More than any other country, China has experimented with the employment of economic levers in coercive ways. China’s use of its growing economic footprint to pursue political, military, and diplomatic goals is worrisome as its ulterior objective is the establishment of hegemony in the region. The measures may also have long-term effects in deterring and shaping countries’ foreign policy interests that go well beyond the short-term economic costs.
China is aggressively deploying loans, financial aid, infrastructure projects, trade and other economic measures as instruments of foreign policy for asserting its claims in the South China Sea (SCS). China has expanded its set of such economic instruments to include both sticks and carrots. China has punished countries that undermine its territorial claims and foreign policy goals with measures such as restricting trade, encouraging popular boycotts, and cutting off tourism. It has also used allurement of financial aid that is part of debt-trap diplomacy .
The deployment of economic levers for coercion have been systematised since the assumption of Presidency by Xi Jinping. While he himself had told former Japanese PM Abe that the political issues need not hinder the bilateral economic relations, China under him is doing precisely the opposite. China punished South Korea for deployment of terminal high-altitude area missile defences (THAAD) by banning its tour groups that hurt the South Korean airlines, hospitality and tourism. Lotte Marts, the South Korean Supermarket chain was forced to sell all its stores in China.
As US termed the Chinese claim in SCS ‘illegal’, China is not moving to enhance its imports from US as agreed in the partial deal. The US decision to sell Patriot missiles to Taiwan was responded by Beijing’s announcement to impose sanction on Lockheed Martin Corporation, the US primary contractor, and its state media indicated that the supply of rare earth could be cut-off. Similarly, on the issue of banning Huawei, China retaliated by stating that Apple would be banned through state media.
When Australia lodged a note with the UN Secretary General refuting China’s unlawful maritime claims in the South China Sea, there was exchange of barbs between the envoys of China and Australia in India. It is expected that China would intensify the use of coercive economic measures which is already in process since Australia supported an independent enquiry on the origin of Covid-19. Beijing’s steps include raising of tariff on Australian barley exports, suspension of beef imports as also threat to prevent its citizens visiting Australia. The above examples explain how China is using the economy as an instrument of statecraft.
The misuse of its economic power is palpable in the Belt Road Initiative. While it is meant to serve the interests of the Chinese state-owned companies by putting in the contract clauses hiring of the Chinese companies, technology, equipment; it is also used for turning the debt into equity, particularly in weaker countries.
Beijing has increasingly relied on economic means to deter, punish or allure other claimants to either support its claims in the SCS or stop opposing its claim. The use of coercive economic sanctions and allurement of financial assistance by Beijing to ensure that the members of ASEAN do not take a stance unitedly against its interest is quite common. It also denies other littoral countries to have partnership with external powers for exploration activities.
In 2012 dispute with the Philippines over Chinese fishermen operating in the Scarborough Shoal, Beijing imposed tighter measures on agricultural imports from the Philippines, and in particular on bananas. Given the importance of bananas and other agricultural exports for the Philippine economy, China’s economic pressure convinced Manila to settle the dispute quickly. Later when Philippines won the case against China in the PCA, Duterte was offered $13.5 bn deals. Philippines decided under Duterte not to pursue the case. Subsequently, China pledged to invest in the Philippines through the BRI and to cooperate on achieving “joint exploration” of disputed waters in the South China Sea and pushed Philippines to terminate the US-Philippines Visiting Forces Agreement (VFA). This was postponed in June in view of continuing harassment by China. China had also warned Philippines not to carry out exploration activities without China in the former’s EEZ. Duterte’s statement in July that he could not afford to go to war with China to assert Philippines’ sovereignty in SCS reflected the extent of the Chinese coercion.
Cambodia’s debts to China amount to more than 25% of its GDP and therefore remains under the latter’s pressure. In 2012, under the influence of China, ASEAN under chair of Cambodia failed to produce a joint communique for the first time in its 45-year history. A secret military agreement between Cambodia and China in Ream Naval Base is another testimony of Beijing’s use of debt to get political concessions from Phnom Penh.
Malaysia under Najib concluded very unfavourable deals with China amounting to more than $ 57 bn and it tilted towards China. Malaysia’s centrality in Southeast Asia, its location at the midpoint of maritime and overland East-West trade routes and its middle-income position make it pivotal for China’s BRI. However, the situation changed when successor indicated his intentions to not honour earlier deals. While the political turmoil in Malaysia continues, it has approached UN for the implementation of the PCA Ruling after the Chinese Survey vessel Haiyang Dizhi 8 accompanied by Coast Guard and maritime militia vessel encroached into the Malaysian EEZ.
Vietnam has been frequently targeted for being the strongest opponent of Chinese claims. China has used coercion against Vietnamese exploration vessels (including cutting their cables) to put pressure. Repsol of Spain and Mubadala of the United Arab Emirates had to cancel their planned exploration drills because of the Chinese obstructions. China also opposed Indian drilling operations in the Vietnamese EEZ. In July, the Chinese Survey vessel Haiyang Dizhi 8 entered waters in the Vietnamese controlled Vanguard Bank.
In addition, the control over the river sources too are subtly used for supporting the Chinese claim in the SCS. It has created a number of dams and dikes on the Mekong River. Last year it stopped the flow of water in the Mekong River to punish Vietnam and Thailand for their opposition to the Chinese interests. Thailand experience its worst drought in forty years. Thailand’s sugar output touched the lowest level in the decade. Vietnam’s rice-fields suffered with the lack of water flow in the river. China is also using medical supplies and influence operations to change the perceptions of nations about Chinese claim. Its propaganda is now focusing on those who are not aware of the SCS disputes like scientists and nations in Africa and Latin America.
China is increasingly deploying coercive economic measures to get other nations particularly in the SCS region to support its position. While it succeeded earlier in creating divisions in ASEAN, it may be difficult now as most countries can see the Chinese game plan. Nations are getting disenchanted with BRI. Chinese loans are debt traps and unless a country is prepared to sacrifice its independence, it would avoid joining BRI. Its efforts to keep the drilling operations in the entire SCS under its control are increasingly been opposed. The Chinese claim in the nine-dashed-line is illegal and the UNSC has been approached by several nations to get the PCA Ruling implemented. Moreover, China cannot wield economic coercion without harming its own interests. This is clear from the US-China trade war. One hopes that China has learnt its lessons well and would put an end to its manipulative approach that is hurting not only others but also its own interests.
DISCLAIMER : Views expressed above are the author’s own.