Learning China’s History Lessons

This chapter draws upon extensive Chinese-language scholarship to explain how China’s experience as a target and practitioner of economic statecraft forged a distinctive strategic culture regarding economic statecraft. Chinese experts and policymakers express confidence that economic resources can be deployed for both strategic leverage and reassurance, faith that economic statecraft can be deployed in ways that advantage both China and the recipient country, and a belief that the Party-state can and should mobilize commercial actors to advance Beijing’s foreign policy goals. They justify China’s ambitious approach by skepticism toward Western claims of morality, identification of China as a developing country, and faith in the overriding benefits of economic growth. The chapter concludes by describing how this collective belief system influences experts’ views on policy challenges and their proposed solutions.

Introduction

This introductory chapter develops a new conceptual framework for understanding how China’s complex domestic structures influence the practice and effectiveness of China’s economic statecraft. China’s orchestration approach integrates three core elements: the “nesting” of orchestration tactics within its hierarchical structures; the use of lucrative “tournaments” designed to attract eager participants while facilitating oversight and discipline; and designing economic statecraft initiatives to maximize interest alignment between central leaders’ foreign policy goals and the interests of key implementing actors. The chapter concludes with the book’s research methodology and a book overview.

Crossing Lines

This chapter exemplifies both the strengths and shortcomings of Beijing’s orchestration approach. It begins by describing how Yunnan province officials utilized Beijing’s support for expanding economic ties in ways that exacerbated the pernicious effects of gambling, logging, and illicit mining in Myanmar’s loosely governed border regions. The second case covers a policy initiative designed to advance multiple interests at modest cost: China’s opium substitution program. The initiative succeeded economically, as Chinese firms earned profits while securing a foothold in Myanmar’s agricultural sector. Yet it failed to stem opium production, instead exacerbating popular distrust of China and feeding instability across the border region. The final case reveals similar problems with several controversial Chinese infrastructure projects in Myanmar. Overall, moral hazard problems, policy stretching, and enterprise malfeasance all proved far more severe in Myanmar than in North Korea or Europe. I conclude by evaluating Beijing’s responses to these challenges.

Never Let a Crisis Go to Waste

This chapter examines four Chinese economic statecraft initiatives across Western Europe. It starts with Beijing’s “purchasing diplomacy”: the public presentation of investments and purchases by major Chinese enterprises in the wake of Europe’s financial crisis. It next turns to China’s financial statecraft, examining Beijing’s purchases of euro-denominated debt and support for the EU’s currency stabilization efforts. Despite domestic criticism of both initiatives, Chinese policymakers effectively incentivized and coordinated among banks and economic agencies. The third case examines Beijing’s promotion of RMB internationalization in Europe. Policymakers successfully leveraged competition among Europe’s financial capitals to secure political support for Beijing’s policy objectives. The final case provides an example of infrastructure investment by a state-owned enterprise: COSCO’s massive investment into the Greek port of Piraeus. Despite successful implementation, Beijing’s economic statecraft exacerbated populist anxieties, undermining China’s foreign policy goals in Western Europe.

Creating a Region

This chapter begins with China’s ambitious effort to create an entirely new regional grouping: the China–CEEC (Central and Eastern European Countries) Partnership, or “16+1.” Despite the paucity of China’s economic presence, its fragile diplomatic ties in the region, and flimsy regional coherence, 16+1 proved largely successful. The second case, examining Beijing’s investment promotion efforts, demonstrates Beijing’s capacity for learning and adaptation. The third case explores Beijing’s creative response to CEEC trade deficits, including its strategic provision of export certifications and encouragement for Chinese agricultural firms to invest in CEE countries while expanding their exports to China. The final case assesses China’s bilateral influence attempts: targeting key CEE states by providing economic benefits. Across these four cases, Beijing’s orchestration approach proved largely effective, rapidly mobilizing broad participation with high implementation coherence at low cost.

Orchestrating China’s Economic Statecraft

This chapter explains how domestic institutional structures shape the three core techniques of China’s orchestration approach to economic statecraft. First, China’s “nested” orchestration combines direct action with delegation and orchestration. Top leaders implement some economic statecraft initiatives, while delegating authority to line ministries and government agencies. In turn, these agencies deploy orchestration techniques to mobilize and manage financial institutions, enterprises, and regional authorities. Secondly, line ministries and financial institutions establish policy initiatives and investment funds that reward companies and regional officials for developing innovative projects. The Belt and Road Initiative is the latest and largest manifestation of this technique. Finally, Beijing also relies upon economic statecraft techniques designed to facilitate interest alignment among the implementing actors. As a result, China’s economic statecraft frequently only requires a light touch. After describing how institutional structures and governance practices shape each technique, this chapter concludes with several weaknesses of Beijing’s approach.

Conclusion

This book shows that Chinese leaders are able to effectively orchestrate their economic statecraft. China’s distinctive approach originates with domestic ideas and institutions. Across four cases, China’s orchestration combined delegation with incentives, attracted participation by regional authorities and enterprises, and facilitated interest alignment among implementing actors. Beijing thus successfully mobilized domestic actors to expand trade and investment. When problems with enterprise malfeasance, policy stretching, and moral hazards emerged, central leaders proved capable of reversing course. After reiterating these core findings, this chapter explains how Beijing’s economic statecraft exacerbated populist anxieties, undermining key policy objectives. For countries targeted by China’s economic statecraft, the policy implications are broadly reassuring. It concludes by comparing China’s approach with the United States, Germany, and Japan, and suggesting several paths forward for future studies in comparative economic statecraft.

Engaging North Korea

China’s orchestration approach to economic statecraft is evident across this chapter’s three cases. First, central-level officials delegated authority to economic-minded government agencies and financial institutions. They established supportive policies and financial resources that successfully enticed Chinese enterprises to “go out” into North Korea’s uncertain economic environment. Regional officials seized this opportunity, eagerly promoting cross-border trade and investment ties in the expectation that local economies would benefit. China’s foreign aid, the second case, operated along similar lines, mobilizing an array of enterprises and regional officials to implement central-level policy at modest cost. The final case, Beijing’s sanctions aimed at Pyongyang’s nuclear weapons program, demonstrates China’s capacity to restrain commercial ties, even though sanctions failed to deter Pyongyang’s efforts. However, policymakers’ successful mobilization of commercial actors and regional officials contributed to modest economic improvements and spurred market-based dynamics, bolstering North Korea’s regime stability while shoring up bilateral ties.