China’s Evolving Approach to Economic Diplomacy woryds executive summary This article argues that China’s approach to economic diplomacy following the global financial crisis,

timothy r. heath is a Senior International Defense Research Analyst at the RAND Corporation. He has more than sixteen years of experience as a China specialist in the U.S. government. His recent publications include China’s New Governing Party Paradigm: Political Renewal and the Pursuit of National Rejuvenation (2014). He can be reached at <[email protected]>.

China’s Evolving Approach to Economic Diplomacy

Timothy R. Heath

asia policy, number 22 (july 2016), 157–91

• http://asiapolicy.nbr.org •

keywords: china; economics; policy; strategic competition

© The National Bureau of Asian Research, Seattle, Washington

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executive summary

This article argues that China’s approach to economic diplomacy following the global financial crisis, while designed to improve the country’s competitiveness, has weakened the role that trade and investment have traditionally played in restraining tensions with the U.S.

main argument

China’s approach to economic diplomacy has undergone significant changes in recent years, especially after the global financial crisis. Responding to China’s maturation as the second-largest economy in the world, Chinese leaders have called for their country’s transformation into a “strong trading power.” To this end, they have directed reforms to deepen Asia’s integration as a regional economy, modify international trade rules and standards, and secure needed technology, resources, and markets to improve China’s competiveness. This shift has occurred at a time of intensifying strategic competition with the U.S. and the Chinese economy’s increasing exposure to threats around the world. Concerned about its vulnerability in the face of these realities, China has begun to view requirements for economic growth in terms of national security. The net effect of these changes has been a weakening of the role that trade and investment ties have long played in restraining political and security tensions in U.S.-China relations. The bilateral relationship thus appears to be entering an era in which intense strategic competition coexists with deep economic interdependence.

policy implications• Due to the intermingling of economic and security issues, disputes over

either type of issue are likely to grow protracted and more difficult to resolve. More research and creative policy work are required to think through ways of carrying out a peaceful competition in the economic, security, and political realms.

• To dampen economic competition, U.S. policymakers should seek ways both to participate in Chinese-led economic initiatives such as the Asian Infrastructure Investment Bank and to accommodate Chinese cooperation in U.S.-led initiatives, such as by reforming voting shares in the International Monetary Fund to better reflect China’s economic strength.

• U.S. policymakers should seek to increase dialogue with China and other large developing countries over international rules, norms, and principles.

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heath • china’s evolving approach to economic diplomacy

A lthough theorists of international relations have long regarded trade interdependence as pacifying,1 recent scholarship has arrived at a more

ambivalent conclusion. In Transition Scenarios: China and the United States in the Twenty-First Century, David Rapkin and William Thompson cautioned against the expectation that trade interdependence would necessarily restrain competition between two great powers. They pointed out that in past instances in which an established system-leading power faced competition from a rising challenger, “competition and tensions have prevailed over the desire to prevent interruptions of commerce.”2 The authors further noted that many of these tensions have stemmed from strategies employed by rising powers to “catch up” to the established powers. Rising powers have frequently adopted centralized strategies, including government intervention and protection, subsidies, and industrial policies, which countries favoring the status quo resent as unfair. Economic development has historically resulted in greater convergence in similar sectors and industries, fueling competition for markets. Convergence has also heightened competition for energy and other key resources.

The deterioration in the U.S.-China relationship despite deep economic interdependence appears to conform to the pattern of interactions between rising and system-leading status quo powers outlined by Thompson and Rapkin. Tensions have risen sharply in recent years, despite the United States being China’s top trade partner and China remaining the second-largest trade partner for the United States (after only Canada). Noting these trends, Thompson and Rapkin argue that economic interdependence will have “mixed effects” on the U.S.-China rivalry. While such interdependence may produce a pacifying process at the bilateral level, it will likely “increase competition and tension” at both the bilateral and systemic levels.3

This article explores the role that changes to China’s economic foreign policy may have played in exacerbating strategic competition with the United States. The inspiration for this research project drew from the observation that a general deterioration in relations between China and the United States starting around 2010 coincided with continued increases in bilateral trade and investment. In fact, some of China’s economic policies, such as the creation of the Asian Infrastructure Investment Bank (AIIB) in 2013, appear to have

1 See, for example, Bruce M. Russett and John R. Oneal, Triangulating Peace: Democracy, Interdependence, and International Organizations (New York: W.W. Norton, 2001).

2 David P. Rapkin and William R. Thompson, Transition Scenarios: China and the United States in the Twenty-First Century (Chicago: Chicago University Press, 2013), 132.

3 Ibid., 119–20.

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heightened tensions. This development is striking when one considers the fact that economic relations have long been regarded as a stabilizing, constructive influence on the U.S.-China relationship.4

To understand this paradox, this article traces official and academic treatment of three key Chinese terms related to the intersection of economics and foreign policy: economic diplomacy (jingji waijiao), strong trading power (maoyi qiangguo), and economic security (jingji anquan). Economic diplomacy concerns both the economic dimension of foreign policy and the strategic dimension of economic policy. China’s effort to transform itself into a strong trading power capable of greater international economic leadership requires the implementation of tools and ideas associated with economic diplomacy. Finally, the increasing importance placed by senior leaders on the idea of economic security reflects, in part, Chinese anxieties about the political and strategic perils that threaten China’s development into a strong trading power.

Analysis of these ideas and their associated policies reveals a fundamental ambivalence on the part of Chinese authorities regarding the existing international economic order, an ambivalence that appears to be growing over time. Chinese thinkers and officials appreciate the opportunities offered by the global system of trade, but they have also long regarded this system as unfairly privileging Western countries and thus in need of reform. While initially designed to facilitate the country’s integration into the existing economic order, China’s approach to economic diplomacy evolved as its power grew and its needs diverged from those of its chief competitor, the United States. Economic diplomacy, always an inherently political idea, became an increasingly contentious source of policies following the global financial crisis, when China began to more directly challenge aspects of the international institutions, practices, standards, and rules that it regarded as unfairly privileging the United States.

While understandable from an economic perspective, the pursuit of these policies has profoundly affected China’s relationship with the United States. As one example, the size and growing congruence of manufacturing sectors have shifted the bilateral trade relationship from one that had long been largely complementary in nature to one increasingly defined by competition. Moreover, this economic contest is occurring against the backdrop of various security and political disputes between the two countries. These developments

4 Shuxun Chen and Charles Wolf Jr., eds., China, the United States, and the Global Economy (Santa Monica: RAND Corporation, 2001).

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suggest that trade and investment ties may prove less effective in serving as a source of restraint on bilateral tensions than has been the case in previous decades. This article is organized as follows:

u pp. 161–66 discuss the meaning and origin of the term economic diplomacy.

u pp. 166–69 survey the initial efforts to carry out policies associated with the concept.

u pp. 169–72 explore the reconceptualization of economic diplomacy in the mid-2000s.

u pp. 173–79 examine the concept of China as a strong trading power.

u pp. 180–84 review policies undertaken to make China a strong trading power.

u pp. 184–87 analyze the concept of economic security.

u pp. 188–91 consider implications and provide recommendations for decision-makers.

economic diplomacy: the historical and conceptual backdrop

Beijing’s announcement of the AIIB in 2013 garnered considerable international attention, but the bank’s establishment represented just one of a series of large-scale economic initiatives that China has pursued in recent years.5 In 2014, China announced with fanfare the One Belt, One Road (i.e., the Silk Road Economic Belt and the 21st Century Maritime Silk Road) trade initiative.6 That year, it also formed the New Development Bank based on the Brazil, Russia, India, China, and South Africa (BRICS) grouping.7 China’s promotion of a Free Trade Area of the Asia-Pacific (FTAAP) at a meeting of the Asia-Pacific Economic Cooperation (APEC) in 2014 gained considerable media attention as well.8

5 “Only Connect,” Economist, Analects, October 4, 2013 u http://www.economist.com/blogs/analects/2013/10/asian-infrastructure-bank-1.

6 “Chronology of One Belt, One Road,” Xinhua, March 28, 2015 u http://news.xinhuanet.com/english/2015-03/28/c_134105435.htm.

7 “BRICS Countries Launch New Bank in Shanghai,” BBC, July 21, 2015 u http://www.bbc.com/news/33605230.

8 Mireya Solís, “China Flexes Muscles at APEC with the Revival of FTAAP, ” East Asia Forum, November 23, 2014 u http://www.eastasiaforum.org/2014/11/23/china-flexes-its-muscles-at- apec-with-the-revival-of-ftaap.

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These major economic initiatives have appeared alongside evidence of a more assertive Chinese posture in security and political affairs.9 Sensing a link between economic and security developments, observers have debated the drivers and reasons for such dramatic changes in Chinese policy. Many analysts attribute the shift to the personal preferences of Xi Jinping or to the influence of key advisers.10 Less often discussed, however, is the role that China’s changing requirements for economic growth may be playing in aggravating bilateral tensions.

The study of policies related to economic diplomacy and related concepts can provide insight into the economic dynamics underpinning China’s strategic behavior. This topic has arguably received insufficient attention in recent years. Western scholarship of Chinese economic statecraft primarily focuses on the use of specific economic instruments, such as sanctions and preferential trade policies, to achieve political objectives.11 Western experts remain divided as to the effectiveness of these tools. Evaluating the effectiveness of Chinese “coercive economic diplomacy,” for example, Bonnie Glaser sees a “worrisome trend” of successful pressure.12 By contrast, a study by the Lowy Institute concludes that such attempts to apply “economic coercion” produced a mixed record of success, with many cases proving ultimately counterproductive.13 Other scholars also note the problematic implementation of Chinese trade agreements to support an expansion of political influence. One study from 2007 concluded that poor implementation in many cases weakened the potential diplomatic gains from such deals.14

A few Western scholars have expanded the scope of analysis to consider economic diplomacy as an important growing discipline within Chinese foreign policy. In a study published in 2009, Evan Medeiros noted that economic diplomacy had “become a central theme under Hu Jintao.” His analysis defined the Chinese concept of economic diplomacy as the use of

9 Jian Zhang, “China’s New Foreign Policy under Xi Jinping: Towards ‘Peaceful Rise 2.0?’ ” Global Change, Peace & Security 27, no. 1 (2015): 5–19.

10 Edward Wong, “Xi’s Inner Circle Offers Cold Shoulder to Western Officials,” New York Times, September 25, 2015 u http://www.nytimes.com/2015/09/26/world/asia/xi-jinping-china-president-inner-circle-western-officials.htm.

11 John Ravenhill and Yang Jiang, “China’s Move to Preferential Trading: A New Direction in China’s Diplomacy,” Journal of Contemporary China 18, no. 58 (2009): 27–46.

12 Bonnie S. Glaser, “China’s Coercive Economic Diplomacy: A New and Worrisome Trend,” Center for Strategic and International Studies, Commentary, August 6, 2012 u http://csis.org/publication/chinas-coercive-economic-diplomacy-new-and-worrying-trend.

13 James Reilly, “China’s Economic Statecraft: Turning Wealth into Power,” Lowy Institute, Analysis, November 27, 2013 u http://www.lowyinstitute.org/publications/chinas-economic-statecraft-0.

14 Stephen Hoadley and Jian Yang, “China’s Cross-Regional FTA Initiatives: Towards Comprehensive National Power,” Pacific Affairs 80, no. 2 (2007): 327–48.

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“trade, investment, and, increasingly, finance policies to support China’s diplomatic goals” and the use of “classic diplomacy to advance China’s economic development, such as by ensuring access to foreign markets.” Medeiros regarded the concept as “somewhat novel” for China, noting that previous generations had tended to regard diplomacy and economics as separate issues.15

A review of Chinese scholarly articles and official documents supports Medeiros’s characterization of economic diplomacy as a combination of foreign and economic policy. Wang Yiwei, a researcher in the Institute of International Studies at Fudan University, has defined it as a “dialectical unity of the economy and diplomacy.” He emphasizes that economic diplomacy “consists of policies that not only serve economic purposes, but also serve political and strategic purposes as well.”16 Zhen Bingxi, a researcher with the China Institute of International Studies, has provided a more detailed definition:

Economic diplomacy with Chinese characteristics…[is the] full utilization of external economic measures, within the framework of the state’s overall diplomacy, to protect and further national interests, conduct measures such as guiding the economy with policy, using the economy to promote politics, and combining politics and economics in order to gain, on behalf of the nation, the resources, market, capital, technologies, and talented people needed for national development and to effectively defend against and respond to a variety of risks coming from the arena of international economics.17

Zhen’s definition is noteworthy for several reasons. First, it regards economic diplomacy as involving the full gamut of economic and financial measures, including trade, investment, and all forms of economic cooperation. But it also includes diplomacy, military, and any other type of policy, so long as the policy promotes economic gain. Second, economic diplomacy is designed to secure the resources, markets, capital, technologies, and skilled labor needed to sustain national development. Thus, its understanding of what promotes growth is quite broad and inclusive. Third, economic diplomacy operates within the broader framework of the nation’s diplomatic goals and objectives. China’s long-standing pursuit of “national rejuvenation,” updated as the “Chinese dream” under Xi, provides context and vision that guides the

15 Evan Medeiros, China’s International Behavior: Activism, Opportunities, and Diversification (Santa Monica: RAND Corporation, 2009), 61 u http://www.rand.org/content/dam/rand/pubs/monographs/2009/RAND_MG850.pdf.

16 Wang Yiwei, “Jingji waijiao fazhan moli” [Economic Diplomacy Unveils China’s Appeal], Renmin Ribao, December 3, 2004 u http://www.people.com.cn/GB/guoji/1030/3034453.html.

17 Zhen Bingxi, “Xin xingshixia ruhe baohu guojia haiwai liyi” [How to Protect National Interests Overseas in the New Situation], Guoji Wenti Yanjiu (2009).

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country’s diplomatic work. This suggests that considerable coordination is required to ensure steady progress toward economic diplomatic objectives and the myriad security, political, and other objectives inherent in the vision of national rejuvenation.18 Fourth, the Chinese understanding of economic diplomacy is infused with security concerns, many of which pertain to the structure of the international economy and the security environment within which it operates. Zhen explains that “defense” against economic threats requires China to “actively participate in the process of reforming the current international economic, trade, and financial systems,” to “boost China’s ability to set discourse, prices, and policy of the international system,” and to “build an international environment that is more favorable to the protection of China’s overseas interests.”19

The definitions offered by Wang and Zhen have in common the idea that economic tools may serve diplomatic ends, and vice versa. They also share the belief that the meaning and practice of economic diplomacy are contingent on a country’s needs. Beyond the commitment to supporting the nation’s revitalization, the goals and instruments of economic diplomacy remain flexible, depending on the requirements of China’s situation.

Chinese scholars regard the development of economic diplomacy as a recently articulated and specialized topic within foreign policy circles. To be sure, the first generations of leaders of the People’s Republic of China (PRC), like leaders everywhere, also considered economics when practicing diplomacy. Many scholars acknowledge, for example, that the desire to gain access to Soviet technologies and expand trade informed Chinese diplomacy in the 1950s and 1960s.

However, the earliest manifestation of a distinct concept to which the idea of economic diplomacy may be traced appeared in the reform and opening period. Chinese scholars explain that Deng Xiaoping’s promotion of reform and opening represented a turn toward “foreign-oriented economic policy” (duiwai jingji zhengce). According to one account, Deng stated in June 1980 that China’s reforms set the foundation for such a policy. He explained that this policy change aimed to “bring in foreign knowledge, technology, and investment to help China develop” and focused principally on drawing Western economic resources and expertise to bolster China’s economy.20 This concept,

18 “What Does the Chinese Dream Mean?” BBC, June 6, 2013 u http://www.bbc.com/news/world-asia-china-22726375.

19 Zhen, “Xin xingshixia ruhe baohu guojia haiwai liyi.” 20 Liu Xinmin, “Zhongguo duiwai kaifang de queli ji kaifang jincheng” [China’s Foreign-Oriented

Economic Policy: Origins and Progress], Jingji Yanjiu Cankao 58 (2003): 17–24.

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while narrow and limited in scope, represented a critical starting point for official thinking regarding the intersection of diplomacy and economics as a distinct discipline.

The foreign policy of this era provided another important early influence. In the 1980s, Chinese leaders sought to promote a stable international environment for the country to undergo economic modernization. A researcher at the China Institutes of Contemporary International Relations, Niu Xinchun, explains that throughout the Deng and Jiang Zemin eras, diplomacy served economic development “indirectly” through the “shaping of a peaceful and stable security environment.” He identifies several key policy decisions that reflected this imperative, including the 1993 decision by central leaders to “consolidate and develop a peaceful international environment.”21

In the late 1990s and early 2000s, authorities began to expand the meaning of “foreign policy,” or “diplomacy” (waijiao), to incorporate economics as a distinct subtopic. This development partly reflected the recognition of the country’s deepening integration into the global economy and its exposure to a growing array of nontraditional threats. In particular, China’s increasing dependence on trade and expanding involvement in international organizations raised the importance of economic expertise in foreign policy. Accordingly, senior leaders and scholars began to acknowledge more frequently the need for foreign policy specialists who could better grasp economic issues. Even then, these early discussions underscored an underlying ambivalence about aspects of the international order.

In 1998, President Jiang noted the implications of “trends toward multipolarity” and “economic globalization” at a meeting with the country’s foreign policy workers. He directed officials to focus on “international cooperation and competition” to “make full use of opportunities” and promote a “new international political and economic order.”22 In 1999, Foreign Minister Tang Jiaxuan pointed out that the Ministry of Foreign Affairs regarded economics as a priority because the central leadership under Deng had “regarded economic construction as the central task.” He stated that the ministry accordingly intended to “strive to establish a new international political and economic order” based on the five principles of

21 Niu Xinchun, “Zhonguo waijiao xuyao zhanlue zhuanxing” [Chinese Diplomacy Needs a Strategic Transformation], Xiandai Guoji Guanxi, no. 1 (2013) u http://www.cicir.ac.cn/chinese/Article_4516.html.

22 “Jiang Zemin Addresses Envoys at Diplomatic Meeting,” Xinhua, August 28, 1998.

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peaceful coexistence.23 Further reflecting the state of thinking on diplomacy and economics, an October 1999 symposium sponsored by the Ministry of Foreign Affairs examined China’s diplomatic history. The exhibit reportedly included topics on economic and public diplomacy.24

Accession to the World Trade Organization (WTO) further stimulated interest in economic diplomacy. A January 2000 Xinhua article on the WTO accession noted that economic diplomacy “had gradually become a leading factor in country-to-country relations.” It observed that “a rise in the country’s economic status will result in a rise in its political status” and urged that diplomatic practice be updated accordingly.25

china embraces economic diplomacy

By the early 2000s, the term economic diplomacy began to appear in official meetings on foreign policy. The tenth meeting of Chinese foreign policy workers, held on August 29, 2004, mapped out a diplomatic strategy to “step up economic and cultural diplomacy.”26 Drawing from a view widespread in turn-of-the-century writings on the topic, senior officials linked economic diplomacy to the reform of what they considered to be an unjust international system. President Hu Jintao stated that “there is a need to promote the building of a just, rational, and new international political and economic order.” Declaring that it was “necessary to step up economic diplomacy,” he called for “strengthening China’s capability to protect its overseas interests, perfecting relevant laws and regulations, and enthusiastically serving our citizens and legal persons overseas.”27

Days later, in September 2004, the State Council provided even more detail regarding the implementation of relevant policies at its first-ever national work conference on economic diplomacy. Officials at the event highlighted in particular the importance of outreach to developing countries. Premier Wen Jiabao emphasized the blending of political and economic objectives, stating

23 Tang Jiaxuan, “Weile zhengqu heping yu fazhan de guoji huanjing—Xin Zhongguo de waijiao lilun yu shijian” [Striving for an International Environment Favorable to Peace and Development—New China’s Diplomatic Theories and Practice], Liaowang, September 27, 1999.

24 “Symposium on PRC Diplomatic History Opens,” Xinhua, October 15, 1999. 25 “The Word Trade Organization Needs China, China Needs the World Trade Organization,” Xinhua,

January 20, 2000. 26 Wang, “Jingji waijiao fazhan moli.” 27 “The Tenth Conference of Chinese Diplomatic Envoys Stationed Abroad Held in Beijing,” PRC

Permanent Mission to the United Nations, August 29, 2004 u http://www.china-un.ch/eng/tpxw/t156047.htm.

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that China should be “good at integrating political friendship and mutual trust with economic cooperation and exchanges, promoting economics with politics, and integrating politics with economics.” Wen called for “diversifying” the means of economic collaboration, underlining in particular the “integration of trade with investment” and “foreign aid funds with credit funds.” He also called for policies that balance “bringing in” (investment and imports to China) with “going out” (investment and exports from China to other countries).

At the same national work conference, Wu Yi, vice premier of the State Council, presented a work plan. Wu directed a number of policies designed to increase China’s influence and political popularity through economic initiatives. She called for the construction of “signature projects” that would be “closely related to the people’s daily life in the developing countries” and for “providing emergency disaster relief assistance,” “dispatching medical teams,” and “expanding the scope of personnel training.” Wu also announced policies to step up investment and collaboration with developing countries. She directed officials to “encourage more enterprises to invest in and cooperate with the developing countries” and “expand contracted projects.” Wu further emphasized the importance of using diplomacy to expand trade. She called for “expanding the scope of import and export trade with the developing countries,” “expanding the services trade,” and “striving to settle the issue of trade imbalance.” Another initiative sought to use diplomatic resources to push for reform of the international order. Wu called for “deepening multilateral and regional cooperation with the developing countries to safeguard the interests of the developing countries in international economic and trade organizations and multilateral mechanisms.”28

The directives announced at the two conferences added impetus to numerous initiatives already underway aimed at increasing China’s voice in the international economic order. Building on the country’s accession to the WTO in 2001, Chinese leaders stepped up their involvement in high-level multilateral economic-related organizations. In 2005, the director of the Ministry of Finance, Zhu Guangyao, linked economic and financial diplomacy to an increase in high-level visits as well as to efforts to expand policy coordination with colleagues from other countries in the Group of Twenty (G-20), Asian Development Bank (ADB), Association of Southeast

28 Che Yuming, “Quanguo dui fazhan guojia jingji waijiao gongzuo huiyi zai Beijing zhaokai” [National Conference on Economic Diplomacy toward Developing Countries Opens in Beijing], Xinhua, September 2, 2004.

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Asian Nations (ASEAN) +3 (the ten members of ASEAN plus the PRC, Japan, and South Korea), Asia-Europe Meeting, and other organizations.29

Chinese economic diplomacy went beyond high-level meetings, however. The 2000s saw a growing diversity of policies that blended economic and diplomatic purposes and activities, providing both direct and indirect evidence that officials were implementing policies outlined at the 2004 conferences. In a December 2007 interview with Renmin Ribao, Foreign Minister Yang Jiechi confirmed that the ministry pursued policies that it regarded as economic diplomacy. He explained that China “conducted economic and technological cooperation and exchanges with foreign countries,” “actively pushed forward talks on free trade zones and regional cooperation,” “took part in international economic and trade negotiations,” and “made efforts to carry out international energy cooperation.”30 The following year, Yang listed examples of economic diplomacy. He cited “twelve free trade zones that China and relevant countries and regions are working on,” claiming that “six of them have signed agreements and begun implementation.” He also noted other economic fruits of diplomatic activity, stating that “77 nations now acknowledge China’s market economy status.” He added that the ministry had pursued “cooperation on energy topics” and carried out diplomacy to provide services for Chinese enterprises to “go global.”31

Evidence of increased policy activity in line with Yang’s comments can be seen in other key developments during the 2000s. In 2004, President Hu pledged $100 billion in investments in Latin America, opening the way for a major surge in exports of commodities to China.32 China used the incentive of trade and investment to advance other diplomatic objectives, such as limiting Taiwan’s international presence. For example, the Dominican Republic severed official ties with Taiwan in 2004 after China offered $122 million in assistance over six years.33 China also greatly expanded its

29 “Caizhengbu Zhu Guangyao sizhang tan caizheng waijiao” [Director Zhu Guangyao of the Ministry of Finance Discusses Finance Diplomacy], Xinhua, June 22, 2005 u http://news.xinhuanet.com/fortune/2005-06/22/content_3119054.htm.

30 Wen Xian, “Genghao de waizuguo he renmin de liyi fuwu—Yangjiechi waizhang zhuanfang” [Serving the Interests of the Motherland and the People Better—Exclusive Interview with Foreign Minster Yang Jiechi], Renmin Ribao, December 24, 2007 u http://paper.people.com.cn/rmrb/html/2007-12/24/content_35036647.htm.

31 Yang Jiechi, “Gaige kaifang yilai de Zhongguo waijiao” [China’s Diplomacy since Reform and Opening Up], Qiushi, September 16, 2008 u http://theory.people.com.cn/GB/49150/49152/ 8047464.html.

32 Sarah Llana, “In Brazil, Hu Jintao Aims for Bigger Piece of Latin America Trade,” Christian Science Monitor, April 15, 2010 u http://www.csmonitor.com/Business/2010/0415/In-Brazil-Hu-Jintao- aims-for-bigger-piece-of-Latin-America-trade.

33 “Dominica Severs Ties with Taiwan,” BBC Caribbean, March 29, 2004.

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bilateral free trade agreements (FTA) with countries around the world. In Asia, China signed a framework agreement for the China-ASEAN FTA in 2002, although the agreement only took effect years later, in 2010.34 China also expanded international agreements on energy and other topics related to resources, trade, and investment. In 2005, for example, China renewed an agreement with the United States to cooperate on energy-related science and technological issues.35

In light of the country’s increasing strength and integration into the global economy, it should perhaps not be surprising that Chinese leaders sought to use economic power to further their political agenda and use diplomatic resources to support the nation’s continued development. Economic diplomacy could be seen in expanded trade, investment, energy, and other agreements; more frequent high-level visits; and other diplomatic activities throughout the 2000s. However, changing requirements for economic growth influenced how officials regarded economic diplomacy in the latter half of the 2000s, especially following the global financial crisis.

the reconceptualization of economic diplomacy

During the mid-2000s, policies that reflect the logic of economic diplomacy centered principally on high-level visits, trade and investment deals, and intergovernmental coordination activities to simultaneously advance China’s economic growth and diplomatic goals. Considering its overall weakness and the low level of involvement in international economic organizations from which China began in the late 1990s, Chinese leaders found considerable room in the international arena to pursue many of these policies without demanding too much change. However, the country’s astonishing rise dramatically increased both the demands of the international order and the resources needed to press those demands. In particular, Chinese leaders began to recognize that numerous economic and strategic drivers related to the maturing of the country’s economy necessitated reform of the international order. These drivers included concerns about the growing need for access to raw materials and advanced technology, the need to expand China’s share of export markets and create new markets, the increasing

34 Andrew Walker, “China and ASEAN Free Trade Deal Begins,” BBC, January 1, 2010 u http://news.bbc.co.uk/2/hi/8436772.stm.

35 “Bilateral Agreements with China,” U.S. Department of Energy, Office of Fossil Energy u http://energy.gov/fe/services/international-cooperation/bilateral-agreements-china.

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vulnerability of overseas interests, and protectionist and other discriminatory trade policies.

Many of these drivers appeared in the late 1990s and early 2000s. As early as 2003, Chinese leaders had begun to advocate for new policies informed by a “scientific development concept” designed to promote a more balanced, sustainable mode of economic growth. This concept envisioned greater reliance on domestic consumption and an upgrade in manufacturing to feature higher-end technology, along with less dependence on light manufacturing and investment-driven growth.36 Although Hu Jintao oversaw rapid growth during his tenure as president, he made little progress on carrying out the most difficult reforms required to put development on firm footing.37 By the mid to late 2000s, the persistence or worsening of these drivers spurred leaders to reconsider many aspects of policy, including economic diplomacy. The following section draws from a variety of Chinese official and semiofficial analyses and scholarly writings to present an assessment of these strategic drivers.

The Need for Raw Materials and Advanced Technology

Chinese officials and scholars in the mid-2000s identified the acquisition of advanced technology and reliable access to natural resources as necessary to transform China’s mode of economic growth. In 2006, for example, Hu regarded the role of science and technology in enabling the nation’s development as “decisive.”38 Similarly, Yao Zhizhong, a scholar at the Chinese Academy of Social Sciences (CASS), explained that the “current problem is not that China lacks purchasing power,” but that “some countries are not willing to sell goods [such as controlled technology] or are attempting to sell goods [such as resources] at unfavorable prices or under unfavorable conditions.”39 Yao recognized that developing a trade and overseas investment strategy to secure these goods would elevate the importance of relations with resource-rich countries in the developing world as well as maintain the importance of relations with technology-rich developed countries.

36 Joseph Fewsmith, “Promoting the Scientific Development Concept,” China Leadership Monitor, no. 11, July 30, 2004 u http://www.hoover.org/research/promoting-scientific-development-concept.

37 Kerry Brown, “Hu Jintao’s Legacy,” Foreign Policy, November 8, 2012 u http://foreignpolicy.com/2012/11/08/hu-jintaos-legacy.

38 “Hu Jintao’s Speech at the National Science and Technological Conference,” Xinhua, January 9, 2006 u http://english.gov.cn/2006-01/09/content_151631.htm.

39 Yao Zhizhong, “Zhongguo de jinkou zhanlue tiaozheng” [Adjusting China’s Import Strategy], Guoji Jingji Pinglun, no. 3 (2008): 24–28.

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The Need to Expand and Create Export Markets

While acknowledging the need to expand domestic consumption as a driver of future growth, senior leaders since at least 2007 have recognized the perils of overcapacity created by years of investment-led development.40 In 2008 a study by Wang Shouwen, director of foreign trade within the Ministry of Commerce, highlighted the declining competitiveness of these industries, especially given rising labor and other costs.41 Zhang Zheren, a scholar associated with the State Council’s Development Research Center, explained in 2009 that because China’s growth depended so heavily on exports, disruptions to external demand could “seriously affect internal economic development.” He warned that unless the country rethought its trade and investment strategy, “exports are bound to slide even faster, and the pressure on employment will be greater.”42

In 2008 the minister of commerce Chen Deming observed that a majority of the world’s largest economies would continue to rely on exports to power growth. As a result, he recommended that China “increase its share of the international market” and proposed a goal for China to account for 15%–20% of world trade by 2020, noting that the country only accounted for 9% of the trade in goods and 4% in services. However, with the declining competitiveness of traditional export industries, Chen advocated a revamping of China’s trade and investment strategy to expand the country’s share of existing markets and create new markets.43

The Need to Protect Increasingly Vulnerable Overseas Economic Interests

Throughout the 2000s, Chinese experts studied methods employed by Western countries to protect their overseas interests, including financial and trade mechanisms, consular activities, the establishment of government agencies to support overseas investment, and the use of military power to

40 Xiaojun Li, “China as a Trading Superpower,” in “China’s Geoeconomic Strategy,” ed. Nicholas Kitchen, London School of Economics, IDEAS Special Report, no. 12, June 2012, 25–31 u http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR012/li.pdf.

41 Wang Shouwen, “Zhuanbian fangshi, tuidong duiwai maoyi you kuai, you hao fazhan” [Change the Pattern, Promote a Sound and Rapid Development of Foreign Trade], Guoji Maoyi, no. 7 (2008): 16–19.

42 Zhang Zheren, “Dangqian chukou zhengce pingjia he weilai zhengce quxiang” [Assessment of Present Export Policy and Future Policy Moves], Guoji Maoyi, no. 10 (2009): 14–16.

43 Chen Deming, “Guanyu guoneiwai maoyi de jige renshi wenti” [Understanding Some Issues Concerning Domestic, Foreign Trade], Qiushi, June 26, 2009 u http://www.qstheory.cn/zxdk/2009/200907/200906/t20090609_1786.htm.

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safeguard key resources or trade lanes.44 Yao Zhizhong’s study called attention to the vulnerability of overseas economic interests, including energy, resources, and markets. It argued for an economic strategy that “attached equal importance to both security and development.”45 Future economic growth would depend in part, implied Yao, on the ability to project military power, presumably under UN authority, to protect resources, vital sea lanes, and other important economic interests abroad. The article also emphasized “natural security” considerations for technology-related imports, such as encryption software and electronic communication devices. This point evoked concerns that imported foreign technologies could provide citizens with a means of circumventing security authorities or grant foreign agents (e.g., intelligence agencies or dissident groups) a means of interfering in domestic affairs. China’s adoption of policies that set censorship and other security requirements for information technologies as the price of entry into the domestic market underpinned high-profile disputes involving Western companies such as Yahoo and Google.46

Concerns about Protectionist and Discriminatory Trade Policy

As competition for global export markets intensified in the 2000s, Chinese fears of discriminatory trade policies grew. In particular, analysts criticized WTO trade rules as unfair. Reflecting a commonly raised criticism in official media, one Xinhua article noted that in the 1995–2004 period China was the WTO member “subjected to the largest number of anti-dumping investigations” and concluded that “China has become the biggest victim of international trade protectionism.”47 Chinese scholars have alleged protectionist pressure from both developed and developing countries. Song Hong, a CASS researcher, observed in a 2009 interview with Liaowang that developing countries such as Argentina, India, Brazil, and Mexico had launched anti-dumping and anti-subsidy investigations against China. Song and other analysts interviewed in the article regarded the ability to shape the terms of international trade as critical to China’s efforts to curb such discrimination.48

44 Zhen, “Xin xingshixia ruhe baohu guojia haiwai liyi.” 45 Yao, “Zhongguo de jinkou zhanlue tiaozheng.” 46 Tania Branigan, “Chinese Partner Warns Yahoo in Google Censorship Row,” Guardian, January 17, 2010. 47 Cheng Yunjie et al., “Zhongguo jiji yingdui maoyi moca” [China Copes with Regularization of

Trade Friction in a Proactive Manner], Xinhua, April 4, 2006. 48 Zhang Hui, “Maoyi zhan bianyuan” [On the Brink of Trade War], Liaowang, October 19, 2009, 8–9.

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the global financial crisis: a catalyst for new trade and investment strategies

The global financial crisis catalyzed concern into action, as China experienced a dramatic fall in exports and investment on which the country had grown to depend. In 2009 alone, net FDI decreased 42% and exports fell 17%.49 Indeed, the global financial crisis proved pivotal for the trade policies of many countries. In the wake of that traumatic event, many Western leaders directed their governments to contribute more directly to economic growth by securing trade deals and other business opportunities. As an example, President Barack Obama announced in his 2010 State of the Union Address that the United States intended to double its exports within five years, an initiative that would reportedly involve most of the U.S. government.50 The U.S. State Department followed up with an announcement in 2012 of an “economic statecraft” initiative aimed at expanding business opportunities for the nation.51

Chinese authorities similarly directed a more vigorous application of diplomatic power to help the country maintain steady growth. In 2008, Foreign Minister Yang Jiechi announced that China intended to “actively launch economic diplomacy” as part of a “new diplomacy.”52 At the eleventh meeting for Chinese foreign policy workers, held in July 2009, Hu Jintao underscored the importance of economic diplomacy as a way of bolstering growth. He called on officials to “serve the overall interests of economic development” and make “more efforts to carry out economic diplomacy.”53

A Xinhua report published in March 2009, explained that the new diplomacy prioritized “support to national development.” Many features drew from established practices. As before, diplomats organized high-level visits among economic and financial leaders to coordinate policy on bilateral and multilateral levels to stabilize trade and global financial operations.

49 Linyue Li, Thomas D. Willett, and Nan Zhang, “The Effects of the Global Financial Crisis on China’s Financial Market and Macroeconomy,” Economics Research International (2012) u

http://dx.doi.org/10.1155/2012/961694. 50 Barack Obama, “Remarks of the President at the State of the Union Address,” White House,

Office of the Press Secretary, January 27, 2010 u https://www.whitehouse.gov/the-press-office/remarks-president-state-union-address.

51 “Economic Statecraft: U.S. Foreign Policy in an Age of Economic Power,” U.S. Department of State, Bureau of Public Affairs, Fact Sheet, February 16, 2012 u http://www.state.gov/r/pa/pl/2012/184182.htm.

52 Yang, “Gaige kaifang yilai de Zhongguo waijiao.” 53 Chen Xiangyang, “Xin shiqi Zhongguo da waijiao de fangxiang” [The Direction of China’s Great

Diplomacy in the New Period], Liaowang, July 27, 2009, 58.

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Some practices received more attention, however. Diplomats reportedly stepped up efforts to more directly aid enterprises and business people abroad. The Xinhua report described how Chinese embassies and consulates tracked economic and financial development trends, carried out economic research, and provided advice and proposals for investment and trade deals. The overseas diplomatic corps also advised Chinese enterprises on overseas markets, raised security awareness among enterprises, and actively engaged in overseas labor disputes involving Chinese citizens.54 In 2009, Foreign Minister Yang claimed that Chinese ambassadors spent 30%–50% of their work hours on work related to economics.55

China as a Strong Trading Power: Economic Diplomacy Revised

The hard work of diplomats, no matter how helpful, could not overcome the post-crisis decline in world demand or the structural imbalances that impeded China’s ability to grow on a sustainable basis. At the 18th Party Congress in 2012, Chinese leaders agreed that structural reforms had become unavoidable. They also agreed that a centralization of power, under the rubric of the engineering-inspired concept of a “top-level design” approach to policy, would be necessary to carry out the reforms. Domestically, leaders sought to enact systemic changes in government administration and market mechanisms to promote sustainable growth.56

Yet the pursuit of systemic and structural reform went beyond domestic concerns. As already seen, senior leaders in the late 1990s had regarded reform of the international economic order as essential to economic diplomacy. The early 2000s saw this agenda decline in priority as authorities focused their energies on joining the WTO and reaping the considerable benefits. By the mid-2000s, however, China’s exposure to the international economy reached new levels of vulnerability. In 2006 the country’s trade dependence surged to nearly 60% of GDP, although it receded slightly thereafter.57 Moreover, the compounding effects of the accumulation of manufacturing overcapacity, the

54 Chang Lu and Sun Yi, “Waijiao wei guonei fazhan fuwu maichu xin bufa” [China’s Diplomacy Takes New Steps in Serving Domestic Development], Xinhua, March 1, 2009.

55 “Waijiaobuzhang Yang Jiechi huijian zhongwai jizhe” [Foreign Minister Yang Jiechi Meets Chinese and Foreign Reporters], Xinhua, March 7, 2009 u http://www.xinhuanet.com/2009lh/zhibo/wjbz_index_20090307.htm.

56 Daniel H. Rosen, “Avoiding the Blind Alley: China’s Economic Overhaul and Its Global Implications,” Asia Society, Policy Institute Report, October 2014 u http://asiasociety.org/files/pdf/AvoidingtheBlindAlley_ES.pdf.

57 Li Cui, “China’s Growing Trade Dependence,” Finance and Development 44, no. 3 (2007) u http://www.imf.org/external/pubs/ft/fandd/2007/09/cui.htm.

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collapse in world export markets, and intensifying geostrategic competition over trade added a stronger sense of urgency to pursuing reform of the international economic order.

This pursuit found perhaps its most concise and revealing expression in the decision to overhaul the country’s trade and investment strategy. A major study carried out by Ministry of Commerce researchers in 2009–10 concluded that successful reform of China’s trade and investment strategy depended in part on the country’s ability to exercise international influence commensurate with its status as the world’s second-largest economy. The study outlined a vision of China as a leader in world trade and investment, rather than being merely a country that trades in large volumes but passively follows established rules. It used the term “strong trading power” (maoyi qiangguo) to describe this condition, a term that senior leaders also adopted.58

In 2010, Zhong Shan, deputy minister of commerce, stated that being a strong trading power entails the “ability to allocate global resources” and be competitive “at all four levels of government, industry, enterprises, and commodities.” He further explained that a strong trading power must “improve the competitiveness of its export products” and that its enterprises had to improve their international competitiveness. Industry, he observed, needs to enhance the organizational effectiveness and influence of its trade associations. Government also has an important part to play, however. Zhong explained that a trading power’s government should “take part in making the rules of international trade and investment.”59 He translated this last directive into requirements to increase China’s influence in the multilateral trading system and regional economic cooperation, enhance the capability to negotiate prices in import and export commodities, promote the internationalization of the renminbi (RMB), and enhance the international competitiveness of China’s enterprises through cooperation with government and industry.

As outlined by these officials, the idea of a strong trading power reflects a policy vision or goal around which various economic and foreign policies may be designed. It may thus be regarded as an application of the idea of economic diplomacy to China’s situation in the latter half of the 2000s, especially after the global financial crisis. The idea of a strong trading power aims to guide the formulation of policies to enable China’s sustained development. As the Zhong

58 Ministry of Commerce Research Institute (PRC), “Houweiji shidai woguo duiwai maoyi de zhanluexing tianzheng” [Strategic Readjustment and Structural Innovation in China’s Foreign Trade Policy in the Post-Crisis Era], Guoji Maoyi (2010): 4–10.

59 Zhong Shan, “Jianchi buyi de jiakuai waimao fazhan fangshi zhuanbian” [Unswervingly Speed Up the Transformation of the Mode of Foreign Trade Development], Qiushi, August 16, 2010 u http://www.mofcom.gov.cn/aarticle/ae/ai/201008/20100807082846.html.

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formulation shows, the ideal also spans commercial business and government policy. Economic diplomacy, by contrast, remains a broad category of economic-related government foreign policy encompassing a varied range of economic and foreign policy instruments. The appropriate mix of policy tools and instruments to carry out economic diplomacy will differ according to the stage of economic development. In the period following the global financial crisis, Chinese government officials may employ instruments and ideas drawn from economic diplomacy to pursue the realization of China’s potential as a strong trading power. However, once the unique conditions that gave rise to the pursuit of status as a strong trading power fade, officials may redeploy the same or a different variety of tools and ideas from economic diplomacy to achieve a different policy vision or goal.

Since 2009, the government policy dimension of China’s efforts to transform itself into a strong trading power has thus defined much of the content of the country’s economic diplomacy. Officials and scholars invoke proposals to achieve the former or carry out the latter that are so similar in content that for practical purposes they may be regarded as nearly synonymous. To be clear, official documents and speeches by senior leaders have shown some inconsistency in the use of either the term economic diplomacy or strong trading power, and in some cases neither term has been invoked. But the policies associated with these ideas have consistently appeared in key documents and speeches by senior leaders since 2009. In fact, the policy recommendations have appeared with such regularity that they may be regarded as an accepted part of the government’s policy agenda.

For example, the 2011 white paper on foreign trade declared China’s intent to transform itself “from a big trading country into a strong trading power,” although it regarded this as a “long-term process requiring arduous efforts.” The paper provided a simple definition of the ambition to become a “strong trading power,” declaring China’s intent to move beyond its reliance on “low-cost advantage” to gain a “comprehensive competitive edge.”60 Among the policies it proposed, the paper listed measures such as international cooperation in strategic industries, improvements to the quality and safety of exports, an expansion of bilateral and regional free trade arrangements, and “reform of the global economic governance mechanism,” which it linked to China’s participation in various multilateral economic organizations such as the G-20 and BRICS summits.

60 Information Office of the State Council (PRC), China’s Foreign Trade (Beijing, December 2011) u http://english.gov.cn/archive/white_paper/2014/08/23/content_281474983043184.htm.

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The 12th Five-Year Plan (FYP) provided even more authoritative direction to transform China into a strong trading power. In 2011, Foreign Minister Yang Jiechi explained that over the course of the FYP, Chinese diplomats would need to “actively launch economic diplomacy, oppose protectionism, focus on unity and cooperation with the developing countries,” and “focus on reform of the international system.”61 The full text of the 12th FYP did not invoke the terms strong trading power and economic diplomacy, but it did list a series of policy directives consistent with the logic of economic diplomacy and the pursuit of China’s transformation into a strong trading nation. Part XII of the program, for example, called for measures to “optimize the foreign trade structure” and revise investment and export strategies. It also called for policies to “expand convertibility of the RMB currency,” revise domestic and international laws, and establish mechanisms to “protect the overseas rights of China.” But the clearest evidence of the leadership’s commitment to making China a strong trading power could be seen in an unprecedented section added to the 12th FYP, titled “Actively Participate in Global Economic Governance and Regional Cooperation.” This section emphasized the reform of existing international organizations and the expansion of free trade zones. It directed efforts to “participate actively in the G-20’s global economic management cooperation in order to promote and build a balanced multilateral trade system,” “oppose all kinds of protectionism,” “actively promote a reform of the international financial system,” and “rationalize the international currency system.” The FYP also stated that “China will actively take part in the drafting and amending of the international regulations and standards to increase its influence in international economic and financial organizations.”62 In contrast, the preceding 11th FYP did not mention any of these directives, nor even the term global economic governance. Instead, under a section on trade, it merely called for an “increase in regional and international economic cooperation.”63

In 2012 the report of the 18th Party Congress did not use either term, but it carried policy directives similar to those listed in the 12th FYP. In a section titled “Promoting Improvements to China’s Open Economy,” the report called for efforts to “make overall planning for bilateral, multilateral, regional, and subregional opening up and cooperation; accelerate implementation of the

61 Yang Jiechi, “Dangqian guoji geju de yanbian he woguo waijiao gongzuo” [The Current Evolution of the International Structure and China’s Diplomatic Work], Guoji Wenti Yanjiu, no. 5 (2011): 1–4.

62 “Guojia jingji he shehui fazhan di shier wunian guihua gangyao” [12th Five-Year Program Outline for National Economic, Social Development], Xinhua, March 16, 2011.

63 “Guojia jingji he shehui fazhan di shiyi wunian guihua gangyao” [11th Five-Year Program Outline for National Economic, Social Development], Xinhua, January 16, 2006.

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strategy of building free trade areas; and promote infrastructure connectivity with our neighboring countries.” In its section on foreign policy, the 18th Party Congress report stated that China “will take an active part in global economic governance, promote and facilitate free trade and investment, and oppose protectionism in all its forms.”64

In 2012 the Ministry of Foreign Affairs established the Economic Cooperation Department to help carry out responsibilities related to economic diplomacy. A Xinhua report explained that the new office would “promote the country’s international economic cooperation and safeguard national economic security.”65 Xinhua also reported that the new agency would assume responsibility for international economic affairs, to include preparations for, and follow-up actions resulting from, senior leaders’ attendance at significant events, including the G-20, APEC, BRICS, and other summits. The office would work with other Chinese government organs to “make arrangements for the country to cooperate in economic and developmental fields within the United Nations and other international and regional cooperation frameworks.” It would also carry out research regarding “global economic governance, the international economic and financial situation, and regional economic cooperation.”66

Developments in China in the post–financial crisis period show a growing intellectual awareness and policy focus on systemic, structural reform to the international economic and financial order as an important part of economic diplomatic efforts to realize the country’s transformation into a strong trading power. However, Hu Jintao’s tenure concluded with little progress on the implementation of such ambitious reforms. His successor, Xi Jinping, assumed the burden of carrying out policies in line with such directives.

Developments in the Xi Jinping Era

President Xi’s tenure began with clear support for the idea of pursuing economic diplomacy to realize China’s transformation into a strong trading power. In 2013 the Third Plenum decision document followed the practice of the 18th Party Congress in omitting either term but upheld the

64 “Full Text of Hu Jintao’s Report at 18th Party Congress,” Xinhua, November 17, 2012 u http://news.xinhuanet.com/english/special/18cpcnc/2012-11/17/c_131981259.htm.

65 “Chinese FM Inaugurates New Economic Cooperation Dept.,” Xinhua, October 9, 2012 u http://news.xinhuanet.com/english/china/2012-10/09/c_131895937.htm.

66 Ibid.

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recommendations associated with the pursuit of becoming a strong trading power. In a section labeled “Building an Open-Style New Economic Structure,” the decision outlined a number of reforms to the international system that it regarded as necessary to enable sustained growth.67 It also called for the “signing of investment agreements with countries and regions.” The decision affirmed the importance of diplomatic efforts to boost the competitiveness of Chinese companies, directing the “perfection of the consular protection system” and the “provision of more services and rights and interests guarantees” for overseas companies. It also greenlighted a major increase in overseas investment and called for “building free trade zones,” “launching investment cooperation abroad,” and “persisting in bilateral, multilateral, regional and subregional cooperation.”

At a foreign policy work conference in November 2014, Xi directed efforts to “reform the international system and global governance” and “increase the representation and say of China and other developing countries.” Xi added that officials should “advance the building of the Silk Road Economic Belt and the 21st-Century Maritime Silk Road” and “do a good job in providing foreign aid” as well as “protect China’s overseas interests.”68 At that same event, Premier Li Keqiang called for “advancing economic diplomacy.”69 In December 2014, Xi directed the deepening of efforts to construct a free trade zone strategy. He called for China to “take part in the formulation of international economic and trade rules” and to “strive for the institutional right to global economic governance.” He also pressed for the establishment of a free trade zone that extends throughout the world. Explaining the reason for these initiatives, Xi stated that “there is a need to accelerate the pace of China’s transformation from a major trading country to a strong trading power.”70

67 “Zhonggong zhongyang guanyu quanmian shenhua gaige ruogan zhongda wenti de jueding” [Full Text: CPC Central Committee Decision on Deepening of Reforms], Xinhua, November 15, 2013.

68 “Xi Eyes More Enabling Int’l Environment for China’s Peaceful Development,” Xinhua, November 30, 2014 u http://news.xinhuanet.com/english/china/2014-11/30/c_133822694.htm.

69 Ibid. 70 “Xi Jinping zai di shijiu zhonggong zhongyang zhengzhiju zongti xuexi: Jiakuai shishi ziyou

maoyiqu zhanlue” [Xi Jinping Speaks at 19th Collective Study Session of the CCP Central Committee Political Bureau, Stresses Need to Accelerate Implementation of Free Trade Zone Strategy], Xinhua, December 6, 2014 u http://news.xinhuanet.com/politics/2014-12/06/c_1113546075.htm.

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the implementation of policies to make china a strong trading power

The pursuit of large-scale investment to create new markets and deepen Asia’s economic integration, such as the One Belt, One Road initiative, has gained considerable international attention. However, these initiatives stand as merely the most visible of a number of economic diplomacy efforts undertaken by China to realize its transformation into a strong trading power, many of which have gained momentum in the Xi Jinping era. In line with directives provided principally in the 12th FYP, Beijing has increased efforts to (1) promote RMB internationalization, (2) increase China’s influence on international trade rules, prices, and standards, (3) expand China’s free trade strategy, (4) deepen the region’s economic integration, (5) increase investment to secure the advanced technologies, markets, and resources required to improve the competitiveness of Chinese trade, and (6) pursue diplomacy to deflect trade penalties and secure large export deals. The progress of these efforts is briefly reviewed below.

Promoting RMB Internationalization

China has made halting steps toward the promotion of RMB internationalization. A study by the ADB in 2014 concluded that Beijing had progressed in promoting RMB settlements for trade involving China and in issuing RMB-denominated bonds in Hong Kong, but that the level of internationalization remains limited due to capital account controls.71 In August 2015, China expanded the role of the market in determining the value of the RMB, leading to a sharp devaluation. This action raised suspicions in the United States and other industrial countries that China had used the excuse of pursuing greater market convertibility to lower the price of exports and gain market share. Denials by Chinese authorities did little to alleviate these concerns. Foreign commentators have argued that RMB devaluation risks inciting a “trade war” between industrial countries over the global export market.72

71 Barry Eichengreen and Masahiro Kawai, “Issues for Renminbi Internationalization: An Overview,” Asian Development Bank, ADB Working Paper Series, no. 454, January 2014 u http://www.adb.org/sites/default/files/publication/156309/adbi-wp454.pdf.

72 Peter Eavis, “China’s Devaluation May Initiate New Phase in Global Currency War,” New York Times, August 13, 2015 u http://www.nytimes.com/2015/08/14/business/dealbook/chinas-renminbi-devaluation-may-initiate-new-phase-in-global-currency-war.html.

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Influencing Trade and Investment Rules, Prices, and Standards

Chinese scholars have analyzed possible strategies for advancing changes in economic and financial rules and mechanisms. Li Jiguang, a researcher at the Foreign Economic and Trade University, looked at ways to form coalitions of countries with shared concerns within government-to-government organizations.73 Western studies of Chinese efforts to shape the international rules and standards related to trade and investment have generally concurred that China has sought reforms to existing structures but does not seek to radically change the existing rules.74 A study by Bruce Reynolds and Susan Sell noted that China’s behavior had become “more assertive and effective in promoting its preferred regimes” within government-to-government organizations. As two examples, they cited China’s progress in controlling exchange rates and its prevailing in key elements of a landmark WTO settlement on intellectual property enforcement. The authors expected China to “continue to press for reformist (but not radical) rule adjustments in its favor.”75

Other observers, including some U.S. officials, have criticized China’s ambivalence to international trade and investment rules in harsher terms. U.S. trade representative Ron Kirk accused China of “still flouting World Trade Organization rules 11 years after it first joined,” claiming that Beijing “misused the complaints machinery for tit-for-tat retaliation.”76 Other commentators allege that China’s culture of noncompliance is undermining compliance with the WTO. One Western commentator argued that “Chinese officials ignore both international and local laws in factories that produce for export.”77 China’s alternative trade standards have evoked criticism as well. Analysts have noted that such standards would “force U.S. companies to disclose proprietary information” for market access. Similarly, Western critics

73 Li Jiguang, “WTO zhong de jituanhua xianxiang yu woguo de celue xuanze” [The Phenomenon of Forming Groups within the WTO and China’s Strategic Choices], Guoji Maoyi, no. 12 (2012): 36–39.

74 Hugh Jorgensen and Daniela Strube, “China, the G20, and Global Economic Governance,” Lowy Institute for International Policy, Analysis, November 28, 2014 u http://www.lowyinstitute.org/publications/china-g20-and-global-economic-governance.

75 Bruce Reynolds and Susan K. Sell, “China’s Role in Global Governance—Foreign Exchange and Intellectual Property: A Comparison,” Indiana University, Research Center for Chinese Politics and Business, Working Paper, no. 31, November 2012 u http://www.indiana.edu/~rccpb/pdf/Reynolds_Sell_RCCPB_31_Nov_2012.pdf.

76 Ambrose Evans-Pritchard, “U.S. Lambasts China for Breaches of Trade Rules,” Telegraph (United Kingdom), December 26, 2012 u http://www.telegraph.co.uk/finance/globalbusiness/9765348/US-lambasts-China-for-breaches-of-trade-rules.html.

77 Susan Ariel Aaronson, “Is China Killing the WTO?” International Economy, Winter 2010 u http://www.international-economy.com/TIE_W10_Aaronson.pdf.

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worry that China’s preferred trade terms threaten the promotion of labor and environmental standards upheld by U.S. authorities.78

Expanding China’s Free Trade Strategy

Chinese leaders have called for an expansion of free trade areas around the world, driven in part by initiatives such as One Belt, One Road; the FTAAP; and various bilateral trade agreements. Western academics widely recognize the strategic and political purposes inherent in FTAs. Noting that China often discriminated against itself in the terms offered to its earliest trade partners, a study by Joe Ravenhill and Yang Jiang described such behavior as the “classical behavior of a benevolent hegemon, reminiscent of the U.S. tolerance of discrimination against its exports by its European and Northeast Asian allies in the period after 1945.” Chinese FTAs, the authors noted, are “designed to strengthen China’s economic security.” The FTAs also aim to “consolidate China’s regional influence and ability to engage in strategic competition with other great powers, such as Japan and the United States.”79

However, some scholars doubt the effectiveness of China’s free trade strategies, the implementation of which has been riven by politics. A 2010 study by Yang Jiang rejected China’s claim to having found a uniquely generous approach to trade policy. Indeed, Yang questioned whether China even follows a coherent free trade strategy at all. The study noted that trade implementation often encounters fierce resistance from powerful domestic industries that demand protectionist measures, thereby undermining the effectiveness of free trade initiatives. As a result, China’s policymaking has shown a “shift of power towards protectionist forces as well as a coordination problem between political and economic interests.”80

Building the Infrastructure to Enable Asia’s Economic Expansion

In addition to FTAs, China has announced a number of other initiatives to facilitate regional economic integration and create new markets for Chinese exports. In 2013, Xi Jinping announced the One Belt, One Road initiative to expand trade from China to Europe through an overland

78 Marc Ambinder, “The Future of Trade: U.S. Rules. Or China’s Rules,” Week, March 4, 2015 u http://theweek.com/articles/542276/future-trade-rules-chinas-rules.

79 Ravenhill and Yang, “China’s Move to Preferential Trading,” 27–46. 80 Yang Jiang, “China’s Pursuit of Free Trade Agreements: Is China Exceptional?” Review of

International Political Economy 17, no. 2 (2010): 238–61.

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Silk Road Economic Belt route and a 21st Century Maritime Silk Road.81 That same year, he also announced China’s intention to form the AIIB. In 2014, China established the New Development Bank, based on the BRICS grouping.82 News reports note that many foreign partnerships established under these auspices stipulate preferential treatment for Chinese companies, exports, and workers.83 Analysts also question the ability of small countries in Central Asia to absorb China’s excess capacity.84 However, investments related to these initiatives remain largely in the preliminary stage, making assessment difficult.85

Increasing Investment to Secure Technologies, Markets, and Resources

Chinese businesses have greatly increased overseas investment in part to acquire the resources and advanced technology needed to heighten the competitiveness of exports and support China’s industrial upgrade. Outbound investment has surged from $3 billion in 2005 to $50 billion in 2008. While earlier patterns of outbound investment focused on commodities in Africa and other developing markets, much of the more recent investment has focused on North America and Europe, which offer wealthy markets and access to advanced technology.86 Some of these deals have proved contentious, with critics worrying that they could give China a competitive edge in sensitive, high-technology industries.87

81 Scott A. Kennedy and David Parker, “Building One Belt, One Road,” Center for Strategic and International Studies, April 3, 2015 u http://csis.org/publication/building-chinas-one-belt- one-road.

82 Rajiv Biswas, “Reshaping the Financial Architecture for Development: The New Development Banks,” London School of Economics, Global South Unit, Working Paper Series, no. 2, 2015 u http://eprints.lse.ac.uk/61120/1/LSE%20GSU%20Working%20Paper%202-2015.pdf.

83 Keith Bradsher, “A Chinese Company in India, Stumbling over a Culture,” New York Times, December 30, 2015 u http://www.nytimes.com/2015/12/31/business/international/a-chinese-company-in-india-stumbling-over-a-culture.html.

84 Jiayi Zhou, Karl Hallding, and Guoyi Han, “The Trouble with China’s ‘One Belt, One Road’ Strategy,” Diplomat, June 26, 2015 u http://thediplomat.com/2015/06/the-trouble-with-the-chinese-marshall-plan-strategy.

85 Lucy Hornby, “China’s ‘One Belt, One Road’ Plan Greeted with Caution,” Financial Times, November 15, 2015 u http://www.ft.com/intl/cms/s/2/5c022b50-78b7-11e5-933d-efcdc3c11c89.html#axzz3vuZC01fr.

86 Daniel H. Rosen and Thilo Hanemann, “The Rise in Chinese Overseas Investment and What It Means for American Business,” China Business Review, July 1, 2012 u http://www.chinabusinessreview.com/the-rise-in-chinese-overseas-investment-and-what-it-means-for- american-businesses.

87 Keith Bradsher, “Political Backlash Grows in Washington to Chinese Takeovers,” New York Times, February 16, 2016 u http://www.nytimes.com/2016/02/18/business/dealbook/china-fairchild-semiconductor-bid-rejected.html.

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Pursuing Diplomacy to Deflect Trade Penalties and Secure Large Export Deals

Chinese media have highlighted major diplomatic initiatives designed to fend off punitive economic sanctions and secure large trade deals. One Xinhua report cited Li Keqiang’s success in overcoming the European Union’s efforts to impose penalties in a trade dispute over solar panels, which the article claimed “saved over 400,000 jobs and exports worth 20 billion U.S. dollars.”88 It also noted the premier’s success in promoting Chinese-built high-speed rail in Thailand, although according to a recent report the actual progress of the project remains in question.89

While economic diplomacy in the Xi era has featured numerous initiatives to reform elements of the regional and international order, the changes pursued should not be overstated. China’s leaders understand the reality of the country’s deep integration into the global economy and have generally proposed incremental over radical change. Moreover, Beijing recognizes the imperative to maintain stable, cooperative relations with major trade partners such as the United States. However, the cautious nature of China’s proposed reforms also to some extent reflects constraints imposed by a variety of security considerations.

the increasing importance of economic security

China’s revamping of its trade strategy in many ways follows the precedent set by other industrialized nations in Asia. Japan and the “little tigers” of Hong Kong, Taiwan, South Korea, and Singapore all retooled their economies to focus on higher-end manufacturing and services once rising labor costs rendered their dependence on low-end manufacturing uncompetitive. However, these countries did not pursue an activist approach to reforming elements of the regional or international order in part because they accepted, or lacked the ability to contest, U.S. security and political leadership. Indeed, the United States welcomed the economic success of these countries, which occurred within the context of the Cold War and generally lent support to the exercise of U.S. power.

88 “China’s Economic Diplomacy Showcases Fresh Style with New Blueprint,” Xinhua, November 22, 2013 u http://news.xinhuanet.com/english/china/2013-11/22/c_125742991.htm.

89 Shawn W. Crispin, “China-Thailand Railway Project Gets Untracked,” Diplomat, April 1, 2016 u http://thediplomat.com/2016/04/china-thailand-railway-project-gets-untracked.

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The sheer size of China’s economy; the persistence of security-related disputes with the United States over cyberespionage, human rights, Taiwan, and the sovereignty claims of U.S. allies in the South and East China Seas; and China’s historical experience as a leading Asian power make the experiences of Japan and the Asian tigers largely inapplicable to China. Unlike in the case of U.S. allies, the pursuit of changes to its mode of economic growth requires China to press for reforms to an international system led by its chief competitor, the United States. Beijing must thus consider the possibility that Washington will resist changes to international arrangements from which the United States and its allies have long benefited. Moreover, an intensifying competition between the two economies is occurring at the same time that China’s economy has grown more vulnerable to threats around the world. Not only does the country depend heavily on trade, but it has also grown dependent on energy imports. In 2014, China surpassed the United States to become the world’s largest importer of oil.90 Its citizens and enterprises operate on an increasingly global scale as well. According to a 2012 study by the Stockholm International Peace Research Institute, China has over 5.5 million citizens working abroad and nearly 60 million travelers annually.91

Reflecting these realities, Beijing’s pursuit of the country’s transformation into a strong trading power has occurred simultaneously with the growing securitization of Chinese economic policy, a development well captured by the evolution in official thinking regarding economic security. The idea of economic security appeared in scholarly writings after the Cold War. In 1994, Zhao Ying, a scholar at the CASS Institute of Industrial Economics, defined economic security as “a country’s global economic competitiveness; its capacity to resist disruptions to, and threats to, and invasion of, its economy; and the domestic and international environments that enable a country’s economy to survive and grow,” a definition that many Chinese scholars share.92 The idea gained prominence after the Asian financial crisis in 1997–98, when Chinese writers linked the idea more closely to their country’s pursuit of national rejuvenation. As with economic diplomacy, economic security encompasses a broad array of policies that span economics and foreign policy. The difference is one of emphasis. Economic diplomacy emphasizes the role of diplomacy

90 U.S. Energy Information Administration, “China,” May 14, 2015 u https://www.eia.gov/beta/international/analysis.cfm?iso=CHN.

91 Mathieu Duchatel and Bates Gill, “Overseas Citizen Protection: A Growing Challenge for China,” Stockholm International Peace Research Institute (SIPRI), SIPRI Newsletter, February 2012 u http://www.sipri.org/media/newsletter/essay/february12.

92 Zha Daojiong, “Chinese Considerations of ‘Economic Security,’ ” Journal of Chinese Political Science 5, no. 1 (1999): 69–87.

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and economic policy to further development, whereas economic security emphasizes steady development as a concern for national security. Economic security thus focuses greater attention on military tools and instruments than does economic diplomacy. Nonetheless, the content of economic security, as with economic diplomacy, is informed by the needs of the nation at a particular stage of development.

Since the late 1990s, economics and security have become even more deeply interwoven. By the late 2000s, Chinese officials described the ideas of security and development as mutually dependent and reinforcing. In explaining China’s proposal for a new security architecture for Asia, for example, Xi Jinping stated in 2014 that “development is the foundation of security, and security is the necessary condition for development.”93

Not surprisingly, recommendations for economic security in the post-2009 period resemble those for economic diplomacy. Both sets of recommendations propose measures to ensure China’s ability to compete in the global economy, resist threats to major economic interests at home and abroad, and shape an international environment favorable to the country’s long-term revitalization as a great power. In the late 2000s the People’s Liberation Army (PLA) began deploying for the first time outside China to defend its economic interests. In 2009, the PLA Navy deployed its first task force to the Horn of Africa to protect Chinese merchant ships from the threat of piracy,94 while in 2011 the PLA carried out its first noncombatant operation to evacuate Chinese nationals in Libya, many of them workers.95

In recent years, policymakers have further elevated the importance of economic security. In 2013, China formed the National Security Commission, a small leadership group composed of Xi and a handful of Politburo Standing Committee members and their staffs. According to a Xinhua report, the commission counts economic security among its primary areas of responsibility. Reflecting the considerable overlap with concepts of economic diplomacy, the report explained that the group is charged with “protecting national industries and China’s brands,” “gradually

93 Xi Jinping, “New Asian Security Concept for New Progress in Security Cooperation,” Ministry of Foreign Affairs (PRC), May 21, 2014 u http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1159951.shtml.

94 Alison A. Kaufman, “China’s Participation in Anti-Piracy Operations off the Horn of Africa: Drivers and Implications,” Center for Naval Analysis, Conference Report, July 2009 u https://www.cna.org/CNA_files/PDF/D0020834.A1.pdf.

95 Gabe Collins and Andrew S. Erickson, “Implications of China’s Military Evacuation of Citizens from Libya,” Jamestown Foundation, China Brief, March 10, 2011 u http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=37633&cHash=7278..#.Vxe2vFK9aoM.

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reducing China’s reliance on foreign energy sources,” “gradually advancing the construction of economic cooperation mechanisms in the Asia-Pacific region,” “constructing global free trade zones,” “actively participating in global economic governance,” and “expanding China’s right to formulate international trade rules.”96 In 2014, Xi announced that the country had adopted a new “holistic security concept” to guide security work. For the first time, the government’s security concept included economic security as a key component.97 Later that year, Xi linked the region’s economic cooperation to security cooperation, stating that Asia should “foster sound interactions and synchronized progress of regional economic cooperation and security cooperation.”98 This formulation suggested that Chinese authorities regard increasing regional security cooperation as a precondition for greater regional economic cooperation. The holistic security concept featured prominently in the 2015 defense white paper.99

The intermingling of economic and security concerns at a time when China seeks to increase its leadership as an economic great power carries one important implication. The convergence in meaning between economic diplomacy and economic security reflects some level of anxiety over the potential political and strategic obstacles to China’s pursuit of becoming a strong trading power. The source of many of these obstacles may be the lead beneficiary of the status quo and China’s chief competitor—the United States. This convergence also reflects the country’s concerns over its considerable economic vulnerabilities around the world, suggesting that China will take a harder stance on policies that it regards as critical to enabling both economic growth and security. The more Beijing understands policies for economic growth in security terms, after all, the less likely it is to make compromises that it views as potentially rendering the country intolerably vulnerable.

96 Chen Xiangyang, “Zhuahao xinshiqi Zhongguo anquan zhanlue de jihua jihui” [Seize the Opportunity to Plan China’s National Security Strategy in a New Era], Liaowang, December 2, 2013, 56–57.

97 “Xi Jinping: Jianchi zongti guojia anquanguan, zou Zhongguo tese guojia anquan daolu” [Xi Jinping: Uphold the Holistic Security Concept, Walk the Road of National Security with Chinese Characteristics], Xinhua, April 15, 2014 u http://news.xinhuanet.com/politics/2014-04/15/c_1110253910.htm.

98 Xi, “New Asian Security Concept.” 99 Information Office of the State Council (PRC), China’s Military Strategy (Beijing, May 2015) u

http://news.xinhuanet.com/english/china/2015-05/26/c_134271001.htm.

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implications: the weakening of economic restraints on strategic competition

Challenges Ahead

At root, China’s changing view of economic diplomacy and economic security reflects its maturation as a large, developed economy. Beijing’s ambition to transform the country into a strong trading power explicitly recognizes that improving its competitiveness is essential if the country is to maintain steady growth. While this policy shift may make sound economic sense, the discussion of economic security suggests that this development also carries important implications for China’s relationship with the United States.

Trade has long served as a constructive, stabilizing influence in the U.S.-China relationship. In the decades following China’s adoption of reform and opening-up policies in 1979, the two countries followed a largely complementary trade relationship in which the United States provided capital and markets for China’s vast manufacturing sector. Leaders on both sides frequently invoked economic stakes as a major reason to get relations back on track after tense political and security crises such as the Tiananmen Square massacre in 1989, the U.S. bombing of the Chinese embassy in Belgrade in 1999, and the EP-3 collision off Hainan Island in 2001. Recent developments have in many ways underscored the importance of bilateral trade and investment ties. China’s growing consumer base and investment in the United States have boosted sales for U.S. companies and created jobs for many U.S. workers. Reflecting a trend seen in other large companies, General Motors sold more cars in China than in the United States from 2010 to 2014. Chinese investment, virtually nonexistent fifteen years ago, totaled nearly $50 billion in 2015 and could reach $200 billion by the end of the decade. Chinese companies now employ over 85,000 Americans.100

Yet pessimism about the economic relationship has grown in recent years. A U.S. congressional report stated that the bilateral economic relationship had “grown increasingly complex and often fraught with tension.” In particular, it cited issues such as alleged cyberespionage against U.S. companies, poor enforcement of intellectual property rights, discriminatory innovation policies, a mixed record on implementing WTO obligations, extensive use of industrial policies, and interventionist policies

100 E. Scott Reckard and Julie Makinen, “Chinese Investments in U.S. Businesses Are Accelerating,” Los Angeles Times, May 20, 2015 u http://www.latimes.com/business/la-fi-chinese-us-investment-20150520-story.html.

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to control the value of the RMB.101 U.S. businesses have similarly expressed growing frustration. In 2014, the American Chamber of Commerce reported that an increasing number of foreign businesses feel unwelcome in China. In 2014, it noted that 60% of respondents no longer felt welcome in China, up from 41% the previous year. It also reported that 49% felt singled out for aggressive investigations and regulatory punishment by the government. In contrast to previous years in which foreign companies listed China as a top destination, respondents reportedly sought to expand business elsewhere.102

Many of the sources of cited tension related to China’s status as a competitor. Beijing’s focus on cultivating national champions capable of competing with Western firms in advanced manufacturing provides a powerful incentive to pursue discriminatory industrial and innovation policies. Reflecting a pattern common among rapidly industrializing countries, Chinese industry initially focused on the manufacturing of toys, garments, and labor-intensive items. It also focused on the processing trade, for which China served as an assembler of parts into finished goods. The desire to move beyond the low-margin light manufacturing and processing trades and instead acquire the technologies required for more advanced manufacturing provides a strong incentive for Chinese companies to engage in espionage of all types, including cyberespionage. And the desire to reform international trade rules and standards, perceived to favor U.S. interests, encourages firms to resist implementation of WTO rulings that they might regard as unfairly prejudiced against Chinese interests.

The proliferation of individual disputes has appeared amid the backdrop of an intensifying competition between China and the United States for markets and access. As one Chinese analyst observed, “the export markets where China saw slower growth in 2011 were precisely those markets where the United States made faster gains, such as Europe and Latin America.” With Chinese goods moving toward the upper end of the market, the article argued, direct competition between Chinese and U.S. products in world markets is “unavoidable.”103

Economic competition is not limited to China’s pursuit of export markets. Both countries increasingly compete to influence the international

101 Wayne M. Morrison, “China-U.S. Trade Issues,” Congressional Research Service, CRS Report for Congress, RL33536, December 15, 2015 u https://www.fas.org/sgp/crs/row/RL33536.pdf.

102 Alroy Menezes, “China No Longer Top Destination for Foreign Companies Due to Prosecution,” International Business Times, September 2, 2014 u http://www.ibtimes.com/china-no-longer-top-destination-foreign-companies-due-prosecution-1675470.

103 Zhang Xiaotong and Zhao Ke, “Zhongmei jingmao guanxi ruogan zhongda wenti ji duice yanjiu” [Some Major Issues in China-U.S. Economic and Trade Relations], Guoji Maoyi, no. 9 (2012): 46–53.

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institutions that govern trade and investment activity. While continuing to participate in established institutions such as the WTO, International Monetary Fund (IMF), and ADB, China has begun to propose alternative international economic and security institutions featuring standards, norms, and principles better suited to its needs but frequently at odds with those of the United States. Both Chinese and Western analysts regularly warn about the consequences of permitting either side to control the terms of regional and international economic activity. C. Fred Bergsten, for example, has posited that a consolidation of Chinese leadership over Asia’s economy could facilitate discrimination against U.S. exports. He argues that China seeks to promote low-quality and highly politicized trade agreements that undermine the traditional U.S. emphasis on high-standard deals along with global rules and institutional arrangements centered on the WTO.104 Chinese analysts similarly perceive an intensifying competition between the two countries to shape the concepts and rules of global economic operations. Zhang Junsheng, a researcher at the University of International Business and Economics, claims that the United States has frequently changed its trade philosophy to “establish an operating mechanism for international trade that is favorable to itself.” He regards the Trans-Pacific Partnership as typical of this tendency, describing it as an attempt by the United States “to recapture its competitive edge by raising the costs of competition of its opponents at a time when the United States cannot effectively lower its own costs.”105

Ironically, at the moment when both countries have a greater need for a stabilizing influence to balance strains stemming from security-related disputes, economic ties have turned increasingly competitive. As in other policy areas, such as security, leaders in Washington and Beijing will need to manage economic policy in terms of cooperation and competition. It is possible that the successful transformation of the Chinese economy to become more consumption-driven could eventually provide a stabilizing influence. But China’s difficulties in making such a transition render this a distant possibility for now. Considerable work thus lies ahead as both countries try to think through how to manage economic competition in a manner that is peaceful and minimizes the risks of a destabilizing systemic rivalry.

104 C. Fred Bergsten, “China and Economic Integration in East Asia: Implications for the United States,” Peterson Institute for International Economics, Policy Brief, March 2007.

105 Zhang Junsheng, “Zhongmei maoyi zhengduan de xin dongxiang ji fengxian fangfan celue” [New Trends in Sino-U.S. Trade Disputes and Tactics to Guard against Risks], Guoji Maoyi, no. 11 (2013): 10–13.

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Policy Implications

A policy approach premised on the bifurcation between a largely cooperative economic relationship and a competitive security one needs to be revised. As trade ties grow increasingly competitive, the United States and China will need to manage economic issues in much the same manner as security issues, with an eye to both the cooperative and competitive dimensions.

• Due to the intermingling of economic and security issues, disputes in both domains are likely to grow protracted and more difficult to resolve. More research and creative policy work are required to think through ways of carrying out a peaceful competition in the economic, security, and political realms.

• To dampen economic competition, U.S. policymakers should seek ways to participate in Chinese-led economic initiatives such as the AIIB. They should also explore options to accommodate Chinese cooperation in U.S-led initiatives, such as by reforming voting shares in the IMF to better reflect China’s economic strength.

• U.S. policymakers should seek to narrow differences by increasing dialogue with China and other large developing countries over international rules, norms, and principles.

Documents

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