Understanding (and Managing) China’s Economic Coercion

The author of The Diplomat, Mercy Kuo, regularly engages subject matter experts, policy professionals, and strategic thinkers from around the world to elicit their diverse views on US policy in Asia. This conversation with Dr. Max J. Zenglein, Chief Economist at the Mercator Institute for China Studies (MERICS) in Berlin and co-author of the MERICS Report”Fasten Your Seatbelts: How to Handle China’s Economic Coercion(2022) it is number 340 in “The Trans-Pacific View Insight Series”.

Explain how and why European companies are targeted by China’s economic coercion.

Relations between the EU and China are increasingly marked by political differences and economic rivalry. In this context, the use of economic coercion serves as a tool to safeguard China’s interests and positions. It acts as a powerful signal to governments and businesses alike that there will be economic costs if measures Beijing deems undesirable are taken. In some cases, companies are punished for their own actions, but they can also be caught in the crossfire of diplomatic tensions through no fault of their own.

As long as there is fear of harming economic interests, coercion can be very effective in preventing parties from crossing lines sensitive to China’s interests. It has not prevented the EU from introducing new legislation, for example on forced labour. But China could retaliate against the companies once the law takes effect to ease its implementation.

Identify the types of tools Beijing uses to implement economic coercion.

Do you enjoy this article? Click here to subscribe and get full access. Only $5 a month.

In our research we have identified six types of economic coercion. They include popular boycotts, trade and tourism restrictions, as well as the use of recently introduced defensive trade measures, such as the Alien Sanctions Act. Administrative discrimination is another tool aimed at foreign companies operating in China. Such measures include exclusion from public procurement or fines for alleged regulatory violations.

The combination of the informal nature of many Chinese measures and the fear of companies being affected means that most cases remain invisible. But about 20 percent of the cases we identified were empty threats. In such cases, Beijing often issues vague warnings, which are not followed by concrete action. For example, in the debate about whether or not to allow Chinese network equipment in 5G networks, the German automotive industry was threatened, without consequence. But even those empty threats can be effective in harnessing fear and uncertainty in political debates related to China’s interests.

What are the red lines and triggers for China’s economic retaliation?

The vast majority of cases of economic coercion are triggered by issues related to national sovereignty and security. Most notably, this includes anything related to Taiwan, other territorial claims in the East and South China Seas, or human rights issues. But the lines are becoming more blurred as China becomes more assertive in protecting its interests. New red lines include perceived unfair treatment of Chinese companies abroad, such as restrictions against Chinese network providers, particularly Huawei. But companies have also come under fire for making donations to political parties that are accused by Beijing of pursuing anti-China policies and, as in the case of Australia over the origins of COVID-19 in 2020, began to push back against governments causing damage to your image. .

Evaluate the divergent responses of European companies to China’s actions.

To navigate the new reality of economic coercion, it is vital that companies assess their exposure to risk. Firms of little strategic value to China’s economic development goals are most likely to be targeted.

The most common targets of Beijing are the consumer goods, raw materials and service sectors. Companies in these sectors must face the uncomfortable fact that their business in China is highly vulnerable. Companies can try to protect their businesses by aligning themselves with the Chinese government’s preferences, but this may provoke a backlash in Europe. Reducing exposure to China through diversification appears to be the most appropriate response in this case. For the foreign companies with the most economic relevance to China, including those that provide the necessary technology, employment and local tax revenue, it is a different story. The key here is to stay strategically relevant to avoid becoming a target.

Assess the long-term implications of China’s coercive economic measures to do business with China and examine trade policy and mechanisms that governments in Europe, the US, and other like-minded governments can apply to protect themselves against China’s actions.

The use of economic coercion is not a sign of a healthy relationship between business partners. Beijing trusts companies that lobby for its interests using a carrot-and-stick approach. But it would be very worrying if foreign companies considered it safer to align themselves with China’s positions and try to influence their governments’ positions towards China. However, playing the economic coercion card too often will not serve China’s economic interests and will diminish its effectiveness, in part because I suspect that many of the threats will be deceptive or mostly symbolic.

Source link

Leave a Reply

Your email address will not be published.