This piece was originally published by Foreign Affairs. It is based on a longer, annotated version entitled How New and Crafty is China’s “New Economic Statecraft”?
According to conventional wisdom, Chinese president Xi Jinping has launched a more ambitious and geopolitically game-changing era of Chinese foreign economic policy. And Beijing is certainly promoting new economic initiatives, from the creation of the Asian Infrastructure Investment Bank (AIIB) to the rollout of the One Belt One Road (OBOR) initiative. But China’s international economic grand strategy under Xi is not new. It is an extension of Beijing’s long-standing Peaceful Development framework from the mid-1990s, which asserts that China’s own development and stability is contingent on shared prosperity with its international economic partners, especially those in the developing world. In fact, the Peaceful Development strategy has not been uniformly successful, and Xi’s expansion of it is likely to create unexpected challenges for China and the world.
Recent analysis from U.S. think tanks and scholars links China’s increasingly assertive behavior in its own neighborhood with its foreign economic policies. CFR Senior Fellow Robert Blackwill and Carnegie Endowment Senior Associate Ashley Tellis argue that China has been systematically but stealthily building leverage over its neighbors, including Washington’s Asian allies, through its trade and investment practices, thus contributing to “the pacification of its extended geographic periphery.” Such assertions conflate worries of China’s assertiveness in the South China Sea with a belief that the AIIB and OBOR will contribute to China’s geoeconomic prowess. This understanding does not do justice to China’s international economic policy track record, however.
In fact, Xi has merely doubled down on the Peaceful Development strategy. This framework is based on a purported virtuous circle: according to this theory, China’s continued economic development depends on a peaceful and stable domestic and international environment. And, in turn, China’s continued development will contribute to international peace, security, and prosperity. Such a win-win framework stands in stark contrast to the views of many outside critics, who worry about Chinese mercantilist trade and investment policies at home and abroad. Since Xi came to office in 2012, some of his efforts to display a bolder and more proactive foreign policy approach have likely contributed to such mercantilist fears, yet China’s foreign economic policies remain fundamentally rooted in the conceptual and policy guidelines of Peaceful Development.
China has continued to promote a “community of common destiny” in its own neighborhood, despite regional tensions. The logic of such a community is based on the proposed link between mutually beneficial economic growth and enhanced regional stability and security. China’s own identity as a developing country, albeit one that is also a great power, underpins its promotion of regional and global policies that will also catalyze economic development in poor and middle-income countries. Here, newer initiatives like the AIIB and OBOR are illustrative because they center on Chinese-led financing and construction of infrastructure, something that is seen as both a precondition for development and a key element in China’s own rapid growth in previous decades.
Yet over the past decade or more, China’s relations with other developing regions have offered important lessons about the possibilities and pitfalls of China’s “developmentalist” foreign policy. These lessons are especially important since initiatives like OBOR and AIIB are built on China’s experiences and policies toward developing countries. Underneath China’s ambitious plans are blind spots, deficiencies, and challenges that will only be accentuated as the country expands the scope and scale of its development-promoting foreign policies.
China’s relations with Africa and South America are cases in point. Since the early 2000s, China’s trade, investment, and diplomatic relations with both regions have boomed. In 2006 and 2008, China issued policy white papers about its relations with each. In line with the overall Peaceful Development framework, the documents emphasized a natural, win-win economic “complementarity” between China and its developing country partners: China, in the midst of rapid industrialization and urbanization, needed reliable providers of natural resources. And commodity-rich countries in Africa and South America eagerly fed its seemingly insatiable demand. Emerging markets in Africa and South America also provided important outlets for China’s manufacturing exports and surplus capital.
By the time China issued its Peaceful Development policy white paper in 2011, Peaceful Development had become one of China’s most important foreign economic policy frameworks. China seemed to be fulfilling its Latin American and African partners’ hopes by engaging in “win-win” economic ties, which also underpinned new forms of multilateral “South-South” diplomatic cooperation. Once in office, Xi re-emphasized the principles of the Peaceful Development framework to promote China as a beacon of peace, development, cooperation, and mutually beneficial outcomes.
But Beijing’s partnerships with developing countries have not been all smooth sailing for either side. Even during the height of the decadelong commodity boom of the early 2000s, China began to field concerns from some of its new Latin American and African partners that their ties to Beijing were becoming unequal and unsustainable. For countries that had long sought to break historical cycles of dependency on raw materials and to build their own manufacturing and service competitiveness, commodity-based relations with China were a source of nagging anxiety. Others worried that Chinese loans-for-resources deals would saddle governments with unsustainable debts, especially if the commodity boom ended.
And so, when Brazilian President Dilma Rousseff took office in 2011, she declared that she wanted to move “beyond complementarity” in Brazil’s commodity-based trade relationship with China by exporting more high-tech Brazilian products, like Embraer airplanes, to China. Further, in 2013, Nigerian Central Bank president Lamido Sanusi declared, “It is time for Africans to wake up to the realities of their romance with China […] we must see China for what it is: a competitor […] Africa must recognize that China—like the U.S., Russia, Brazil, and the rest—is in Africa not for African interests but its own.” Unlike after the financial crisis, when continued Chinese demand for raw materials kept commodity prices high, Beijing’s economic slowdown and the fall in the price of commodities like oil, iron ore, and soy have served as unwelcome reality checks for some of China’s commodity-rich trade partners.
Even before the end of the commodity boom, China’s ties to some resource-rich African and South American countries faced unexpected and unwanted changes. When former Libyan leader Muammar al-Qaddafi’s regime collapsed in 2011, China lost tens of billions of dollars in oil and infrastructure investments in the country, and it needed to rescue more than 35,000 Chinese citizens living and working there. China’s ties to Venezuela, which had flourished during the term of former president leader Hugo Chávez, have likewise been threatened by Venezuela’s slow-motion political and economic crisis in the years since Chávez’s death. Even before global oil prices began their descent in the second half of 2014, China’s state-to-state loans had become a key lifeline for the Venezuelan government. Yet today, China must make an extremely difficult choice between financing a profligate and dysfunctional government and abandoning the closest thing resembling an ally that it has in the Americas. If Venezuela makes the political decision to default on some or all its oil-backed loans to China, it could cost the China Development Bank tens of billions of dollars and lead to a period of enmity between the two countries. To date, no such financial or diplomatic rupture has occurred in China’s ties to South America or Sub-Saharan Africa, but warning signs exist in both regions.
Finally, in Southeast Asia, even some countries with which Beijing had enjoyed long-standing ties have begun to reconsider their relationships. China’s relationship with Myanmar, which it used to trumpet as a centerpiece of regional cooperation, has been upended by Myanmar’s domestic political opening and its economic and diplomatic engagement with the United States and with new Asian allies, such as Japan. Myanmar’s 2011 halting of the Chinese-led Myitsone Dam project was the first in a series of multi-billion-dollar Chinese investments in Myanmar that were put on hold or cancelled. More recently, China’s previously tight investment and diplomatic ties with Sri Lanka have been subject to a reassessment, as the new Sri Lankan government has expressed concern that previously agreed-upon Chinese loans and infrastructure deals have saddled the country with unsustainable debt burdens. It has already requested adjustments to its existing loan agreements with Beijing; beyond the direct financial costs this would deal to China, such a renegotiation sets an uneasy precedent. Possibly following Sri Lanka’s example, Argentina’s new president, Mauricio Macri, has signaled that he may renegotiate loan that deals his predecessors made with Chinese state banks.
Stay the Course
Beijing seems largely undeterred by the challenges already encountered in pursuit of its Peaceful Development foreign economic policies. It has forged ahead, including through the AIIB and OBOR, which are clearly premised on the developmentalist logic that has underpinned China’s ties to developing countries in Latin America and Africa. Long a feature of China’s relations to those regions, infrastructure development is a crucial part of Beijing’s plans to build a New Silk Road to Africa, the Middle East, and ultimately Europe. But if China’s existing efforts at outbound foreign direct investments and resource-based financing in high-risk countries serves as a guide, new infrastructure financing initiatives will be challenging at best and prone to violent conflict at worst.
Nevertheless, China’s leadership increasingly and explicitly links development with security. In 2014, Xi proclaimed that “development is the greatest form of security,” a sentiment that increasingly underpins recent Chinese academic thinking on the nation’s role in some African and Central Asian conflicts. Both official and academic claims about the connection between development and security also resonate with long-standing arguments about how increased material wealth is the basis for social stability within China itself. Thus, one of the most underappreciated aspects of the Chinese leadership’s continued commitment to the Peaceful Development strategy is the dogged faith and confidence in the almost magical power of development.
In the end, even though Xi is largely relying on a policy framework that he inherited from his predecessors, he has, of course, tried to make these policies his own through high-profile initiatives like OBOR and AIIB. And at the same time, he has tried to link bold development initiatives and strength abroad with his own domestic reform agenda.
With the commodity boom of the early 2000s at a definitive end, emerging market growth slowing or reversing, and China’s own economy stumbling, the optimistic assumptions of the Peaceful Development paradigm that Xi inherited are becoming a difficult fit with China’s economic reality. Being a positive force for development in its own neighborhood and further abroad is a laudable objective. Yet the challenges of development and good governance, especially in countries and regions experiencing serious conflict, will require both patience and a deeper understanding of international leadership. China should reassess the lessons of its Peaceful Development framework and policies before it proceeds to expand and deepen them through expensive and risky new initiatives.