3.1 Background on Sino-Kenyan Relations

Kenya is a lower-middle-income country. The country’s GDP per capita was US$2,007 in 2021,Footnote ² and GDP per capita growth has averaged 1.3% over the past five years, above the regional average. In 2020, Kenya surpassed Angola to become the third largest economy in sub-Saharan Africa after Nigeria and South Africa, according to the International Monetary Fund (IMF). From 2015 to 2019, Kenya’s economy achieved broad-based growth averaging 4.7% per year, significantly reducing poverty (which fell to an estimated 34.4% at the US$1.90/day line in 2019).Footnote ³ Tourism in Kenya is the second largest source of foreign exchange revenue following agriculture. In 2020, the COVID-19 shock hit the economy hard, disrupting international trade and transport, tourism, and urban services activity. IMF evaluation shows that Kenya’s economic rank in sub-Saharan Africa dropped to seventh in 2021. Russia’s invasion of Ukraine in 2022 further exposed Kenya’s economy to commodity price shocks, particularly as Kenya’s economy is vulnerable to the cost of fuel, fertilizer, wheat, and other food imports.Footnote ⁴

Kenya has one of the more vibrant media landscapes on the African continent, with professional and usually Western-trained journalists serving as watchdogs. The country’s media is highly competitive and diverse, with over 100 FM stations, more than 60 free-to-view TV stations, and numerous newspapers and magazines. Journalists in Kenya, like in many other African countries, have long been trained with Western curricula, which produces a media system that is “an appendage of the Western model” of journalism.Footnote ⁵ Kenya also has an active civil society organization (CSO) sector, and trade unions are active with approximately 57 unions representing 2.6 million workers in 2018.Footnote ⁶ Journalists and CSOs critically assess the operations of domestic and foreign businesses and politics.

In Kenya, like many other African countries, Chinese media reporting tends to be less appealing and less popular than news from Western media sources despite Beijing’s emphasis on soft power and discourse power.Footnote ⁷ In 2009, China’s central government committed US$6 billion to facilitate Chinese media “going out” and competing with Western media conglomerates.Footnote ⁸ In 2012, CGTN, the main Chinese global media station, opened its Africa headquarters in Nairobi and China Daily launched its Africa edition. Xinhua News Agency and China Radio International have also been active in their outreach to the continent. China even carried out media training programs for African journalists in China, with the hope that the journalists would portray China in a more favorable light upon returning home but with mixed results.Footnote ⁹ In fact, interviews and surveys with African residents found Chinese media outlets to be unappealing. Local interviewees were largely unaware of CGTN,Footnote ¹⁰ and a survey of young private sector employees in Nairobi showed that CNN, a US media outlet, was the most watched foreign media channel.Footnote ¹¹

3.2 Kenya–China Relations

China established diplomatic relations with Kenya only two days after Kenya gained independence from the United Kingdom in December 1963. China was the fourth country to open an embassy in Nairobi. Bilateral relations gained momentum when President Daniel arap Moi came to power in 1978 and Deng Xiaoping in China pushed for “Opening and Reform.” The Sino-Kenyan relationship gained momentum with high-profile visits and agreements to promote trade, investment, and technology exchange, as well as military exchange.

China is Kenya’s largest trading partner and largest source of imports. In 2020, Kenya imported US$5.24 billion’s worth of highly diversified products from China, with textiles, chemicals, metals, electronics, and machinery representing the main sectors. In the same year, Kenya exported just US$123 million’s worth of products to China, predominantly minerals and agricultural products (see Figure 2.1.1). Kenya’s approach of exporting raw materials to China and importing manufactured products from China conforms to China’s bilateral trading pattern with many non-resource-rich African countries.Footnote ¹²

Figure 2.1.1 Kenya’s export basket, 2020

Source: Developed using the ‘Atlas of the Economic Complexity’ https://atlas.cid.harvard.edu/explore?country=116&product=undefined&year=2020&productClass=HS&target=Partner&partner=43&startYear=undefined.

Kenya is the fourth largest destination of Chinese loans in Africa after Angola, Ethiopia, and Zambia. From 2000 to 2020, China extended US$9.3 billion of loans for transport, power, ICT, and other sectors.Footnote ¹³ The largest and most expensive project in Kenya supported by Chinese loans is the Standard Gauge Railway Phase I (US$3.6 billion) and Phase 2A (US$1.5 billion). Since 2017, however, concerns over Kenya’s debt sustainability and whether China uses debt to seek control over strategic assets such as railways and the Port of Mombasa have generated extensive debate in Kenya and internationally.

The two countries have starkly different sociopolitical systems. China is home to one of the world’s most restricted media environments with a sophisticated system of censorship.Footnote ¹⁴ The publication of the law on foreign nongovernmental organizations in 2017 and the 2016 legislation governing philanthropy significantly reduced CSOs’ access to funding from foreign sources and increased supervision and funding from the government. There is only one legal labor union organization, which is controlled by the Chinese government, and which has long been criticized for failing to properly defend workers’ rights.Footnote ¹⁵ Chinese companies operating abroad in highly different sociopolitical contexts such as in Kenya frequently find themselves stepping into unfamiliar situations such as environmental and community welfare activism, labor unions, and media watchdogs. Kenyan employees of Chinese SOEs may resort to strikes to force the management to negotiate on wage and benefits, issues that Chinese managers are ill-equipped to deal with and which are a source of tension that reveal large cultural and management style differences.Footnote ¹⁶ The sheer size and visibility of the multibillion-dollar projects that Chinese SOEs work on, with frequent visits from high-profile local politicians as well as Chinese and other international political celebrities, draw these projects into the media spotlight. Used to highly controlled media serving as a mouthpiece of the Chinese government, Chinese SOEs find themselves beleaguered by “biased” criticism in local and international newspapers and other outlets. As a result of these challenges, Chinese companies frequently find it challenging to adapt their operation to the Kenyan situation. One response is the defense mechanism of “keeping a distance with respect” (jing’er yuanzhi).Footnote ¹⁷

3.3 Doing CSR Overseas

The Chinese government has encouraged CSR domestically and published CSR regulations for overseas projects, yet implementation has been slow because these regulations are largely voluntary in nature and have weak implementation monitoring requirements. To coincide with the global expansion of Chinese companies and the ongoing evolution of the BRI, government agencies at both central and provincial levels issued 121 guidelines and regulations between 2000 and 2016, mostly voluntary, requiring Chinese companies overseas to perform CSR or improve environmental, social and governance (ESG) domestically and overseas.Footnote ¹⁸

In response to external criticism of Chinese companies’ overseas behavior, Beijing recalibrated the BRI and promoted new regulations to oversee its implementation.Footnote ¹⁹ For instance, in 2016, the Chinese Ministry of Commerce started to publish annual social and political risk assessments and held training programs for Chinese overseas investors. The Industrial and Commercial Bank of China published the first Belt and Road Green Bond at the Summit in 2019. The Environmental Protection Agency committed to training 1,500 officials in BRI countries and establishing technology exchange and diffusion centers along the Belt and Road.Footnote ²⁰ However, the majority of these are also nonmandatory, and Beijing’s regulatory bodies cannot exercise effective control and oversight of all BRI activities conducted locally or abroad.Footnote ²¹

3.4 AVIC INTL and the TVET Project in Africa

China Aviation Industry Corporation (AVIC) is a central SOE specializing in aerospace and defense and headquartered in Beijing. It was founded on 6 November 2008 through the restructuring and consolidation of the China Aviation Industry Corporation Ι (AVIC Ι) and the China Aviation Industry Corporation ΙΙ (AVIC ΙΙ).Footnote ²² AVIC’s business units cover defense, transport aircraft, helicopters, avionics and systems, general aviation, research and development, flight testing, trade and logistics, assets management, financial services, engineering and construction, automobiles, and more. It is ranked 140th in the Fortune Global 500 list as of 2021,Footnote ²³ and, as of 2021, has 1,003 subsidiary companies, including 63 second-level subsidiaries, 281 third-level subsidiaries, 340 fourth-level subsidiaries, 261 fifth-level subsidiaries, and 14 seventh-level subsidiaries, with 24 listed companies and 400,000 employees across the globe.Footnote ²⁴

AVIC International Holding Corporation (“AVIC INTL”) is a global shareholding enterprise affiliated to AVIC. Also headquartered in Beijing, it has six domestic and overseas listed companies and has established branches in sixty countries and regions.Footnote ²⁵ In 2008, AVIC INTL became an independent subsidiary company engaging in nonmilitary activities, including project planning, project financing management, export of electromechanical products, general contracting, operation, and maintenance of overseas engineering projects. AVIC INTL Project Engineering Company (“AVIC INTL-PEC”) was formally the International Projects Department under AVIC INTL and became a separate company in May 2011, also headquartered in Beijing. The company specializes in four main businesses: (1) people’s livelihood projects, including exporting Chinese mobile hospital equipment, vocational training equipment, container inspection system, buses, and so on; (2) energy engineering, procurement, and contracting, notably the Atlas Power Station Project in Turkey; (3) infrastructure construction, such as the rebuilding and expansion of a Kenyan airport project; and (4) industrial facility construction. The shareholding structure of AVIC INTL-PEC is illustrated in Figure 2.1.2.

Figure 2.1.2 AVIC INTL-PEC shareholding structure

Source: AVIC INTL Project engineering company’s internal document and interview.

AVIC entered Kenya in 1995 to export Chinese military aircraft to Kenya and established AVIC INTL Kenya representative office on 2 June 1995. Subsequently, AVIC INTL-PEC, AVIC INTL Beijing (covering businesses including cement engineering, petrochemical engineering, electromechanical engineering, and import and export of heavy equipment), and AVIC INTL Real Estate (newly established in 2014) were established in Kenya. When bidding for projects in Kenya, AVIC INTL-PEC, together with other subsidiaries, used the name of the parent company AVIC INTL because it had a bigger branding effect, but in reality these subsidiaries operate relatively separately, having offices in different compounds. AVIC INTL-PEC has engaged in three main projects: the National Youth Service (NYS) Phase I and II,Footnote ²⁶ Technical, Vocational and Entrepreneurship Training (TVET) Phase I and II, and the Karimenu dam water supply project.Footnote ²⁷

3.5 TVET Phase I

AVIC INTL’s TVET project was developed with the Kenyan Ministry of Education, Science and Technology (MOEST) and involves equipment provision and capacity-building for Kenyan technical and vocational training institutions. In 2008, a MOEST delegation visited China and raised a request to import Chinese machineries and training in support of Kenyan TVET institutions. In 2010, AVIC INTL signed a Memorandum of Understanding with MOEST for US$30 million for Phase I of the TVET project. The following year, the Export-Import Bank of China (Exim Bank) signed an agreement with the Government of Kenya, providing a US$30 million concessional loan in support of this TVET Phase I. The terms of this loan were set at 2% interest rate, twenty-year maturity, and a seven-year grace period. The loan was scheduled for semi-annual repayment between March 2018 and September 2030.

The purpose of the project was to establish ten vocational and technical institutes in Kenya and provide training to 15,000 students.Footnote ²⁸ The implementation of the first phase of the project mainly focused on two parts: equipment supplies and course training. This includes providing electronic and electrical goods, mechanical processing, rapid prototyping experimental training equipment, diesel generator sets and corresponding spare parts, supporting facilities for ten affiliated colleges and universities, as well as providing college planning, professional settings, and course packages, including compiling textbooks, laboratory planning, teacher training, assessment and evaluation, integration of production and education, and academic exchanges.Footnote ²⁹

3.6 TVET Phase II

In September 2013, AVIC INTL signed the TVET Phase II contract with MOEST at a cost of US$284 million.Footnote ³⁰ This figure was later revised to US$167 million via Addendum No. 1 of the contract. The contract value was then further revised to US$159 million via Addendum No. 2 dated 25 May 2016, after the Government of Kenya opted to undertake the civil works itself, while leaving the supply, installation, and commissioning of the equipment as well as human capacity-building to AVIC INTL. According to the contract, AVIC sought to equip a total of 134 educational institutions and provide training across the country. It was stipulated that 1,500 teachers were to be sent to the field and 150,000 students were to be trained by 2020. Exim Bank’s approval for financing was pending for three years. It was not until 2017 that Exim Bank signed an agreement to provide an additional US$158 million of commercial loans for TVET project Phase II.

3.7 Challenges during TVET Phase I Implementation

By 2013, however, the imported equipment from TVET Phase I had not been used to its full capacity. A review of the project by Kenya’s Auditor General revealed that one university and nine technical training institutes had been supplied with electrical/electronic engineering, mechanical engineering, rapid prototyping manufacturing laboratories, and diesel generators, but a physical verification of the equipment in all of the ten institutes revealed that the equipment had not been utilized to full capacity and the generators had not been put to use.Footnote ³¹ AVIC INTL’s progress report to Exim Bank in June 2013 also recognized the limitation of existing infrastructure and the gap between Kenyan and Chinese higher education.Footnote ³² AVIC INTL’s then project manager Li explained these two points in detail.Footnote ³³ First, many remote towns in Kenya cannot provide stable electricity, and unstable electric current risks damaging expensive equipment. Second, teachers in TVET institutions, even after weeks of training in China, were still not sufficiently skilled to operate the machines, let alone teach students. For the training, AVIC INTL partnered with Inner Mongolia Technical College of Mechanics & Electrics to design the curriculum and carry out the training, but the language barrier was a key obstacle. Chinese trainers from the college traveled to Kenya and taught through translators but misinterpretation and the need to use technical jargon resulted in misunderstandings.Footnote ³⁴ AVIC INTL needed to show that Phase 1 was successful to secure follow-on finance. However, implementation of Phase 1 on the ground was far from successful with some brand-new machines purchased from China laying idle.

3.8 A CSR Innovation: Africa’s Tech Challenge

To secure Exim Bank’s funding approval for Phase II, AVIC INTL needed to show that Phase I was a success. An endorsement letter from the Chinese Economic Councilor in Kenya was a crucial step toward securing Exim Bank funding and Liu, the then deputy CEO of AVIC INTL, took a short trip to Kenya in late January 2014. There was a dinner meeting with Han Chunlin, the then Chinese Economic Councilor to Kenya. When Han asked about the progress of AVIC INTL’s projects in Kenya, Liu reported on the progress of TVET Phase II and reflected on the experience of implementing Phase I, which had been completed by the end of 2013. He said that, in Phase II, AVIC INTL would further commit, and explore possible solutions, to ongoing issues even beyond the contract framework, such as providing raw materials and manufacturing contracts to schools and ensuring that the products could be used in other AVIC INTL projects in Kenya. By then, the company had already signed a contract with MOEST regarding TVET Phase II and were applying to Exim Bank for a loan thus requiring the endorsement letter from the Economic Councilor.

This was also the time when AVIC INTL-PEC headquarters were considering conducting a CSR project in Kenya. The then AVIC INTL’s TVET project manager Li was also at the dinner that evening. Months later, he went on a trip to visit schools in the western provinces of Kenya with Isalambo S. Shikoli Benard, his counterpart from MOEST. On 21 February, on their way to Turkana, Li received an email from AVIC INTL-PEC headquarters in Beijing informing him of the headquarters’ interest in developing a CSR project in cooperation with the China Foundation for Poverty Alleviation (CFPA). CFPA approached AVIC INTL headquarters in Beijing and proposed a CSR project featuring the provision of scholarships to African students to continue their study locally or in China. This was relatively easy to prepare and coordinate; CFPA already had rich experience of this type of corporate philanthropy in China. AVIC INTL headquarters allocated RMB 1 million (approx. US$16,000) for the Kenyan office to implement the project in collaboration with CFPA. AVIC INTL’s Kenyan office was selected because it was the first office to carry out an education-related program.Footnote ³⁵ In the email, AVIC INTL headquarters indicated their plan to form a research team with the Corporate Culture Department and three managers from CFPA for a nine-day field trip to Kenya in March 2014 to carry out a feasibility study of this CSR project. Li was asked to coordinate with local stakeholders to prepare for this fieldtrip but was far from enthusiastic about CFPA’s proposal. During the seven-hour drive, Li and Benard discussed this scholarship project and Benard was equally unimpressed.

This prolonged driving trip was an ideal place for Li and Benard to brainstorm CSR project ideas. Benard’s team in MOEST had previous experience of hosting the “Robot Contest” and the winner was named “African Tech Idol.” The idea was to use robot assembly as an entry point to promote engineering and provide a forum for young engineers to display their creative works, exchange ideas, and promote engineering. Sponsored by Samsung, the fourth contest was to be held at TVET institutions.Footnote ³⁶ Drawing on MOEST’s multiyear experience of successfully hosting the Robot Contest in cooperation with Samsung, Li and Benard borrowed this idea and applied it to AVIC INTL’s CSR project to host a technical skills competition using equipment installed by AVIC INTL. When they finally arrived at a village around midnight, Li emailed back to the senior management of AVIC INTL-PEC, copying in Liu, and warned of three difficulties in implementing the scholarship project including the recipient selection criteria, monitoring and evaluation, and most importantly, the corrupt nature of the client ministry:

In the same email, Li briefly outlined his discussion results with Benard on an alternative “Africa’s Tech Idol” project:

• Name: Africa’s Tech Idol (tentative)

• Potential candidates for the first season: Kenya Vocational and Technical College (about 30)

• Two rounds of competition for the first season:

  1. 1. The preliminary round: machining competitions are held in five regions in Kenya and the top two in each region will be determined.

  2. 2. The final round: ten teams compete in machining at our workshop at Kensington University. We provide the design, and the team can choose their equipment, including ordinary and numerical control equipment.

• The winning team will be rewarded:

  1. 1. Offered a production and processing contract on the spot.

  2. 2. Will be supported by our technicians in the factory.

  3. 3. We process raw material support.

  4. 4. A certain amount of project funding (in the form of sponsorship or angel funding) or equipment sponsorship, or both.Footnote ³⁸

Sun and Qi (2017) had a subsequent quote from Benard explaining his attitude toward the traditional types of CSR and his enthusiasm toward the skills competition:

Benard drafted a project proposal for the creation of what eventually became the “Africa Tech Challenge” soon after returning from the Turkana trip.Footnote ⁴⁰ In MOEST, Benard also sought higher administrative support from the Ministry. On AVIC INTL’s side, Li’s team sent the “Africa Tech Challenge” proposal back to Beijing for approval at the headquarters level. In comparison, the CFPA’s scholarship program gradually lost support from the AVIC INTL leadership.

In addition to MOEST’s experience in hosting skills competitions, Li also drew from the Japan International Cooperation Agency’s (JICA’s) extensive support of the Nakawa Vocational Training Institute in Uganda and also the experiences of Japanese companies in conducting CSR and other philanthropic projects – information shared via Li’s friend who was working in the Japanese Embassy in Uganda at the time.Footnote ⁴¹ Li’s friend was part of JICA’s Nakawa Institute project and, following his friend, he shadowed meetings with the project stakeholders in Uganda. When Li visited the Nakawa Institute, he was impressed to see that JICA’s malfunctioning vehicles were sent to Nakawa for maintenance. During the two decades of JICA’s cooperation with Nakawa, there was not only education but also a combination of “production and education” (chanjiao jiehe) projects in Nakawa, bringing business benefits to the institution in addition to training students. In his proposal to AVIC INTL headquarters, Li also cited the Toyota Academy and Huawei Training Centre in Kenya as successful examples of vocational training.

Upon initial confirmation from AVIC INTL headquarters of the idea of “Africa Tech Challenge,” Li and Mwangi, a Kenyan manager of AVIC INTL’s TVET project who used to study in China and speaks and writes Chinese fluently, developed the idea into a full concept note in March 2014. Mwangi’s family was well-connected in Kenya, and through her family network AVIC INTL managed to mobilize the then vice president (and president since 2023) William Ruto for the “Africa Tech Challenge” ceremony. Through his personal network, Li met the founder and CEO of China House, Huang, a Columbia University graduate and freelancing journalist who had created a Kenya-based CSO to help connect Chinese companies and Kenyan local communities. In his emails with AVIC INTL-PEC headquarters, Li mentioned China House and explored the possibility of contracting with China House to help with the development of AVIC INTL’s CSR project. Li wrote in his email to AVIC INTL headquarters:

Seeking to secure the first project, Huang’s friendship with Li led to a service contract between AVIC INTL and China House on the ATC in June 2014. China House recruited two full-time staff for the delivery of AVIC INTL’s contract. Among others, China House’s main responsibilities included (1) coordinating ATC stakeholders, including MOEST, public relations companies, social media, and the United Nations; (2) publicizing the ATC via China House’s own channels; and (3) providing a project evaluation summary report on the ATC’s effects to participants and media. Huang brought in his media connections and sensitivity to the ATC’s implementation and the involvement of China House was key to the development of the ATC.

Li convinced AVIC INTL headquarters to conduct the ATC as a machining skills competition in cooperation with MOEST. Li, with the help of the Ministry and together with China House, visited twenty-six out of forty-six TVET institutions in Kenya and received twenty-nine team applications, with three members in each team. Each school could nominate one or two teams with one advisor who was responsible for the organization of the participants. In the preliminary round, eighteen teams were selected and the top six then participated in the final competition. After twenty-three days of training, three winning teams were awarded US$100,000 in machine parts contracts and three individual awards with opportunities to continue education in China.Footnote ⁴³ AVIC INTL subcontracted with the Inner Mongolia Technical College of Mechanics & Electrics to design the short training curriculum and flew two teachers from Inner Mongolia to Nairobi to train Kenyan candidates and prepare them for the competition. The ATC started in late July 2014 and the final competition was held on 5 September.

AVIC INTL’s Kenyan office developed the ATC and media relations strategy not through imposition or borrowing experience from Beijing headquarters but from the company’s interaction with stakeholders in Kenya. In addition to China House, AVIC INTL’s Kenya office also contracted with a Kenyan public relations (PR) company to run the ATC opening and award ceremonies and media engagement. Invited leaders from AVIC INTL and its parent company, the Chinese Ambassador, the Economic Councilor, the Kenyan Minister of Education, Science and Technology, and other government leaders attended the awards ceremony, which attracted wide media coverage. In fact, PR was a key component of ATC from the project design stage onward. PR costs represented 24% of the total ATC budget with expenses including PR company service fees, social media company service fees, and billboard rental and printing fees. AVIC INTL rented a billboard in Nairobi’s busy Harambee Avenue for multiple weeks. The ATC project evaluation report conducted by China House showed that the media influence of ATC included fifty-three media items at various stages of the ATC, including the opening and award ceremonies, during training, and the candidates’ recruitment. Nine out of the fifty-three pieces were from Chinese media groups in Kenya with the remainder from Kenyan and African media. Western media groups were absent.Footnote ⁴⁴

The first ATC emphasized entrepreneurship and women’s empowerment as key themes beyond general skills training. The theme of entrepreneurship was implemented through ATC Talk, mimicking the format of a TED Talk. This idea emerged from a brainstorming session between Li’s team, China House, and the local PR company. The PR company invited successful Kenyan entrepreneurs and young leaders to communicate face-to-face with the students to share their entrepreneurial experiences and growth stories. In August and September 2014, three Kenyan entrepreneurs were invited to give talks to ATC candidates to create opportunities for candidates to interact with local businesses. Invited entrepreneurs shared their thoughts on topics such as “How to become an entrepreneur” by Samuel Kasera, CEO of Mutsimoto Motor Company, and “From student to entrepreneur: dream or reality” by David Muriithi, CEO of the Creative Enterprise Centre. The theme of women’s empowerment was addressed by making sure to give at least one female candidate the opportunity to study in China.Footnote ⁴⁵ Charity, the only female winner among three candidates who were awarded a scholarship, continued her study at Beihang University in China and was featured in AVIC INTL’s short movie, A Kenyan Girl’s Dream to Become an Engineer.

The success of ATC resulted in AVIC INTL highlighting it as the company’s signature CSR project to be held annually. The ATC was an innovative idea for AVIC INTL, whose existing CSR projects were educational philanthropy, a signature project being a rural teacher training program named “Blue Chalk.”Footnote ⁴⁶ It was also AVIC INTL’s only overseas CSR project. Each year, the ATC was featured in AVIC INTL headquarters’ annual documentary series, Glories and Hope. Although the revenue of the TVET project cannot compete with major construction projects from other AVIC branches, the ATC project was so unique that Li was awarded AVIC INTL “Best Overseas Employee.” The success of ATC Season I earned AVIC INTL wide media coverage in Kenya, enhanced client relationship with MOEST, and boosted Chinese domestic recognition.

Publicity for the ATC in China has not been as systematic as overseas in Africa where AVIC and China House’s connections were based. In explaining why the ATC’s overseas publicity is more important to AVIC INTL than domestic publicity in China, the current TVET project manager Yang explained: “We mainly target the overseas market, so domestic publicity is not very focused. At AVIC level, when they receive notifications from the government, AVIC sometimes requests us to report the ATC case.” The ATC project won the “2020 Excellent Case for Chinese Companies Overseas CSR Award,” an annual award jointly organized by the State-owned Assets Supervision and Administration Commission of the State Council Information Center, the China Press Office of the China International Publishing Administration, and the International Communication and Culture Center of the China Foreign Publishing Administration.Footnote ⁴⁷ Utilizing its mobilization strength among university students in China, China House has also presented the ATC as a successful activity during policy conferences and student meetings.

Starting in Season III, ATC expanded beyond Kenya with teams invited from Ghana, Uganda, and Zambia. Cooperation with China House, however, finished. Since then, the ATC has become more closely aligned with AVIC INTL’s TVET project and women’s empowerment and entrepreneurship elements have not been featured.

Since 2014, ATC has been held once a year, and as of 2019, it has successfully held six competitions (see Table 2.1.1). Each year, AVIC INTL allocates approximately RMB 3 million to the event.Footnote ⁴⁸ Due to the global outbreak of the COVID-19 pandemic, the event was temporarily suspended, but in July 2022, after suspension for two years, ATC Season VII launched online. The training was also conducted online through a newly developed app that AVIC INTL developed to use for its TVET projects in response to the pandemic and expanding business globally. The preliminary round of ATC VII has expanded to 42 schools entering 65 teams from six countries, namely Egypt, Ghana, Kenya, Uganda, Zambia, and Zimbabwe, and a total of 259 students.

Yang, the current AVIC INTL’s TVET project manager, who was in charge of ATC, explained how this CSR project is being used to develop AVIC INTL’s main TVET business. ATC’s participating countries are usually the ones the company has already had TVET projects in or in which it plans to cultivate TVET cooperation:

This quote shows that the SOE smartly connects its CSR project to business development and market expansion. Although business development has not been made directly through the ATC, this platform is used to cultivate and maintain relationships with the leadership from TVET institutions and government officials of the target countries.

5.1 For Law School Audiences

Upon completion of TVET Phase I, AVIC INTL identified the lack of usage of the machines they provided, which could potentially harm their success of securing Phase II funding from Exim Bank. Mediocre implementation on the host state side is a problem that extends well beyond the TVET case, and thus has broader significance for analyzing China–Africa projects. In the TVET case, substandard implementation was also the motivation for the company to innovate on a CSR project that could “train the trainers” to run the machines. To address the problem, AVIC INTL could have pursued a number of different strategies. For example, instead of initiating the ATC, another approach would have been for AVIC INTL to resort to litigation or other formal dispute resolution means. What are the legal merits for AVIC INTL’s claim should it want to sue the Kenyan government for not implementing its part of the contract? What are the potential risks for AVIC INTL if it pursued a legal rather than CSR route to solve the challenge? Do you agree with the company’s decision for not resorting to legal procedures?

5.2 For Policy School Audiences

The ATC case raises two main questions with policy relevance. First, are CSR activities instruments of Beijing’s global soft power outreach or are Chinese SOEs making genuine progress toward localization and further internationalization? And are these mutually exclusive explanations? Arguably, Chinese SOEs, particularly their CSR activities, are part of Beijing’s broader soft power projection in Africa. Indeed, it is frequently perceived that Chinese SOEs, particularly given their state-owned nature, sometimes have broader, noncommercial aims providing a pivotal role in establishing connection between the Chinese government, local media outlets, and universities to promote a positive image of China in Africa. This case study, however, shows a CSR initiative developed by an SOE’s Kenyan subsidiary after the Kenyan project manager rejected the original CSR project proposal from the SOE headquarters. Following its success, the CSR project was then promoted by the SOE headquarters and the Chinese government as creating business development opportunities and as an example of corporate stewardship overseas. This case may thus show less a coordinated effort by the Chinese government in Beijing and more a localized learning endeavor by the SOE’s Kenyan subsidiary seeking to advance its business through an innovative and targeted CSR project. At the same time, in spite of the fact that the project was driven by local needs and interests, such facts are not to say that the Chinese government in Beijing could not then use the project for its own soft power benefits. Discuss these alternatives.

Second, is ATC an example of African agency or Chinese agency? Is China in Africa more precisely perceived as a global power exercising influence in small states? Or should we see this relationship as an interactive process where both parties have the agency to shape outcomes? We may emphasize the structural asymmetry between global economic and political strengths between smaller African countries and China, the world’s second largest economy and a rising power. In dealing with Chinese SOEs, we may perceive Kenyan bureaucrats, media, and CSOs as lacking the agency to shape the behaviors of Chinese SOEs to their benefit. An opposing perspective is to view Chinese SOEs’ activities in African countries, and in this case, AVIC INTL’s CSR initiatives in Kenya, as jointly shaped by Chinese managers and a variety of Kenyan actors. Discuss these diverging perspectives.

5.3 For Business School Audiences

AVIC INTL’s innovation underlines how CSR could help address several operational risks and opportunities for the overseas endeavors of Chinese SOEs and multinational corporations in general, particularly those operating in developing countries. What drives multinational companies’ CSR activities? The ATC case shows that in countries with relatively weak social and environmental regulations, CSR could help multinational companies earn the social license to operate and reduce compliance risks. In countries with strong socio-environmental protection laws that are strictly implemented, these legal regulations serve as a guidance for multinationals, particularly those that newly entered a market, to develop amiable community relations and avoid local pushback against their products and operations. In countries where the implementation of socio-environmental regulations is relaxed or even incomplete, how could companies use CSR activities to help them navigate community relations in host countries?

Second, the ATC case also demonstrates an opportunity for companies to strategically connect CSR and business development activities. How specifically did AVIC INTL manage to achieve this connection? In AVIC INTL’s case, the ATC’s success motivated the company’s leadership to further invest in the project and connect it to market expansion opportunities in neighboring African countries. In other words, this is a bottom-up and ad hoc connection between CSR and business development. What are options for companies to cultivate this connection? Could top-down design provide an alternative (or complementary) strategy?

3.1 Background: The Regulatory Framework of Brazil’s Electricity Market

Though SGCC made a swift entry into the Brazilian market, it was nevertheless a latecomer compared to other Western players. When Cai announced SGCC’s first investment in Brazil in mid 2010, that country’s electricity market was at the apex of a two-decade-long reform period. This era not only revolutionized electricity production and commerce but also led to the establishment of an interconnected grid system under a revamped regulatory structure, known as the National Interconnected System (Sistema Interligado Nacional).

This reform process can be traced back to the early 1990s. Facing a shortage of dollars stemming from a structural balance of payment crisis and an inability to meet foreign commitments, the Brazilian government embarked on a large-scale reform program under the neoliberal auspices of the Washington Consensus. Within the electricity market, the restructuring was grounded in the three principles of the British power grid model: promoting competition through staged segmentation; relinquishing the state’s monopoly and encouraging foreign direct investment; and repositioning the government from an active economic participant to a supervisory entity. Accordingly, the Brazilian government first segmented the electricity production chain into four stages: generation, transmission, distribution, and commercialization. Each segment was to be governed by its own set of regulations, standards, and supervisory institutions. Additionally, the government established three platforms for electricity trading: a system of public auctions to allocate concessions for each segment, a wholesale market for facilitating bilateral contracts between agents operating at different stages, and a secondary market for negotiating previously auctioned concessions.

Public and private companies, whether domestic or foreign, were allowed to participate in each segment either by securing new auctions or by acquiring existing concessions in the secondary market. The resulting “4-stages, 3-markets” framework was designed to mitigate risks of market control and supply chain verticalization, while assigning the Brazilian government the responsibility of managing the energy supply in line with its policy objectives.Footnote ³

The liberalization scheme brought about by these reforms significantly reduced public assets and redirected the state’s focus toward market regulation. The government created several new bodies to oversee economic activity across all stages, including the National Electric Energy Agency (Agência Nacional de Energia Elétrica, ANEEL), a quasi-independent regulatory agency responsible for supervising all stages and guaranteeing market competition. ANEEL also was tasked with coordinating public auctions for long-term energy concessions, where the bid is awarded to the company that offers the highest discount rate on the annual allowed revenue (receita anual permitida, RAP), that is, the lowest annual amount in fees.

The ensuing scenario marked a notable change in the nature of electricity production, transitioning from a predominantly state-owned economic activity to a decentralized, stringently regulated environment with a rising private sector. The market became fragmented, with successful privatizations resulting in the establishment of more than 280 companies in Brazil. Foreign participation became a cornerstone across all stages of the electricity production chain, surging from almost negligible to approximately 21% in the country’s installed capacity, 23% in transmission lines, and 52% in energy distribution.Footnote ⁴ In contrast to other Latin American economies such as Mexico and Paraguay, which primarily depend on state-led activities, Brazil boasts one of the most liberalized electricity markets in the region.Footnote ⁵ The majority of these companies are from Europe, North America, and, most recently, China.

Overall, the three reform pillars – competition, regulation, and private/foreign participation – effectively bolstered energy supply and resilience in the country while fostering market competition. From 1990 and 2022, the installed capacity in the country increased markedly from 49,760 MW to 206,451 MW, with the length of transmission lines correspondingly expanding from about 56,000 km to 165,667 km.Footnote ⁶ Brazil now ranks as the sixth-largest electricity producer worldwide, contributing 49.8% to Latin America’s total installed capacity.Footnote ⁷

Despite its progress, Brazil’s energy sector still faces critical challenges related to water availability and transmission distances. The heavy reliance on hydropower, accounting for 63% of Brazil’s electricity, renders the country vulnerable to climate-induced stresses, as highlighted by the severe 2020 drought.Footnote ⁸ The majority of energy demand, around 48.6%, is in the southeast’s urban centers, while approximately 70% of untapped hydropower resources are in the underdeveloped northern region – an area characterized by poor infrastructure, low population density, and a significant distance from consumer centers.Footnote ⁹ Developing projects in this region requires the construction of extensive transmission lines, which incurs efficiency costs and necessitates increased infrastructure investment.

3.2 The Company: SGCC Lands in Brazil

SGCC, a state-owned “profit-driven” utility company headquartered in Beijing, People’s Republic of China (PRC), operates under the oversight of the State Council State-owned Assets Supervision and Administration Commission, the body tasked with supervising China’s SOEs.Footnote ¹⁰ Established on 29 December 2002, SGCC emerged from an extensive reform within China’s electricity sector, which dismantled the former all-purpose China State Power Corporation (CSPC). This restructuring was driven by the policy of “grasping the large and letting go of the small” (zhua da fang xiao), adopted by the 15th Communist Party Congress in September 1997, with the aim of enhancing market competitiveness and fostering innovation through equity segmentation. The subsequent “Plant-Grid” reform led to the fragmentation of CSPC into five smaller generation groups and two grid companies, SGCC – which retained about 80% of CSPC transmission assets and the responsibility for orchestrating the general operations of the grids across the country – and the smaller China Southern Power Grid Company.

In the following years post-reform, SGCC established itself as the dominant force in China’s transmission sector, buoyed by public funding, easy credit access, market barriers for new entrants, and a vast consumer market. However, at the turn of the century, SGCC’s operations were predominantly confined within China, and few foresaw its venture into overseas investments. This direction shifted with the PRC’s “go out” (zouchuqu) policy in the early 2000s, encouraging outbound investment. Concurrently, SGCC’s business strategy expanded to encompass foreign markets, initially focusing on three objectives: enhancing technology for improved domestic outcomes, securing higher profits compared to the more price-restricted Chinese market, and strengthening its position within China’s political landscape.Footnote ¹¹

As a result, in 2007, SGCC embarked on its first international venture in the Philippines. The company secured the operation of the national power grid during a privatization auction of the state-owned National Transmission Corporation (TransCo).Footnote ¹² A consortium comprising SGCC and two Philippine companies, Monte Oro Grid Resources Corporation and Calaca High Power Corporation, clinched the bid with an offer of US$3.95 billion for a twenty-five-year license to operate TransCo. Within the newly formed National Grid Corporation of the Philippines, SGCC held a 40% stake and was able to appoint its chairman. SGCC hired Goldman Sachs to help with the deal.Footnote ¹³

In the following months, SGCC swiftly enhanced its corporate structure to better manage its emerging international portfolio. The restructured framework included the establishment of various subsidiaries, each tailored to oversee distinct aspects of its global activity.Footnote ¹⁴ These entities were not limited to but included (1) State Grid International Development Co. Ltd. (SGID Co.), a limited liability company organized under the laws of the PRC; (2) State Grid International Development Limited (SGID), a private company limited by shares organized under the laws of Hong Kong SAR; (3) International Grid Holdings Limited (IGH), a corporation organized under the laws of the British Virgin Islands; and (4) Top View Grid Investment Limited (TVGI), a corporation organized under the laws of the British Virgin Islands (BVI). IGH and TVGI are each direct wholly owned subsidiaries of SGID. SGID is a direct subsidiary of SGID Co., which is a direct wholly owned subsidiary of SGCC.

The Philippines venture highlighted both profits and challenges for SGCC. Initially harmonious, the relationship deteriorated due to events including the 2010 Manila hostage crisis and the 2011 South China Sea dispute. In 2012, the Philippines denied visas to twenty-eight SGCC executives and employees. Diplomatic efforts failed, and SGCC ceased further investments, while Monte Oro sold their shares to a local holding, OneTaipan. By 2015, the Philippines claimed technical self-sufficiency, leading to the exit of remaining SGCC experts. Although SGCC continued to receive dividends, its operational influence ended. Currently, no SGCC executive serves on TransCo’s board.

The Philippine experience highlighted the importance of political risk management and stability in international investments for SGCC. It provided valuable lessons that shaped SGCC’s more strategic and locally attuned approach to entering the Brazilian market. This new foray into Latin America was also informed by dialogues with the Chinese government, which equipped SGCC’s board with insights into global economic opportunities. This advice was crucial in light of the challenges other Chinese SOEs were encountering in their international ventures.Footnote ¹⁵

Subsequently, on 28 April 2010, SGCC announced its entry into Brazil by confirming the creation of State Grid Brazil Holding (SGBH), a privately held company focused on managing local equity interests.Footnote ¹⁶ SGBH was incorporated in Rio de Janeiro as a subsidiary of TVGI and IGH with a 0.0001% and 99.9999% interest, respectively. The incorporation was soon followed by the announcement of SGBH’s first investment in the country.

On 16 May 2010, the newly formed board confirmed the conclusion of negotiations to acquire seven transmission lines from the Spanish consortium Plena Transmissoras, led by Isolux, Cobra, and Elecnor, for US$989 million plus debt assumption. This deal also included a thirty-year license to operate approximately 3,000 km of the consortium’s transmission networks in Brazil. The deal involved Brazilian and Anglo-American law firms and was also supported by SGCC’s expanding in-house global legal team.Footnote ¹⁷ While the external firms addressed corporate and transactional legal issues, the internal team spearheaded legal research and played a pivotal role in shaping the investment strategy.

SGBH’s investment also coincided with a series of political agreements between Brazil and China. From 2002 to 2010, both governments signed various legal instruments, such as a Joint Plan of Auction and multiple Memoranda of Understanding (MOUs), highlighting economic opportunities and synergies. These documents frequently mentioned energy cooperation, with China expressing interest in Brazil’s electricity market.Footnote ¹⁸

Thus, when SGBH announced its entry into Brazil, it was celebrated by both presidents, Lula da Silva and Hu Jintao, for fulfilling the pledge of the Chinese government to invest in Brazil’s infrastructure gap. For SGCC, the Brazilian market seemed to be the right choice to bolster the company’s internationalization drive and it targeted Brazil for several reasons. The 1990s reforms in Brazil had gained international recognition, attracting an increasing number of foreign companies. Post-2008 financial crisis, European utilities, seeking capital, were keen to sell their local assets. Additionally, Brazil was anticipating a 4–5% annual growth in electricity demand from 2001 to 2021, further driven by Rio hosting the 2014 World Cup and the 2016 Olympics. As Cai stated in 2011: “Brazil is a politically stable country and has friendly relations with China … We were attracted to the Brazilian market due to its mature market operations mechanism, transparent decision-making, and orderly sectoral supervision.”Footnote ¹⁹

The 2010 acquisition proved to be just the beginning of SGCC’s plans for Brazil. Over the next few years, SGBH expanded its operations by acquiring other operational Special Purpose Vehicles (SPVs) and participating in public auctions conducted by ANEEL. From 2011 to 2013, SGBH acquired five additional transmission lines (covering 1,960 km) from the Spanish group ACS for US$940 million and won four public auctions (covering 1,700 km) to construct new transmission lines in the country.

Despite financial support from the parent company for these operations, the initial phase was challenging for SGCC, as it had no previous experience operating in Brazil. The management team sent to the country, though well-versed in the market’s economic prospects, had minimal grasp of the complex regulatory landscape, the rigorous environmental licensing processes, and the robust labor protections involving a unionized workforce. As highlighted by a former SGBH director, the Chinese management, accustomed to a centralized political culture, “did not [initially] understand the regulatory, environmental, and labor intricacies of the country.”Footnote ²⁰ As a result, the Chinese group employed various strategies to overcome the initial informational asymmetry and cultural gaps.

First, SGBH participated in public auctions as part of consortiums with Brazilian SOEs, a method used in three of the four initial auctions. In Auction No. 006/2011, SGBH secured a 51% majority stake in the Luziânia-Niquelândia substations system concession by forming a consortium with the state-run Furnas, offering a discount rate of 5.2% below the reference value. Similarly, in Auction No. 002/2012, SGBH joined forces with another Brazilian SOE, Copel, to obtain a 51% share in the Tele Pires transmission lines concession, including the Matrinchã and Guaraciaba projects, with substantial discount rates of 43.01% and 28%, respectively. In Auction No. 007/2012, SGBH collaborated with both Furnas and Copel to win a 51% share in the Paranaíba transmission lines project. As the SGBH Investment Director emphasized in 2012, the company’s strategy in Brazil at the time was centered on forming alliances with local companies, stating, “Our goal is to seek cooperation rather than competition.”Footnote ²¹

Second, through acquiring Plena Transmissoras and ACS, SGBH gained access to a skilled pool of professionals. Between 2010 and 2013, the company recruited several managers and workers from the acquired companies and the broader market, dramatically expanding its office in Brazil. One notable example was the hiring of Ramon Haddad, a former Plena Transmissoras professional widely recognized as a market expert, who later became the vice president of SGBH. As noted by a former SGBH director, “these acquisitions quickly provided operational infrastructure, but more importantly, valuable knowledge on how to navigate the Brazilian market in terms of regulations and professional networks with authorities.”Footnote ²²

Over the next few years, the company consistently prioritized local expertise in its board and management roles. While the positions of chairman, CEO, and one vice president were held by long-standing SGCC employees, the other two vice presidents and senior directors were predominantly Brazilian. Of the initial 300 hires within the first three years, nearly all were locally sourced. By 2013, SGBH had also formed a dedicated in-house legal team, even incorporating Brazilian legal professionals who had assisted with the company’s initial M&As and public auctions.Footnote ²³ This team grew over time, taking on most of SGCC’s in-house legal responsibilities in Brazil. Currently, they collaborate with local and, occasionally, foreign law firms for complex or specialized legal advice.Footnote ²⁴

This move to localize both the operational and business decisions was a conscious one as Cai explained in 2013:

Finally, during the initial period between 2010 and 2013, SGBH focused on strengthening its ties with local economic and political stakeholders, forging its own MOUs independently of the PRC government. A notable collaboration was formed with Brazilian SOE Eletrobras in 2011 during President Dilma Rousseff’s visit to China. This MOU facilitated interactions and technical knowledge-sharing between both electricity giants. Shortly thereafter, SGBH and Eletrobras deepened their partnership beyond political engagement, collaborating economically on the Chinese company’s most significant overseas investment at the time: constructing the first transmission line of the Belo Monte hydroelectric power plant, a grandiose dam marred by its socio-environmental impact.

3.3 The Project: The Belo Monte Hydroelectric Power Plant

In March 2010, ANEEL released the construction notice for the Belo Monte hydroelectric dam, inviting bids under specific conditions. Accordingly, Brazil was set to build the third largest hydroelectric dam in the world, with an installed capacity of 11,233 MW across eighteen turbines. The proposed power plant, designed as a “diversion” or “run-of-river” facility, differed from traditional Brazilian hydroelectric plants that store river water. This design aimed to minimize the socio-environmental impact of the project.Footnote ²⁶

The announcement of the Belo Monte dam project was greatly celebrated by then president Lula, whose administration revived the plan, originally conceived by Brazil’s military government in 1975. Lula’s administration advocated for the dam as crucial for Brazil’s energy security. However, civil society and environmental groups raised significant concerns. They criticized the project’s potential environmental and social impacts, particularly on Indigenous communities. Despite the design with reduced impacts, issues like water management and economic viability remained contentious.

Additionally, the dam was to be built in the Xingu River in the state of Pará, far from the country’s industrial region (Figure 2.2.2 provides an aerial view of the dam and its location). According to the transmission technology available in the country at the time, such long distances would result in significant losses during transmission to Brazil’s southeast. The most advanced transmission line in Brazil at the time was the Rio Madeira high-voltage direct current (HVDC) system. It consisted of two bipolar ±600 kV DC transmission lines, each with a capacity of 3,150 MW, and an approximate loss rate of 11%.

Figure 2.2.2 The Belo Monte dam and its location in Brazil

Source: Bruno Batista, licensed under CC BY 2.0 https://bit.ly/3U6F6BD; NordNordWest, licensed under CC BY-SA 3.0 https://bit.ly/49u6ga6.

Some of the concerns surrounding the project proved to be valid. The dam led to the displacement of several communities and significantly altered the region’s environmental conditions.Footnote ²⁷ Fluctuations in river flow affected power production, with the dam’s guaranteed minimum capacity set at 4,571 MW, approximately 39% of its maximum capacity (Figure 2.2.3 gives annual average production). Furthermore, the consortium that won the bid for the hydroelectric plant, comprising several prominent Brazilian companies, faced numerous corruption allegations and environmental disputes in federal courts. These challenges delayed the dam’s completion by fourteen months and doubled its total cost from approximately US$9 billion to US$18 billion.Footnote ²⁸ Despite these issues, the initial fears of energy loss did not materialize, as Brazil was on the brink of witnessing the construction of one of the world’s largest UHVDC lines.

Figure 2.2.3 Belo Monte dam’s daily average energy production, 26 February 2016 to 30 December 2023 (median megawatts, MWmed)

Source: Operador Nacional do Sistema Elétrico, ‘Resultados da Operação: Geração de Energia’ www.ons.org.br/Paginas/resultados-da-operacao/historico-da-operacao/geracao_energia.aspx

3.4 The Line: Xingu-Estreito

The construction of the Belo Monte dam started in 2011, but only two years later the auction notice for its transmission lines was made public – a short but crucial period for the lines’ design. ANEEL produces feasibility studies before officially launching a project via its Energy Research Office (Empresa de Pesquisa Energética, EPE), which details the expected technicalities required in each project. In 2007, EPE published the first studies for a transmission line connecting the Belo Monte dam to the national grid. These studies proposed using an HVDC of ±600 kV, similar to that seen in Rio Madeira.

In 2011, EPE conducted new feasibility studies. This time it recommended using a UHVDC system consisting of two bipolar ±800 kV DC transmission lines, each with a capacity of 4,000 MW. UHVDC technology offers lower transmission costs and higher efficiency for transmitting very high power over long distances. However, at the time, the technology for this voltage level was not only unavailable in Brazil but only used in one place in the world: China.

On 19 December 2013, the auction notice for the Xingu-Estreito line was then published, confirming the use of UHVDC. When the offers for the construction and thirty-year use concession were opened on 7 February 2014, a consortium composed of SGBH and two Eletrobras subsidiaries, Eletronorte and Furnas, won the bid to Auction No. 011/2013. The three companies offered US$217 million of annual revenues to build and operate the lines, a 38% discount rate to the notice threshold. Chinese officials noted that SGCC’s competitive bid was enabled by its ability to source significant equipment from China.Footnote ²⁹

In March 2014, the three companies then established an SPV named Belo Monte Transmissora de Energia (BMTE) in Rio de Janeiro, Brazil. SGBH held a majority stake of 51% in BMTE, with Eletronorte and Furnas splitting the rest equally. The company’s governance structure balanced Brazilian and Chinese influences, featuring an evenly shared presidency and board with three members from each country. Senior management roles were jointly held, pairing a director and a deputy for each area, representing both nationalities.

The partnership between SGBH and Eletrobras proved effective for handling the complexities of the Xingu-Estreito project. Despite SGBH’s growing familiarity with Brazil, this project posed larger technical, environmental, economic, and political risks. The planned transmission line, traversing sixty-five municipalities, four states, and three biomes in Brazil, presented a challenging terrestrial landscape. The legal complexities were even more daunting, requiring billion-dollar funding, negotiations with numerous landowners, and adherence to strict environmental standards. Collaborating with Eletrobras, Brazil’s largest energy player, presented an advantageous opportunity. SGCC brought state-of-the-art technical expertise, while Eletrobras contributed extensive local knowledge of Brazilian regulations and authorities. As an SGBH former director aptly put it, “This was a successful business strategy from SGCC to adapt to Brazil, mitigate risk, and accelerate learning.”Footnote ³⁰

Although the companies collaborated, each had a specific role in particular aspects of the venture. SGBH managed the financial side and appointed the Financial Director to BMTE. Eletronorte was in charge of obtaining environmental licenses and naming the Environmental Director. Furnas handled the technical design and appointed the Technical Manager. Furthermore, Eletrobras engaged in shaping public opinion through a media campaign to address ongoing criticisms of the Belo Monte project.

A distinctive feature of this management structure was the implementation of a “shadow management” system. In this arrangement, whenever a Brazilian professional held a managerial role, a Chinese deputy was assigned to work alongside them. This Chinese deputy closely collaborated with the Brazilian manager, providing insights and relaying important information back to the Chinese headquarters. As explained by a former director: “Every senior executive at SGBH had a Chinese shadow at his side. And this Chinese shadow made reports to the Chinese headquarters on the matters dealt with. It was a way that the Chinese found to learn about the Brazilian operation in practice.”Footnote ³¹

In legal matters, the SGBH in-house team led operations for BMTE in conjunction with teams from Eletronorte and Furnas, maintaining close collaboration with the Chinese management, the global SGCC legal team, and external law firms, especially for intricate tasks such as debenture issuance, audits, and labor- and tax-related issues. While ultimate decision-making authority rested with the Chinese management, the Brazilian legal team enjoyed significant autonomy in handling local affairs. As one SGBH lawyer noted, “Brazilians were at the forefront of all legal operations, reporting to Chinese managers. Direct interactions with Chinese executives were rare.” A former director further explained, “Cai had the final say, but our legal team had substantial independence in determining the best strategies for matters involving concessions, public bids, or landowner negotiations to achieve the company’s economic goals.”Footnote ³²

To finance its investment, BMTE used a combination of loans, private debt, and equity, totaling an estimated US$1.8 billion. The consortium secured 46% of this amount, approximately US$818 million, in loans from Brazil’s Development Bank (Banco Nacional de Desenvolvimento Econômico e Social, BNDES). Benefiting from BNDES’s special subsidized credit line, BMTE accessed the long-term interest rate (taxa de juros de longo prazo, TJLP), enjoying interest rates between 2.98% and 4.10%, notably lower than typical market rates. Additionally, BMTE raised US$600 million in private debt through a debenture issuance, facilitated by local law firms.Footnote ³³ The consortium also received an equity infusion from its shareholders to support construction costs. Over time, BMTE further diversified its financing by issuing a second debenture and obtaining additional loans from BNDES, thereby spreading out operational costs and risks.

Upon securing local financing, BMTE then faced a significant challenge in acquiring environmental licenses, due to Brazil’s extensive and complex regulatory landscape featuring more than 20,000 environmental standards. This framework poses considerable hurdles for foreign entities, as exemplified by China Railway Eryuan Engineering Group’s failed attempt to construct the Brazil–Peru Transcontinental Railway.Footnote ³⁴ To navigate these complexities, BMTE employed a locally focused approach, engaging an interdisciplinary team of Brazilian experts for conducting Environmental Impact Assessment (EIA) studies.Footnote ³⁵ Furthering its strategy to local expertise, BMTE engaged Tracbel, a subsidiary of the French multinational utility company Engie, renowned for its extensive experience in Brazil.

BMTE’s EIA outlined eighteen initiatives to mitigate environmental concerns, including route optimization, implementation of forest replenishment programs, and provision of support to affected communities. The final line design stretched over approximately 2,089 km, surpassing the direct distance between stations (about 1,990 km), to navigate around sensitive environmental areas (Figure 2.2.4 gives the line design). On 20 May 2015, Brazilian authorities granted approval to the studies, marking a crucial milestone in the project’s progression.

Figure 2.2.4 Design of the Xingu-Estreito transmission line highlighting ecological parks, buffer zones, and conservation units

Source: JGP Consultoria (n 40) 29.

BMTE then enlisted a mix of Brazilian, European, and Chinese contractors. The line was segmented into eight stretches, each around 260 km in length, and corresponding engineering, procurement, and construction (EPC) contracts were awarded for these sections. Brazilian firms Tabocas (for sections 3 and 4), São Simão (sections 6 and 7), and Incomisa (section 8) were engaged, while the Chinese company SEPCO 1, a subsidiary of PowerChina, took on sections 1, 2, and 5. In addition, infrastructure components like towers and substations were contracted to other companies, including Brametal, Electrovidro, SAE Towers, and Siemens. While BMTE oversaw the EPC contractors’ operations, it did not directly involve itself in the construction process. SGCC’s affiliates – such as NARI, CET Brazil, and Xuji – also played a pivotal role by providing specialized automation and smart metering technologies. Notably, NARI established a manufacturing plant in São Paulo at the time, aiming to emerge as a key supplier for Brazil’s grid construction efforts.

The construction of the transmission line involved approximately 8,000 workers, predominantly Brazilian. As Cai noted in 2012, SGCC’s approach in Brazil did not rely on importing Chinese labor: “Our strategy involves bringing Chinese executives to Brazil while also employing local workers. We aim to blend the best aspects of Chinese and Brazilian work cultures.”Footnote ³⁶ To bridge cultural gaps, SGBH even engaged a firm specializing in cultural integration to facilitate interactions between Brazilian workers and Chinese managers. A former SGBH executive reflected, “from their arrival in Brazil, there was a focused effort to enhance company performance by integrating Chinese and Brazilian cultural elements.”Footnote ³⁷ Nonetheless, linguistic barriers remained a persistent challenge, even during the operational phase of the project, as highlighted by another director: “Language has always remained a challenge, even today with an operational line.”Footnote ³⁸

Construction of the line began in June 2016 and finished by December 2017, two months ahead of schedule. Upon completion, SGBH solidified its presence in Brazil, establishing significant operations in Rio de Janeiro with a local workforce of 800 and investing US$60 million in five floors of a 16-story building, which also accommodates other Chinese companies. The project not only deepened SGBH’s understanding of the Brazilian market but also strengthened its local team and its relationship with Brazilian partners. This experience would soon prove valuable for the construction of the Belo Monte hydroelectric plant’s second line – currently the world’s largest transmission line. However, this time, SGBH embarked on the new project alone.

3.5 Aftermath: SGBH Accessing Other Stages of the Production Chain

The successful completion of the Xingu-Estreito transmission line significantly elevated Brazil’s status within SGCC’s global operations, positioning it as the corporation’s second most crucial market after China. The construction and overall operation of the Xingu-Estreito line was also a testing ground for the Chinese in both exploring new markets and experimenting with their UHVDC technology outside of China. These achievements sparked heightened interest from SGCC’s headquarters, and over the following years SGCC aimed to broaden its portfolio in Brazil. The aftermath saw two distinct strategies: securing a more robust position in the transmission market through ANEEL auctions and shifting the initial emphasis from transmission lines to other segments of Brazil’s electricity production chain.

First, SGBH made significant investments in new public auctions, thereby extending its control over more than 16,000 km of transmission lines, which currently accounts for approximately 10% of Brazil’s total high-voltage network. Notably, in 2015, the company won the auction to build and operate the second line of the Belo Monte project, the 2,543 km Xingu-Rio UHVDC transmission line (Figure 2.2.5 showcases the second line’s design, detailing the sections handled by EPC contractors).Footnote ³⁹ The strategies used in this second venture were inspired by the successes and mistakes of the first operation. In areas such as financing, the same approaches were used, while environmental strategies were refined. In 2023, SGBH secured another major project, constructing 1,463 km of HVDC lines, offering a 40% RAP discount rate, and committing to invest an additional US$3.6 billion. In both instances, SGBH submitted bids independently, marking a departure from its previous strategy of collaborating with local SOEs. The company managed construction on its own, subcontracting for equipment and line construction, while engaging a larger number of Chinese companies in the projects.

Figure 2.2.5 Design of the Xingu-Rio transmission line detailing sections handled by EPC contractors

Source: Ricardo Abranches Felix Cardoso Júnior and others, ‘A XRTE e o Meio Ambiente’ (Rio de Janeiro 2020) 12.

Second, SGBH broadened its scope within Brazil’s electricity chain, moving beyond transmission to acquire operational assets in other stages. A significant development occurred in August 2016, when SGCC’s subsidiary, SGID, invested US$1.8 billion to acquire a 23% stake in Companhia Paulista de Força e Luz (CPFL), the largest private player in the Brazilian electricity sector and a publicly traded company on São Paulo’s B3 stock exchange. To manage CPFL’s assets, SGID incorporated State Grid Brazil Power (SGBP) as a new holding company based in Campinas, São Paulo. This acquisition was further reinforced by a Public Offer for Acquisition (PAO) in November 2017, valued at US$3.5 billion, which aimed to purchase shares from CPFL’s minority shareholders. The successful PAO led to SGCC acquiring a controlling interest of 83.7% in CPFL, along with complete ownership of CPFL Renováveis, a subsidiary specializing in renewable energy. While CPFL’s remaining shares continued to be traded freely, its American Depositary Shares were delisted from the New York Stock Exchange, and CPFL Renováveis was fully withdrawn from B3.

The acquisition of CPFL positioned SGCC as Brazil’s second largest electricity utility, only behind Eletrobras. By 2021, SGCC had a significant presence in the Brazilian electricity sector, both directly and via its subsidiaries. The company controlled 4.4 GW, or the equivalent to 2.1% of the country’s generation capacity, and owned 22,000 km of transmission lines, representing 11% of Brazil’s network. Additionally, it managed the electricity distribution for 10 million clients, accounting for 13% of Brazilian consumer units (Figure 2.2.6 provides a comprehensive view of SGCC’s assets in Brazil via SGBH and CPFL as of 2021). SGCC’s operations in Brazil are organized under a holding model, managing more than sixty SPV companies through SGBH, SGBP, and CPFL. As of 2021, SGCC held US$6 billion in Brazilian assets, and its reported revenues and net profit in the country were US$8.4 billion and US$2.2 billion, respectively.Footnote ⁴⁰

Figure 2.2.6 SGCC’s assets in Brazil via SGBH and CPFL, 2021

Cai served as the chairman of SGBH until 2020, after which he returned home upon completing his mission in Brazil. In China, he assumed the role of General Manager of State Grid Fujian Electric Power Co., an SGCC subsidiary focused on providing electricity to the province of Fujian. He also became a frequent spokesperson of SGCC success in Brazil. Meanwhile, SGCC went abroad, expanding its activities internationally and becoming the world’s fifth largest company by total assets. As of 2023, it has investments in nine countries – Australia, Brazil, Chile, Greece, Italy, Oman, Pakistan, the Philippines, and Portugal – and activities in more than forty countries. Its overseas investments surpass US$21 billion, with approximately 60% of these funds allocated to Brazil. The Belo Monte transmission lines, along with CPFL, are among the crown jewels of SGCC’s global portfolio.

5.1 For Law School Audiences

SGCC’s venture in Brazil’s Belo Monte project introduces several intricate legal challenges of foreign companies emerging in new jurisdictions. These may include navigating a complex regulatory environment, addressing socio-environmental concerns, and ensuring compliance with both local and international legal frameworks. Given the information provided in the case, discuss the following questions:

1. 1. Regulatory Navigation: How did SGCC successfully navigate the complex regulatory framework in Brazil, particularly in contrast to its Philippine experience? Analyze the specific legal strategies employed by SGCC in Brazil, evaluating their effectiveness in adapting to this market. Further, consider which of these strategies could be feasibly replicated by other multinational companies in similar contexts, and discuss any factors that might limit their viability.

2. 2. Financial Design: Analyze SGCC’s legal strategies that supported the financial design for the Xingu-Estreito transmission line project in Brazil. Discuss how these strategies facilitated effective risk management and consider their adaptability to similar projects in other countries. Evaluate the availability of funding options domestically in China or in other countries, locally in Brazil, or transnationally, and assess which approach might be most advantageous for other multinational companies venturing into developing countries.

3. 3. Corporate Governance: Explore the legal consequences of SGCC’s decision to delist CPFL from the NYSE and CPFL Renováveis from B3. How does this decision reflect SGCC’s corporate governance and market strategy in an international context? If you were part of SGCC’s legal team, would you have advised in favor of this move? Discuss the potential benefits and drawbacks of such a decision from a legal and corporate strategy standpoint.

4. 4. Legal Team Localization in Multinational Corporations: To what extent does the localization of a legal team within a multinational corporation, such as SGCC in Brazil, enhance the company’s capacity to effectively navigate intricate local regulatory and legal landscapes? Delve into the advantages and potential obstacles associated with this strategy, particularly in regions where legal norms and practices diverge significantly from the corporation’s home country.

5. 5. Market Integration and Competition Law: With SGCC’s rapid expansion and integration into the Brazilian market, questions regarding competition law and national security have come to the forefront. Delve into the legal implications of SGCC’s increasing market influence, including the challenges it poses to the Brazilian market design and potential national security concerns. Consider whether these concerns would be the same if the case involved a company from a different nation and how regulatory bodies should oversee such complex issues.

5.2 For Policy School Audiences

SGCC’s involvement in the Belo Monte hydroelectric project in Brazil presents a compelling case for exploring policy implications in international energy projects for developing countries. This case study offers an opportunity to analyze policy decisions related to energy security, environmental sustainability, international cooperation, and developmental policies. The case also aims to scrutinize the interplay between business interests, governmental regulations, and public policy, highlighting the complex dynamics that shape such projects. Given the information provided in the case, discuss the following questions:

1. 1. Regulatory Frameworks, Market Concentration, and Investment Attraction: Discuss the specific regulatory measures in Brazil aimed at preventing market concentration in critical infrastructure sectors. Assess the impact of these regulations on the competitive environment and the flow of foreign investments. Examine if the current design is under constraint by the activity of SGCC. If so, how could regulatory oversight be improved to maintain competition and still be attractive to foreign investment.

2. 2. Energy Security and Environmental Concerns: Policymakers often grapple with complex decisions when dealing with projects like Belo Monte, balancing energy security needs with environmental considerations. Explore Brazil’s energy security imperatives and the role of projects like Belo Monte in meeting these requirements. Analyze the environmental consequences of large-scale hydroelectric projects and Brazil’s policy choices in mitigating them while pursuing energy security goals. Gain insights from international experiences and compare how other nations have addressed similar policy dilemmas, providing a comprehensive perspective on the topic.

3. 3. Sustainable Energy Transition: Large-scale hydroelectric projects offer a shorter path for countries to align with their sustainable energy transition goals. However, these projects also have significant socio-environmental impacts. Explore strategies and policy options that could reconcile the energy potential of projects like Belo Monte with socio-environmental considerations. Analyze how countries can enhance sustainability in energy projects, ensuring minimal harm to local communities and ecosystems. Additionally, discuss the role of technology and innovation in mitigating environmental impacts while meeting energy security needs.

4. 4. International Cooperation in Collaborative Infrastructure Projects: Analyze the significance of international cooperation in advancing development through collaborative infrastructure initiatives. Delve into the advantages and obstacles associated with global collaboration in achieving development goals, including technology transfer benefits and the potential financial burdens on host nations. Additionally, explore the potential roles of international agencies in facilitating and supporting such collaborative endeavors.

5.3 For Business School Audiences

SGCC’s involvement in Brazil’s Belo Monte hydroelectric project represents a successful case in international business strategy and operations. As one of the world’s largest utility companies, SGCC’s expansion into the Brazilian market poses a range of challenges and opportunities. This case study delves into the strategic decision-making processes, risk management techniques, and stakeholder relations in SGCC’s venture. Given the information provided in the case, discuss the following questions:

1. 1. International Expansion Strategy: Assess SGCC’s approach to entering and expanding in the Brazilian market. Examine the critical factors that shaped their decision-making and the risk management strategies they employed in executing this extensive international project. Explore the limitations and shortcomings of SGCC’s strategies. Compare and contrast SGCC’s international expansion strategy with those of other multinational companies entering global markets, drawing insights from other relevant case studies.

2. 2. Overcoming Information Asymmetry in a New Market: Delve into the specific strategies that SGCC implemented to tackle the complex issue of information asymmetry when entering the Brazilian market. Explore the intricacies of information gaps, including differences in local knowledge, business practices, and regulatory nuances. Assess the effectiveness of SGCC’s chosen strategies in not only facilitating a successful market entry but also sustaining ongoing operations. Additionally, analyze the potential applicability of these strategies for other multinational corporations seeking to enter markets characterized by information asymmetry.

3. 3. Navigating Financial and Operational Challenges: Discuss the landscape of financial and operational challenges that SGCC encountered during its involvement in the Belo Monte project, such as funding constraints, logistical complexities, and regulatory issues. Investigate the strategies and solutions that SGCC employed to effectively address these challenges, whether through innovative financing, project management techniques, or regulatory negotiations. Assess the outcomes and lessons learned, highlighting both successful approaches and areas that presented difficulties. Identify transferable insights and best practices that can serve as valuable guidance for companies venturing into large-scale international projects in the future.

4. 4. Localization Strategies: Explore how SGCC’s localization strategies influenced its success in Brazil. Assess whether a more globally centralized approach could have achieved similar results and analyze SGCC’s unique decision not to centralize all management decisions, such as funding and financial risk activities. Discuss the implications for multinational corporations operating internationally.

2.1 ByteDance and TikTok

TikTok’s parent company, the Beijing ByteDance Technology Co., Ltd. (hereinafter “ByteDance”), is a privately owned, multinational technology company incorporated in the Cayman Islands and based in Beijing, China. The multinational company has opened offices in the United States, the United Kingdom, Singapore, and other countries. Founded by Chinese entrepreneur Zhang Yiming in March 2012 and owned by Zhang and major global institutional investors, some of which are based in the United States, ByteDance owns a set of popular social media products such as Toutiao (one of the most famous Chinese online news platforms), Douyin (one of the most popular video-sharing apps in China), its overseas version TikTok, and Watermelon Video, among other apps.

ByteDance has achieved great business success within a relatively short period. By 2018, ByteDance’s mobile apps had more than 1 billion monthly users and was valued at US$75 billion, surpassing Uber to become the world’s most valuable startup.Footnote ¹ Among Chinese high-tech social media startups, ByteDance is the first one that did not seek commercial protection or financing from one of the few established internet powerhouses such as Alibaba, Tencent, or Baidu. Rather, ByteDance emerged as their fierce competitor. As of March 2020, ByteDance’s 2019 revenue was estimated at RMB 104 billion to RMB 140 billion, more than Uber, Snapchat, and Twitter combined.Footnote ²

With success in China, ByteDance began to pursue an expansive global strategy in 2016, when it released TikTok, the overseas version of Douyin. In just a few years, ByteDance has become one of the most successful, internationalized Chinese tech companies, generating vast user bases in the United States, Southeast Asia, Japan, and other places. As of July 2019, ByteDance’s products and services have spread across 150 countries and regions in 75 languages and have been ranked at the top of app store lists in more than 40 countries and regions.Footnote ³ Notably, ByteDance has been more successful than Alibaba, Baidu, and Tencent in terms of overseas businesses. It excels in attracting younger audiences abroad. The Economist labeled ByteDance the first global Chinese tech giant.Footnote ⁴

The most successful app ByteDance owns and operates outside China is TikTok, an application that provides an online platform for users to create and share short-form videos.Footnote ⁵ Like its Chinese version Douyin, TikTok was an immediate business success. In November 2018, it ranked first in the number of app downloads and installs in the US market and topped the overall charts of App Store or Google Play many times in Japan, Thailand, Indonesia, Germany, France, and Russia.Footnote ⁶ By September 2021, TikTok’s global monthly active users had reached 1 billion.Footnote ⁷

As in other countries, TikTok gained popularity in the United States, especially after 2018 when it purchased Musical.ly, a Chinese social media company based in Shanghai with millions of US users. In October 2018, TikTok became the most downloaded and installed app on a monthly basis in the United States,Footnote ⁸ putting a great deal of pressure on established US social media platforms such as YouTube and Instagram.Footnote ⁹ In terms of corporate structure, TikTok is owned and operated by ByteDance’s subsidiary TikTok Inc., an American company incorporated in California and headquartered in Los Angeles with a US-based management team. Its key executives responsible for the operation of TikTok in the United States, including its CEO, global chief security officer, and general counsel, were, at one time, all Americans.

3.1 Trump’s TikTok Ban: Background and Facts

3.2 TikTok’s Coping Strategies

3.3 Reactions from ByteDance and the Chinese Government

The Chinese government opposed the US government’s ban on TikTok. As soon as Trump issued the two executive orders, the Chinese government denounced his multiple actions against TikTok as a “smash and grab” and “an officially sanctioned ‘steal’ of Chinese technology.”Footnote ⁷² In addition, it made an appeal to the United States that it should “earnestly maintain fair and transparent international rules and order.”Footnote ⁷³ The Chinese Ministry of Foreign Affairs proposed the Global Initiative on Data Security on 8 September 2020, emphasizing that: “States should handle data security in a comprehensive, objective and evidence-based manner, and maintain an open, secure and stable supply chain of global ICT products and services.”Footnote ⁷⁴

The initiative was a countermeasure to the Clean Network Program of the US government, “which would exclude Chinese telecommunications firms, apps, cloud providers and undersea cables from internet infrastructure used by the US and other countries.”Footnote ⁷⁵ On 17 September 2020, during the regular press conference of the Chinese Ministry of Foreign Affairs, responding to a reporter’s question about the TikTok issue, the spokesperson of the Ministry of Foreign Affairs Wang Wenbin said: “We urge the US side to respect the market economy and the principles of fair competition, abide by international economic and trade rules, stop politicizing normal economic and trade cooperation, and provide an open, fair, just and non-discriminatory business environment for foreign enterprises to invest and operate in the US.”Footnote ⁷⁶ After Biden issued the new executive order about TikTok, Gao Feng, spokesman for China’s Ministry of Commerce, said the reversal of the previous administration’s executive order on TikTok and other apps was “a positive step in the right direction.”Footnote ⁷⁷

The Chinese government changed relevant policies in the meantime to respond to Trump’s plan of selling TikTok to American companies. On 28 August 2020, the Chinese Ministry of Commerce and the Ministry of Science and Technology expanded restrictions on technology exports, now covering “computing and data-processing technologies as text analysis, content recommendation, speech modeling and voice-recognition.”Footnote ⁷⁸ Although not explicitly pointing to the TikTok issue, in effect, under the new rule, if ByteDance sought to transfer its proprietary algorithms to Oracle or other foreign companies, it would need to get approval from the Chinese central government.Footnote ⁷⁹ As noted, this new rule created a high regulatory hurdle that precluded any planned sale of TikTok to a US buyer, which has not been publicly discussed since the amended Chinese export control regulation.

After Trump’s ban, China passed a series of laws related to the TikTok issue. First, on 17 October 2020, the Standing Committee of the National People’s Congress of China (NPCSC) passed the Export Control Law (formally implemented on 1 December 2020), tightening the export control system and providing an underlying legislative basis for relevant lower-level rules like the restrictions on technology exports.

Second, starting from June 2020, the NPCSC began to review the draft of China’s Data Security Law, which was passed on 10 June 2021 and came into force on 1 September 2021. In particular, Article 26 of that law stipulates: “When any country or region adopts discriminatory prohibitions, restrictions, or other similar measures against the PRC relevant to investment, trade, etc., in data, data development and use technology, etc., the PRC may take reciprocal measures against that country or region based on the actual circumstances.” This gives the Chinese government another tool to respond to US restrictions or bans on Chinese telecommunications and internet companies operating in America. China has not taken any action against US measures on Chinese companies like Huawei and ZTE during the Trump administration, but after the implementation of the Data Security Law, China can take reciprocal action against American companies in China when the United States takes action against Chinese companies on a case-by-case basis. The Data Security Law poses a threat to any future action that the Biden administration or Congress might take against Chinese companies operating in the United States.

Third, on 10 June 2021, the NPCSC passed the Anti-Foreign Sanctions Law and it came into force on the date of promulgation. Article 3 of the Anti-Foreign Sanctions Law stipulates: “Where foreign nations violate international law and basic norms of international relations to contain or suppress our nation under any kind of pretext or based on the laws of those nations to employ discriminatory restrictive measures against our nation’s citizens or organizations or interfere with our nation’s internal affairs, our nation has the right to employ corresponding countermeasures.” This article, together with others in that law, adds to a toolkit of measures available to the Chinese government when responding to foreign sanctions or restrictions on Chinese companies doing business overseas.

3.4 The Battle Escalates: 2024 House Bill to Ban TikTok

Just as TikTok management thought the darkest moment had passed and they had effectively managed US political risks,Footnote ⁸⁰ the House of Representatives surprised them by passing a bill that would either ban TikTok or compel ByteDance’s divestiture.Footnote ⁸¹ The bill received unanimous support from the Committee on Energy and Commerce (50–0), and the vast majority of the House Representatives (352–65).Footnote ⁸² Moreover, President Biden publicly announced that he would sign it into law if it has passed both chambers of Congress.Footnote ⁸³ While it is still uncertain whether the Senate will deliberate on the bill and pass it, especially given the fact that Trump has surprisingly voiced his objection to banning TikTok,Footnote ⁸⁴ the potential risk is material. While powerholders on Wall Street have jumped at this opportunity and started to work on a possible acquisition of TikTok,Footnote ⁸⁵ one can expect other key stakeholders to react in ways similar to what we have described in this case study. First, the Chinese government has “reiterated common criticisms of US policy as unfair to China,” and the amended export control regulation requires government approval for any sale of TikTok to a US buyer.Footnote ⁸⁶ Second, TikTok will for sure double down on its lobbying efforts at the Senate level. Third, had the bill passed the Senate and became law, TikTok would most likely challenge its constitutionality in court. Unlike previous cases, however, this time the court will be forced to make the difficult balance between the constitutional mandate for the protection of free speech and due process on the one hand and congressional authority on the other. The saga continues to unfold, and given the complexity of the geopolitical rivalry between China and the United States, only time will tell how it will end.

5.1 For Law School Audiences

5.2 For Policy School Audiences

5.3 For Business School Audiences