longer time horizon of Chinese capital allows the host country to plan and develop its capacity to rule on a longer time scale, including a more rational drive to build up its military and police forces. Chinese investors are generally more cooperative with tax increases in host countries due to the pursuit of long-term productive benefits, whereas Western investors are more likely to choose to divest in response to tax increases. Moreover, Chinese investors have closer ties to the host government and are more motivated to take an interest in the stability and sustainability of the local workforce. The author verifies the hypotheses through self-established database, well-designed quantitative research in Chapter 3 and 4, as well as an in-depth case analysis about Chinese invest- ment in Ethiopia in Chapter  5. Therefore, the book compellingly demonstrated that China’s rise in the world economy has not only changed international politics but has also largely influenced many countries’ domestic politics. Finally, Chen’s book reveals a profound truth that dependency results from a process of opening, which differs from the structural determinism of traditional dependency theory that emphasizes the stable feature of international power allocation. Through in-depth case analyses of different recipients of FDI among the developing countries Chen  finds that within the similar countries of dependency, there is a range of possi - ble responses that depend on the structure of foreign investors. So if the structures of dependency draw the boundaries of oscillating change, then the political struggles of local governments and social groups can reproduce and change these structures, and may even replace them with structures that are not predetermined. In this respect, the book resembles much of the thrust of Peter Evans’ classic published in 1979, Dependent Development, and applies it to the case of a new structural relationship, the one between a rising power and its third-world partners. There has been a long history of research in IPE on the impact of global capital flows on latecomers in the world economy. Chen’s book explores the new implications for L uxin Asian Review of Political Economy (2023) 2:3 Page 3 of 3 developing countries from the perspective of the unique nature of China’s FDI. However, host country policies also play a decisive role in the exercising of foreign capital, such as an open trade policy, a competitive domestic market, and a supporting talent policy, all of which decide whether foreign investors can accommodate the domestic political climate and  induce sustainable economic and political improvements. In this respect, the book looks more through the lens of the nature and structure of foreign capital, but is less concerned with the policy initiative of the host country. In addition, a system- atic comparison between Chinese and other traditional investors would help the reader to better understand how Chinese investment differs, which should also be the future direction of research. Overall, this book is an inspiring and a must-read work for students of IPE. It demon- strates the author’s solid research ability as a young scholar and his enlightening ideas about the new issues coming along with China’s rise in the world economy. More impor- tantly, the book shows the patience the author invested in studying the political econ- omy of the vast backward countries in the world, where the scholarly concern has been far from enough. For young scholars like Dr. Chen Zhaoyuan who are investing their research capabilities in this area, their works deserve high attention and strong support from the academic community. Acknowledgements N/A. Author’s contributions The author read and approved the final manuscript. Funding Open access funding provided by Shanghai Jiao Tong University. N/A. Availability of data and materials N/A. Declarations Ethics approval and consent to participate Yes. Consent for publication Yes. Competing interests The author declares that there are no competing interests. Received: 21 May 2023 Accepted: 7 June 2023 Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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Asian Review of Political Economy – Springer Journals

Published: Jun 28, 2023

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