China’s principal–agent problem in the Czech Republic: the curious case of CEFC

Jeremy Garlick ()
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Jeremy Garlick: University of Economics Prague

Asia Europe Journal, 2019, vol. 17, issue 4, No 6, 437-451

Abstract: Abstract Although it appears that China’s state capitalism model means that state-owned and private companies are utilised in the service of foreign policy goals such as international investments under the umbrella of the Belt and Road Initiative (BRI), the reality is more complex. The behaviour and interests of Chinese commercial actors do not always correspond with the stated aims and strategy of government officials. The article examines Chinese economic diplomacy in the Czech Republic from 2015 to 2018, assessing the extent to which the private company CEFC China Energy acted as an agent of the Chinese state as part of a coordinated strategy designed to increase Chinese economic and political influence via the use of economic incentives. CEFC was at the forefront of Chinese investments in the Czech Republic during this period but CITIC, a Chinese state-owned enterprise (SOE), took over these in May 2018 while the head of CEFC was reportedly being detained in China. The research is theorised in terms of the principal–agent problem, which posits that conflicts of interest and asymmetries of information affect coordination between principals (such as Chinese leaders) and agents (such as private companies). Since the case study reveals conflicts of interest between principals and agents in Chinese state-led economic diplomacy in the Czech Republic, it has implications for understanding the characteristics and practical implications of BRI-framed investment drives in the remainder of the Central and Eastern Europe region.

Date: 2019
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DOI: 10.1007/s10308-019-00565-z

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