China’s Coercive Economic Diplomacy

Posted on July 25, 2012


Sailors aboard the Chinese Navy destroyer Qingdao (DDG 113) wave goodbye as the ship departs Pearl Harbor on Sept. 10. The ship arrived in Pearl Harbor on Sept. 6, along with the oiler Hongzehu (AOR 881), for a routine port visit. (U.S. Navy photo by Chief Mass Communication Specialist David Rush)

Chinese willingness to use economic leverage to settle international disputes in its favor is a worrisome trend.

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

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

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

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

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

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

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

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

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

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

China Moves Swiftly on New “City” Encompassing South China Sea

While the Gulf crisis percolates with the defection of the centrist Kadima party from the short-lived Israeli unity government and Israeli leaders saying last week’s murder of Israeli tourists in Bulgaria is just the latest example of global Iranian terrorism, events accelerated in the South China Sea crisis.

The People’s Republic of China, which claims almost the entire sea as it territorial waters, is accelerating its attempt to create a fait accompli. Last month it declared hundreds of islands all around the sea to be a city called Sansha.

Over the past few days, the PRC announced winners of an election to the brand-new Sansha People’s Municipal Congress — its 45 members represent 1100 people spread across hundreds of islands — and announced that a military garrison will be dispatched to the islands to protect the new government.

Of course, by claiming the tiny islands, which have little if any indigenous population, as part of China, the PRC also claims the nearly 800,000 square miles of the strategic South China Sea — through which much of the world’s shipping passes and which holds large oil, natural gas, and mineral reserves and vast quantities of sealife — that it uneasily shares with several other nations.

Malaysia, Taiwan, and Brunei have some claims on parts of the South China Sea, which runs practically from Taiwan and Hong Kong down to Singapore and Indonesia, which stake no particular claims but rely on unfettered access, as do most major nations including India, which seeks energy projects there. But it is Vietnam and the Philippines which are most immediately outraged by China’s increasingly aggressive moves.

Each claims islands close to it, which the PRC insists belong to it. And each has engaged in tense naval and military stand-offs with China.

Vietnam, of course, fought a short-lived land war with the PRC in the wake of Hanoi’s defeat of the US in the Vietnam War. And Vietnam and China have engaged in some fierce fighting in the South China Sea, with nearly a hundred Vietnamese killed.

The Philippines, which fought valiantly against Imperial Japan in World War II before being conquered and during the occupation, have less of a martial tradition than the Vietnamese but aren’t backing down, either. Indeed, in his state of the nation address Monday in Manila, Philippine President Benigno Aquino III — whose reformer father was assassinated by backers of longtime dictator Ferdinand Marcos just after returning from exile in 1983 — refused to budge in opposition to PRC claims to islands off the Philippine coast and announced plans to upgrade the Philippine military, which is a small fraction the size of China’s, including a navy with a collection of Coast Guard cutter type vessels and no submarines, and a tiny air force of sub-sonic aircraft easily splashable by the People’s Liberation Army Air Force (the world’s third largest, after those of the US and Russia).

The US is pushing multilateral negotiation to settle the welter of conflicting and frequently obscure claims that China and its neighbors have in the South China Sea. The PRC, which is much larger than any of its neighbors, prefers to deal with each one at a time, a process in which the correlation of forces will always advantage the PRC, which has accelerated its military spending over the past decade.

As I discussed here on the Huffington Post in “Crises Chaotic and Bubbling: The Gulf and the South China Sea,” China’s longtime ally Cambodia, which held the host chair, effectively blocked the Association of Southeastern Asian Nations (ASEAN) from issuing a summit communique for the first time in 45 years because it would have contained references to the conflicting claims in the South China Sea.

The South China Sea and the Gulf are two ends of the big geopolitical pivot which the US is undertaking — going from over-engagement with the Islamic world of the Middle East and Central Asia to increased engagement with the very broadly define Asia Pacific region — but not the only two.

The geopolitical pivot is a great big ongoing story that will help define the future of America and the future of the world. And it’s really not being done properly, since it’s largely ignored, or seen only in a momentary and compartmentalized view.

The increasing disarray in the South China Sea is of course quite advantageous to the US as it makes its big geopolitical pivot. To the extent that China’s neighbors are unable to contend with the PRC’s economic and military might, they need a powerful friend. And early signs are that the US is well positioned to fill that role.

With by far the world’s most powerful Navy, the US is easily capable of playing a blocking role to China’s hegemonic ambitions. And with even Vietnam far friendlier to the US than in the past — Defense Secretary and veteran California political figure Leon Panetta was in late spring the first US defense secretary to visit Vietnam, where US ships are already making port calls, since the US lost the Vietnam War — America’s renewed “Open Door” policy is off to a good start.

But there is a major imperial overhang in America’s history in Asia that can always get in the way. And the proof of intentions is always in the pudding of practice.

There is still much to learn about US commercial priorities in the region. Pious pronouncements from US officials of their desire for multilateral relations and negotiations could easily be undone by a crass corporate agenda.

While all this plays out, the crisis in the Persian Gulf, which most nations on it call the Arabian Gulf, remains at a low boil.

There was little coverage in the US media of last week’s terrible incident in which a US Navy security team aboard a non-combatant refueling ship off Dubai, reportedly fearing an approaching fishing boat as a USS Cole-style attack, fired on the craft with a .50 caliber machine gun, killing one Indian fisherman and wounding three others. Which is odd, since Dubai police officials cast doubt on US claims around the incident.

The tension around Iran’s nuclear program continues, with the theocratic Iranian regime under increasing sanctions pressure and still not cooperating with the UN’s nuclear watchdog agency. Not that advocates of war with Iran have ever presented a coherent perspective on how that would work and make sense.

The right-wing Israeli government bangs the anti-Iran drum even louder following last week’s murder of Israeli tourists in Bulgaria, saying this is only the latest such attack in a global terrorist campaign.

If so, it may be in retaliation for the assassinations of nuclear scientists and officials deeply involved in the disputed Iranian nuclear program, part of an apparent intelligence war underway between Israel and Iran.

I suspect that it is because the US is mired in the latest Gulf crisis that China is ratcheting things up in the South China Sea.

I very seriously doubt that the PRC can handle the US Navy in the South China Sea, in blocking mode or any other. Much of the South China Sea is quite deep, and it would be difficult for the People’s Liberation Army Navy to salvage many of their new assets from it, were it to come to that. (I’ve been to both the South China Sea and the Gulf, and that factor couldn’t be more different. You can swim to the deepest part of the Gulf.)

But bandwidth, or lack of same on the part of the US, is China’s ally in this situation. The Gulf still takes priority, because of Iran’s repeated threats to shut down the Strait of Hormuz, the world’s principal choke point for oil supply, if sanctions are not eased, and because Israel is in play and this is an American election year, with Mitt Romney and the warhawk right in the US and Israel constantly attacking Barack Obama as supposedly being weak on Israel.

A distracted America gives China a much freer hand as it seeks to establish dominance throughout the South China Sea.

At least in theory.

William Bradley

You can check things during the day on my site, New West Notes …

China’s Expansion Strategy Frightens Neighbors

China has so far been peacefully expanding its global military presence to match its image as a rising super power.

Varyag, under tow in Instanbul, en route to China in 2001.

Sometimes, a country’s military might needs to fit with its political and economic prowess. With a huge amount of cash at hand and having influence in the world’s economy and politics, China is asserting its position on the world stage in order to achieve this goal.

Flexing its military muscle in the Indian Ocean, the South China Sea, and beyond, China has been exerting its newly-acquired image as a super power with the second highest GDP in the world. The Chinese are desperately looking for opportunities that give them a strategic advantage or foothold anywhere in the globe.

Beijing’s expansionist behavior in South Asia has been noticed by defense experts. Recently, China has been intensifying the development of its strategic assets in the area, beginning with building the Karakoram highway, a high altitude strategic road that borders China, India, and Pakistan. They have both built and taken charge of sea ports, roadways, and strategic infrastructure in Sri Lanka, Bangladesh, Pakistan, and Myanmar. China is moving to establish strategic and trade partnership with each of them. China is showing a special interest in all of India’s neighbors—perhaps in a move to contain the second most populated country and next emerging super power in its own backyard.

Eying China’s new moves in the South China Sea and in the Indian Ocean, the American military has revived its presence in Australia with the aim of deploying 2,500 troops, signaling that the United States intends to counterbalance a rising China. Prioritizing the United States’ leadership role in the Asia-Pacific region, President Barak Obama and Prime Minister Julia Gillard of Australia reached many agreements during the U.S. president’s visit to that country in November of 2011.

New Delhi is also closely monitoring the growing Chinese presence in its neighborhood. India is particularly concerned with the “String of pearls”—a chain of deepwater ports built with Chinese aid along the Indian Ocean.

In fact, China’s expansionist behavior has long been evident in the acquisition of naval facilities along crucial choke points in the India ocean, which serve both China’s strategic and economic interests.

Strategically, Beijing is placing more emphasis on the Indian Ocean to improve its access to the trade lines therein, to counterbalance India, and to break through the encirclement it perceives being orchestrated by the United States and its allies in the Asia-Pacific region.

Myanmar’s deep-water port of Kyaukpyu is China’s southwest gateway to land trade. Myanmar sits in a strategic corridor between China and the Indian Ocean. This location is becoming increasingly vital as China tries to diversify its energy supply routes from the Middle East and become less dependent on the Strait of Malacca, which is dominated by the U.S Navy and where ships are vulnerable to piracy.

Developments of late last year corroborate further the fact that the Chinese are desperate to go global. China’s Ministry of National Defense announced that Beijing was considering using a port on the main island of Mahe off the east coast of Africa for naval purposes in response to an offer from Seychelles, a former French and British colonial possession. China is certainly calculating the stretegic benefits that Seychelles provides, being far more convenient to ports along the Gulf of Aden and the Arabian Sea. The Indian Prime Minister, Manmohan Singh reacted to this development as saying, India doesn’t see anything “wrong” with China setting up a military base in Seychelles since this appears to be part of Beijing’s efforts to combat piracy in the Indian Ocean region. The island nation’s value to China is similar to that of Diego Garcia Island in the Indian Ocean that was first controlled by the British and now by the Americans.

Meanwhile, in another new report last December, the Deputy Chief of General Staff of the People’s Liberation Army, General Ma Xiaotian, met the Sri Lanka high officials in Colombo to discuss opening a base in the island nation off the coast of the Indian Ocean.

According to Indian media reports, in July of last year, a Chinese ship was mapping the Indian Ocean for crucial bathymetric data. Laboratories onboard the ship were designed to collect data on the currents of the Indian Ocean, the temperature at various depths, and other crucial information like underwater obstructions and obstacles. Bathymetric data is required for submarine and carrier based operations. Information about ocean currents is needed if torpedoes are to be used.

Immediately after detection, an Indian Navy ship was sent. The Chinese ship moved towards Sri Lanka and docked at Colombo. India did not take any punitive action since the Chinese ship remained in international waters. Inquiries by Indian security agencies revealed that the ship had as many as 22 laboratories onboard.

China is also looking to expand across its land borders as well. To tackle restive Islamic terrorism in its province of Xinjiang, China wants to develop a township near along its border with Pakistan where anti-Chinese terrorists operate. The Pakistani province of Khyber-Pukhtunkhwa abuts the non-Han, Chinese province of Xinjiang, which is home to ethnic Uighur Islamic separatists. With the People’s Liberation Army (PLA) of China getting a foothold in the tribal area of Pakistan, China reasons, it can crush separatism and make sure that terrorists can’t hide across the border.

It has been observed on the one hand that China’s long-term plans of cementing ties with Pakistan are a means to contain India. On the other, Pakistan has in return hugged China close during periodic flare-ups in Pakistan-American relations, pointedly dubbing Beijing “an all-weather friend.”

Along naval borders, it is becoming increasingly clear that China’s “near sea” includes its territorial waters as well as its claimed 200-nautica-mile Exclusive Economic Zones (EEZs) around the nation’s extended seashores. A critical issue for this evolving defense strategy is that China has many disputes in this vast area. The most challenging of these conflicts are with Taiwan and with the United States over U.S. military activities in the Chinese-claimed EEZs. China is also engaged in territorial disputes with Japan in the East China Sea and with several Southeast Asian nations in the South China Sea. Consequently, China has long desired to have an aircraft-carrier-led, blue-water navy to strengthen its position in these disputes. (Article continues below.)

China’s First Aircraft-Carrier: Varyag

China’s aircraft carrier debut was in 1998 with the acquisition of the ‘half-built’ Varyag from the Ukraine. The warship was intended to serve in the Soviet Pacific Fleet but the construction was abruptly halted when the Soviet Union disintegrated in 1991.China bought the half-built aircraft carrier for $20 million after it was inherited by the Ukraine out of the collapse of the Soviet Union. When purchased, the warship was an empty and rusty shell, stripped of all critical equipment. China, however, was determined to bring it to life, and it took nearly 10 years to finish the warship.

China set to modernize its defense in the mid 90s, but it quickly stepped up efforts on account of several imperative events—beginning with the Taiwan Strait crisis in 1985 and subsequently the display of U.S. military power over the last two decades: the Gulf war of 1991, the Kosovo air campaign of 1999, and the anti-terrorist operations in Afghanistan and Iraq in the early 2000s. Since then, Chinese leaders felt their military needed to take urgent measures or be marginalized for good.

The Chinese were desperate to induct the aircraft carrier Varyag into the Chinese Navy. They put forth undisclosed but understandable additional expenses and a tremendous effort to do so. According to a Chinese Defense Ministry spokesman, Varyag is expected to make short test sails in 2012 when it will be fully operational. An Indian defense expert estimated that China will be able to carry out full-fledged, aircraft-carrier-based operations as soon as 2017.

In a Congressional hearing, a leader of the U.S. Pacific Command said that recent Chinese military developments have been dramatic. China has already tested long-range missile that are effective against warships. After years of denial, Chinese official have confirmed that they intend to deploy an aircraft carrier group within the next few years.

Varyag will be used as the Chinese Navy’s training platform. The diesel and steam powered aircraft-carrier has limited capacity for distance battle missions after all, but the Chinese leaders are convinced that the aircraft carrier has not outlived its usefulness. In addition, they are willing to invest significant resources over the next 10 to 15 years to build several homemade aircraft carriers. They are expected to be built in time to help China pursue its interest in the South China Sea, the Indian Ocean, the Western Pacific, and beyond.

Over the past year and a half, China has moved to assert territorial claims in the resource-rich but hotly-contested waters near the Philippines and Vietnam. Many of the region’s smaller countries have asked Washington to re-engage in the region as a counterweight.

The South China Sea, in fact, has long been at the centre of dozens of territorial disputes between China and members of the Association of Southeast Asian Nations (ASEAN). The disputes center on the ownership of hundreds of small Islands, rocks, and reefs in the South China Sea and the jurisdiction rights that would allow the disputants access to valuable maritime resources, both in the water and beneath the seabed.

As China emerges as an important, global super power, Beijing’s political, commercial, and strategic imperative has been to expand its military footprint across the globe. It is seeking to project its naval power beyond the Chinese coast, from oil ports in the Middle East to the shipping lanes in the Pacific, much like the United States has done over the last century.

“With our naval strategy changing now, we are going from Coastal defense to far sea defense,” Rear Admiral Zhang Huachen, deputy commander of the Chinese East Sea Fleet, said in an interview with Xinhua, the state news agency.

Breaking their traditionally narrow military doctrine, “far sea defense” is China’s new strategy that enhances their long-range capabilities. Chinese admirals now say they want warships to escort commercial vessels crucial to the country’s economy through waters such as the Persian Gulf and Strait of Malacca in Southeast Asia, and they want to help secure Chinese interests in the resource-rich South and East China Seas.

To do this, China is in the process of developing a sophisticated submarine fleet that could prevent foreign naval vessels from entering its strategic waters if a conflict erupted. According to U.S. naval observers, China has also tested long-range missiles that could be used against large aircraft carriers, and now a Chinese government statement has confirmed that they intend to deploy an aircraft carrier fleet within a few years.

China has been quietly acquiring more submarines, missiles, aircraft carriers, and other weapons. According to a New York Times report, Mr. Huang Jing, a scholar of the Chinese military at the National University of Singapore, was surprised to see the new development and said, “We were in a blinded situation. We thought the Chinese military was 20 years behind [the Americans], but we suddenly realized China is catching up.”

A 2009 Pentagon report estimated Chinese naval forces at 260 vessels, including 75 principal combat ships and more than 60 submarines. The report noted the building of an aircraft carrier and said China continues to show interest in acquiring carrier-borne jet fighters from Russia. China recently built at least two Jin-class submarines, the first regularly active in the fleet that have ballistic missile capabilities, and two more are under construction. Two Shang-class nuclear-powered attack submarines recently entered into service, according Mr. Huang.

China’s official military budget was $91.5 billion for 2011. Officials in the U.S. had estimated China’s total military spending in 2009 to be more than double its official numbers. If that is the case for 2011, China’s military spending could be near 3.5 percent of its GDP for the previous year. This would put China securely in second place for military spending—behind the U.S.’s estimated 4.7 percent for 2010.

According to a Western military expert, the overall plan reflects Beijing’s growing sense of self-confidence and increasing willingness to assert its interests abroad. Though the naval expansion will not make China a serious rival to American naval supremacy in the near future, and though there are few Chinese aggressive intentions toward the United States, China’s smaller ASEAN neighbors and particularly India—which was attacked by China in 1962 and still has unsettled border disputes—feel Beijing’s posture is apparently dangerous. Beijing seems to be committed to the idea of a “peaceful rise”—the concept that China is taking up its natural role in new international order and targeting to replace U.S.’s world hegemony in near future.

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