China’s Coercive Economic Diplomacy
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China’s Coercive Economic Diplomacy

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When the 10 member nations of ASEAN failed to reach agreement on the wording of a joint communiqué for the first time in 45 years, most pundits blamed this year’s ASEAN chair, Cambodia, for failing to forge a consensus.  Behind Phnom Penh’s passivity, however, was pressure from Beijing to keep any mention of the South China Sea, especially the recent faceoff between China and the Philippines in the Scarborough Shoal, out of the final statement. That the Chinese had sway over Cambodia should not come as a surprise.  Beijing has provided billions in aid to Cambodia.  In 2011 alone the amount of foreign investment pledged to Phnom Penh by China was 10 times greater than that promised by the United States.

For more than a decade, China has pursued a strategy in Southeast Asia that relied heavily on economic carrots to increase the stake of the Southeast Asian countries in maintaining good relations with China.  The China-ASEAN FTA, Chinese foreign direct investment, foreign assistance, and trade have all been used to encourage countries to consider Beijing’s interests when formulating policies and eschew actions that China would view as objectionable.  In the past few years, however, China has directly used economic relations to compel target countries to alter their policies.  And this growing trend is worrisome.

The most recent target of the employment of economic measures by China for coercive purposes was the Philippines, which on April 10 sent a navy frigate to investigate the sighting of Chinese fishing boats in the lagoon of Scarborough Shoal, well within the Philippines’ 200-nautical mile Exclusive Economic Zone.  After an armed boarding party discovered giant clams, coral, and live sharks aboard the boats, an attempt to arrest the fisherman was thwarted by two civilian China Maritime Surveillance vessels that arrived on the scene.  The Philippines withdrew the frigate and replaced it with a Coast Guard Cutter.  China dispatched an armed Fishery Law Enforcement Command ship to reinforce its sovereignty claim.  The standoff continued for over a month.

Incensed by Manila’s unwillingness to withdraw from the Shoal, China resorted to economic measures to punish the Philippines for encroaching on Chinese sovereignty.  Chinese quarantine authorities reportedly blocked hundreds of container vans of Philippine bananas from entering Chinese ports, claiming that the fruit contained pests. The Chinese decision to quarantine the bananas dealt a major blow to the Philippines which exports more than 30 percent of its bananas to China.  Subsequently, China began slowing inspections of papayas, mangoes, coconuts, and pineapples from the Philippines.  In addition, Chinese mainland travel agencies stopped sending tour groups to the Philippines, allegedly due to concerns for tourists’ safety.  In January, China had surpassed Japan to become the third-largest source of tourists for the Philippines.  Filipino business leaders pressured the government to abandon its confrontational approach in the Scarborough Shoal, which was precisely the outcome that China hoped for.  In early June, Beijing and Manila reached an agreement to simultaneously pull out all vessels in the lagoon.  The Philippines abided by that agreement, and then withdrew all its vessels from the Shoal due to bad weather later that month.  According to Manila, Chinese fishing vessels remain in the lagoon in violation of the agreement. Reports suggest Chinese ships were recently blocking the entrance of the lagoon, preventing any Philippine ships and fishing vessels from re-entering the area.

A more widely reported case of China using trade as a weapon to force a country to alter its policy occurred in September 2010 when Beijing blocked shipments of rare earth minerals to Japan.   The action was taken in retaliation for Japan’s detention of the captain of a Chinese fishing trawler in an incident near the Senkaku Islands, which are under Japanese control but are also claimed by China and Taiwan.  China’s customs agency notified companies that they were not permitted to ship to Japan any rare earth oxides, rare earth salts,  or pure rare earth metals, although these shipments were still allowed to Hong Kong, Singapore, and other countries.  The Chinese subsequently slowed rare earth shipments to the United States and countries in Europe as well, insisting they were attempting to clean up the rare earth mining industry, which has caused severe pollution in some places where the minerals are mined. Beijing’s action alarmed Tokyo and was a major factor in the decision of the Japanese government to release the captain. The embargo was viewed by many experts as evidence of Chinese willingness to use economic leverage to have its way in an international dispute.

China doesn’t just target Asian nations. A third example of China’s use of economic coercion was triggered by the award of the 2010 Nobel Peace Prize to Chinese dissident Liu Xiaobo by the Norwegian Nobel Committee.  After the announcement was made in October 2010, the Chinese foreign ministry warned that the decision would harm relations between Beijing and Oslo, despite the fact that the Nobel Committee is independent from the Norwegian government.  China also warned foreign diplomats that sending representatives to the Nobel Peace Prize award ceremonies would have adverse consequences.  Eighteen countries, mostly nations with poor human rights records of their own, opted to not attend.

In the ensuing months, China froze FTA negotiations with Norway and imposed new veterinary inspections on imports of Norwegian salmon that resulted in a severe cutback.  The volume of salmon imports from Norway shrunk 60 percent in 2011, even as the Chinese salmon market grew by 30 percent.

China has become a critically needed engine of growth for the global economy.  In addition, China’s economic largesse has provided benefits to many countries around the world.  It is increasingly clear, however, that economic cooperation with China has inherent risks.  Countries should be mindful of Beijing’s increasing propensity to use economic means to compel target nations to alter their policies in line with Chinese interests.  Excessive dependence on China may increase countries’ vulnerability to such pressure.

In the Asia-Pacific region and beyond, nations are closely observing Chinese behavior as it remerges as a great power.  Most remain hopeful that as China rises it will adhere to international and regional norms and strengthen the prevailing international system from which it has benefited in recent decades.  If such a positive scenario is to be realized, however, countries will have to push back against China’s growing willingness to employ economic leverage to coerce countries to modify their policies in accordance with Beijing’s wishes.

Bonnie S. Glaser is a senior fellow with the CSIS Freeman Chair in China Studies and a senior associate at Pacific Forum CSIS. This article was originally published by Pacific Forum CSIS PacNet here, and represents the views of the respective author.

Comments
91

[...] China’s political and economic leverage in Southeast Asia has become a subject of concern for some commentators on regional politics, the apparent success of Kishida and Abe’s [...]

[...] with Western companies for sales of defense products in Asia has a long history and often entails coercive economic diplomacy. China’s most blatant economic diplomacy has been focused on deterring sales of Western arms to [...]

[...] exactly is left to bargain over? Also, because of its size and potential for coercive economic diplomacy, the assumption is that any bilateral approach heavily favours [...]

intellectual merc
January 28, 2013 at 18:53

@michael -well, the 3rd world leaders doesn’t exactly spew anti-semitic garbage like Hitler did while developing its nuclear capacities unlike Iran’s Ali Khamenei.

Adolph
January 28, 2013 at 18:47

China is a signatory of the United Nations Law of the Sea.She agreed to enjoy sovereign rights and jurisdiction over an exclusive economic zone of 200 nautical miles.The Scarborough shoal is within the 200 nautical mile jurisdiction of the Philippines and is thousands of miles away from the nearest Chinese landmass.China should act as a big brother to smaller Asian estates like the Philippines and respect International law so that we will have a united Asian front otherwise this will trigger an arms race in Asia which might even surpass the weapons of the west.China under estimates too much small Asian countries like the Philippines and what she is doing is providing the wrong mind set to these developing economies by acting as a threat instead of a good neighbor and responsible world power.In 50 years we will have a divided Asia,with missiles and nuclear weapons pointed on Beijing.

intellectual merc
January 28, 2013 at 18:39

Yes its china. The west may not have a clean past but atleast it presented a form of justification for its actions in terms of iran etc. Whereas China simply claimed its “territory” and outright refuses to present itself to a higher council to settle the dispute and exacerbated the situation by maintaining a significant presence on the area while the issue has yet to be resolved.

intellectual merc
January 28, 2013 at 16:39

@Ken “what china did to philippines…” – so by that statement you do admit that china uses economic leverage to coerce lesser nations to advance its interests just like the west. In your opinion, how far does china need to go before it becomes “significant”? As for the source of economic might, it isn’t exactly the “rare earth extraction case” thats causing all the pollution. www.wri.org/stories/2008/07/beijings-air-pollution-it-isnt-the-cars

[...] exactly is left to bargain over? Also, because of its size and potential for coercive economic diplomacy, the assumption is that any bilateral approach heavily favours [...]

jack lee
August 7, 2012 at 00:14

the US through violence and war to achieve its own national interests all the time, our China through economic means to achieve its own national interests, a contrast to compete with established contractors. As long as a normal person can see who is the threat to the world
 

Hosni
August 4, 2012 at 13:38

 

@nirvana — You are SO right!  If the Chinese people were informed and permitted to speak openly about issues, they would move behave more like a democratic government and treat their neighbors with more respect.
That really is the key to dealing successfully with China.  The censorship and internet blackout policies of the Chinese leaders telegraph their own internal belief that  their grip on power is insecure.  (Who would know better than they?) The policies also reveal what the Chinese leaders fear most: facts in the hands of the public, discussion, truth.
Rather than focusing so intently on 'tactical' day-to-day issues with China, which is all about gaining narrow advantages on narrow issues, we should take a more strategic approach and FOCUS OUR FOREIGN POLICY toward China on advocating free speech as the fundamental right of the Chinese people.  (It is #1 in our own Bill of Rights.)  If any nation's people cannot speak openly, they cannot inform their government about abuses and public problems; and if they cannot inform the government about such issues, the government cannot address them; and if the government does not address them, it is not legitimate.
The Gipper recognized its economy as the Soviet Union's Achilles heel and challenged its leaders to an arms race that wrecked the underpinnings of their empire. 
The U.S. president who deals successfully with China will seize on the fundamental conflict between the exploitative regime's need for secrecy and misinformation in an age of smartphones and other information technologies.  Let's hope our leaders know — as Nirvana did, above —  that China's rulers don't fear economic sanctions or any diplomatic/military pressure from outside even half as much as they fear an informed and outspoken Chinese citizenry. 

 
 

denguesixtyone
August 3, 2012 at 04:48

That's putting it in a nutshell.

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