Bradley J. Murg, Director of Research
Later this week we will be providing our usual round up of events in the world of Sino-Cambodian relations, but today we take a break to pose a question that my own research currently examines, what I call the "Bates Question." The term stems from the work of the brilliant Robert Bates, a Harvard political economist who focuses on the development of Africa. In Bates' analysis of the dynamics of aid in Africa during the context of the Cold War, he observed the very common trend of states playing the two dominant, global powers (the United States and the Soviet Union) off of one another in order to gain increased payouts for the pet projects of various governments. The implications of this (depending on the literature one follows) were two potential (both negative) outcomes; however, it was clearly in the interests of the leaders of these states, if not their populations, to squeeze as much cash as possible from Washington and Moscow.
As to the possible impacts, the first was simply that aid - whether in the form of a loan or grant - was allocated with minimal to zero oversight and was simply embezzled by whichever authoritarian regime was in power and more often than not sent to private bank accounts overseas. The second was an over-allocation of aid that resulted in severe aid absorption problems for the recipient state in question. Before we can further examine the dynamics of Chinese aid in Cambodia, it is necessary to pose the question (we have hypotheses answering it, but you'll have to wait for the book to come out): why is the Cambodian government not doing this at this point of time? And if it is, what evidence do we have for that? As we observe a shift from a unipolar to bipolar world - with China replacing the USSR as the "other" power - one would expect a return to some of the dynamics that hallmarked the era of a bipolar distribution of power (obviously, we are assuming a Realist theoretical framework here).
Concomitantly, China is not exactly new to the world of "dollar diplomacy." For decades, China played this game with Taiwan - competing for diplomatic recognition in a world where the "One China Policy" was par for the course. During the initial years of the administration of Taiwanese president Ma Yingjiu, something of a truce was called as both states realized that the outcomes were simply not worth the cost and the Ma regime sought to come to something of a modus vivendi with the mainland, increasing trade and beginning direct cross-strait flights. Nevertheless, since then, the number of countries that recognize Taiwan rather than the People's Republic has declined to 20 or so - predominantly in Latin America (e.g. Guatemala and Paraguay) and many of the smaller south Pacific islands (Kiribati) with the Holy See as the only European state maintaining its embassy (well, to be technical, its Apostolic Nunciature) in Taipei rather than Beijing. Although Vatican sources indicate that is likely to change in the near future as Rome seeks to come to a "Vietnam-style" agreement on the governance of the Church in mainland China.
It's useful to note that not a single Asian state (depending on how you categorize the South Pacific) recognizes Taiwan and the status quo remains one of a set of de facto Taiwanese embassies (Taipei Economic and Cultural Offices - TECO) across the globe. Although Taipei's proposal for the establishment of such an office was (loudly) rejected by the Cambodian government a couple of years back, and Cambodia's policy on Taiwanese nationals is one of the harshest on the planet, i.e. as we have noted previously, consistently deporting Taiwanese citizens accused of crimes to the People's Republic rather than Taiwan. Even the flying of the Taiwanese (Republic of China) flag is technically illegal in Cambodia. It is certainly doubtful that even the regime of new(ish) Taiwanese president Tsai Yingwen (of the Democratic Progressive Party, 民主進步黨, the not-as-open-about-it-as-before-but-everyone-pretty-well-knows they are the pro-independence party) will make another push for a TECO office in Cambodia, China's enormous footprint in Cambodia make the odds of success unlikely. So, as noted, the issue is here is not whether Taiwan will engage in some diplomatic offensive in Phnom Penh, that's extremely low on the priority list and Taipei would certainly lose in that sort of dollar diplomacy type of competition. But I digress ...
Rather, why has Phnom Penh not been more canny in its tactics to increase or at least to maintain its aid allocations (which, as noted in other locations, are likely to decline in the coming year), by playing the West off of China in order to gain increased allocations or at least better terms on loans? China's aid model - as observed in Venezuela and Ecuador and parts of Africa - often entails attaching quite a few strings in the form of relatively high interest rates to loans etc with negative ancillary effects for the recipient government. Is "One Belt, One Road" simply too deeply entrenched in the country's long term development plans for this strategy to succeed?
Here is it important to note that Phnom Penh does have a significant tactical card to play and Beijing finds itself in something of a difficult situation: the ASEAN card. The question here is one of credible commitment by Phnom Penh to consistently uphold China's position on the South China Sea question and other issues in ASEAN. Thomas Schelling and Douglass North have both discussed the concept of credible commitment, i.e., the ability to make both threats and promises that are believable and are understandable by one's opponents (as noted by Slantchev).
In other words, what makes Phnom Penh's position promises believable in Zhongnanhai (China's White House)? At present, Beijing appears to be relying on a form of motivational commitment, i.e., it is in the interest of both players to abide by existing rules/motivations. Alternatively, Phnom Penh may be deliberately limiting its choices - reducing its own freedom of action in the diplomatic sphere - in an observable way (e.g., through a shift towards the type of semi-authoritarian regime that would alienate other donors and thereby significantly increase the costs of Cambodia reneging on its bargain with China while concomitantly serving China's interest in slowing the spread of liberal democracy, a phenomenon that could serve to put pressure on the regime in the long term). Alternatively, the gradual decline of aid to Cambodia by Western states as its GDP per capita and HDI rise, could be (inadvertently) serving to create the exact sort of "limiting credible commitment" Beijing requires, thereby facilitating deeper Cambodian ties to China and mutual trust between the two states with severe negative consequences for ASEAN and the resolution of the South China Sea question.
However, let's assume some sort of exogenous or endogenous shock that undermines the equilibrium of the existing credible commitments hypothesized above. What further guarantees does Beijing have that Cambodia would not shift if sufficient financial inducements were offered by a collection of donors more committed to the protection of human rights and the building of the rule of law in Cambodia (not really hard to beat China on that score)? Are CCP-CPP relations simply so deeply embedded though informal networks and commercial ties that they serve as a form of either shared interest/reputational credible commitment and if so, what evidence do we have of that? What happens if ASEAN finally becomes sufficiently fed up (and there are certainly rumblings) with Cambodia's consistent role as Beijing's voice/veto in various conferences? What happens if Chinese capital controls become even more stringent, significantly diminishing PRC FDI in country? We are observing phenomenal amounts of Chinese aid and investment in Lao these days, is China "hedging its bets" with Vientiane as something of a JV player sitting on the bench, being groomed to fill in for Cambodia if it ever did decide to shift or if it saw a change in government?
So, some fun food for thought for today. We'll be back with our usual round up of China-Cambodia developments and summaries of economic developments in Lao and Vietnam later this week along with the first in our series of posts on the issue of "Rielization" (spoiler alert: we're not optimistic).
Douglass C. North, Institutions and Credible Commitment, Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft, Vol. 149, No. 1, The New Institutional Economics Recent Progress; Expanding Frontiers (Mar. 1993), pp. 11-23