Around the world, autocrats are increasingly leveraging opaque, politically driven models of foreign direct investment to expand their influence in recipient countries. Many authoritarian states use these strategies, but the People’s Republic of China (PRC) and Russia in particular have actively promoted an alternative model of foreign investment that prioritizes secrecy and state control—otherwise known as corrosive capital. These closed-door deals can entrench corruption, distort markets, and capture elites.
As state-affiliated authoritarian capital expands abroad, policymakers and civil society are paying closer attention. Civic actors are working diligently to share how authoritarian powers deploy corrosive capital and how locally grounded civic strategies can expose vulnerabilities, strengthen oversight, and incentivize more constructive forms of investment.
To explore how democracies can respond, the Forum spoke with leading practitioners grappling with corrosive capital. Below, Eric Hontz (Center for International Private Enterprise) and Ruslan Stefanov (Center for the Study of Democracy, Bulgaria) explain how regimes in Russia and China have pioneered the use of corrosive capital to advance their political priorities and the tactics that civil society can use to resist state capture.
Next week, we pivot to the other side of the equation: constructive capital. In a second post, Inoshini Perera (Verité Research) and Paul Barker (Institute of National Affairs) will outline how civil society in Sri Lanka and Papua New Guinea is working to attract constructive capital—capital that strengthens markets, supports democratic governance, and delivers sustainable economic growth.
Resisting Authoritarian Economic Statecraft
Eric Hontz, Center for International Private Enterprise (United States)
Today’s autocratic powers have embraced mercantilist policies. They treat trade, investment, and business as tools for achieving their regime’s political ends. The tools and tactics deployed by authoritarian powers such as the PRC and Russia within the global free trade system are toxic to economic freedom and democratic sovereignty. Their investments in developed and developing markets aim to create chokepoints and dependencies—they are less about profit and more about exerting influence and dominance. From energy to microchips to critical raw materials, authoritarian states undermine markets and democratic governance, creating risks to human rights, national security, and sovereignty.
As just one example, the Kremlin has wielded the European Union’s reliance on Russian gas to interfere in the bloc’s policymaking. Russia has provided more favorable terms for energy deals with nations that bow to Russian preferences in an attempt to undermine European support for Ukraine or other policies that might frustrate the Kremlin’s ambitions.
Despite the formidable threat of authoritarian-backed investment and lending practices abroad, civil society organizations can help hold these regimes to account. Business associations, chambers of commerce, and free-market-oriented think tanks can play a vital role in conveying the advantages of capital investment from democratic economies and the risks of corrosive capital. At a technical level, the Center for International Private Enterprise (CIPE) has worked with civic organizations to analyze capital-intensive projects, such as fixed infrastructure, to identify governance gaps that may be exploited by anti-democratic actors to undermine markets and democratic processes.
CIPE has assembled many of these lessons into a Practitioner’s Guide in order to highlight the specifics of such work in different political economies around the globe. The solution to pushing back against corrosive capital from authoritarian states will not be found in Washington or Brussels, but in locally grounded responses from each nation that seeks to secure its sovereignty, empower its citizens, and foster growth and prosperity.
Autocracies’ mercantilist economic policies, massive state subsidies, and strategic deployment of investment and lending to create political and economic dependencies have weakened the rules-based system of trade and finance. The task left to democratic nations is to create an economic order that preserves the freedom to invest and innovate for all.
Eric Hontz leads CIPE’s Center for Accountable Investment (CAI), which uses the lens of Corrosive and Constructive Capital to examine the impact of investment on democratic and market institutions. The CAI’s work sits at the confluence of corporate governance, the rule of law, and the business and investment climate.
Responding to Russia and China’s Models of State Capture
Ruslan Stefanov, Center for the Study of Democracy (Bulgaria)
For over two decades, Moscow has sought to embed its influence in the Western financial system. Putin’s regime has leveraged opaque investments, illicit financial flows, and energy dependencies to extend its economic and political sway. The Kremlin’s state capture model exploits governance gaps and weak rule of law abroad to buy access, loyalty, and silence. Hidden ownership structures, offshore intermediaries, and media dependencies sustain state-captured outlets that ultimately normalize corruption and erode democratic oversight. This fusion of financial and media influence has entrenched Russian interests across key sectors such as energy, media, and infrastructure.
In Bulgaria, for instance, this model is most visible in the energy sector. The Russian company Lukoil has long maintained a near monopoly over oil refining and wholesale fuel distribution. Even though Lukoil is non-state-owned, its ties to the Kremlin have been well documented. Bulgaria’s politically motivated decision to sidestep EU sanctions on Russian oil in 2022 and 2023, justified as a technical necessity, allowed continued imports of Russian crude, despite the country’s ability to import oil from non-Russian sources. This ultimately generated billions in excess profits for Lukoil and unnecessarily prolonged Kremlin-linked revenue flows.
In Bulgaria’s case, economic dependence translated into political leverage, delaying the country’s strategic decoupling from Russian influence. Similar patterns have emerged across Central and Eastern Europe.
China has adopted and sought to refine many of the Kremlin’s state capture mechanisms. Through state-backed lending, concessional finance, and politically conditioned infrastructure projects, Beijing has leveraged its economic might for influence, hindering recipient countries’ democratic development. For example, Montenegro received a Chinese state loan amounting to nearly one-fifth of the country’s GDP for the Bat-Boljare highway project. The opaque agreement, limited tender competition, and weak environmental oversight surrounding the project have deepened fiscal dependence. Since Montenegro’s new lender prefers to operate without the “hassle” of competition, transparency, or oversight, this situation has undermined the government’s incentive to pursue governance and anti-corruption reforms required for EU accession.
To address these threats to sovereignty and democracy, civic actors have deployed tools that do not simply expose corrosive capital but also inform strategies to prevent its damage. The State Capture Assessment Diagnostics framework developed and implemented in Southeast Europe by the Center for the Study of Democracy identifies sectors and actors most vulnerable to opaque influence. This framework helps target enforcement and policy action to build deterrence.
With this information, democracy defenders can push for stronger beneficial ownership transparency, verified data, and consistent anti-money-laundering enforcement. Additionally, civil society actors should encourage governments to accept constructive capital from democratic partners that ties financing to accountability, competition, and rule-of-law standards.
The central challenge is the imbalance between the speed of corrosive capital and the slower, more fragmented response of democratic institutions. Civil society continues to face limited resources and shrinking space for action while confronting increasingly sophisticated transnational financial schemes, complicating investigatory and advocacy efforts. Building resilience requires that civil society advocates for transparency, diagnostic capacity, and accountability as integral parts of governance.
Ruslan Stefanov is the Program Director and Chief Economist at the Center for the Study of Democracy (CSD), an influential European think tank shaping global approaches to democratic resilience and economic security. CSD leads international initiatives that translate rigorous analysis into policy impact. You can follow him on LinkedIn here.
If you want to dive in deeper, check out:
Forum research on corrosive capital and foreign authoritarian influence like Deals in the Dark: Russian Corrosive Capital in Latin America (also by Ruslan Stefanov) and The Struggle Against Authoritarian Influence in the Western Balkans: Montenegro as a Test Case
CIPE’s Initiative on Corrosive and Constructive Capital in Europe and Eurasia
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