Student Blog | China’s Economic Statecraft

Since opening its economy in 1978, China has held economics at the heart of its foreign policy, yet in the years following the global financial crisis in 2008, China’s grand strategy has begun to shift. In his lecture at the Tower Center, Dr. William Norris, professor of Chinese foreign and security policy at the George Bush School of Government and Public Service at Texas A&M University, explained both the role of economics in China’s grand strategy and, more broadly, the theory of economic statecraft.

Norris opened his discussion with the concept that the behavior of firms or “commercial actors” affects strategic policy. By pursuing their own interests, commercial actors create both security and economic externalities; in other words, firms get a vote.

Is China’s Grand Strategy Shifting?

After Mao Zedong and especially after the Tiananmen incident, China desperately wanted to break from its history of isolationism. To do so it needed access to the international market. Initially, this was done through export-oriented growth primarily fostered by Japan and Taiwan. Ultimately, from attracting Foreign Direct Investment, to growing its multinational corporations, to pursuing World Trade Organization membership, economics has undoubtedly underpinned China’s grand strategy for the majority of the post-Mao period.

Yet after 2008 in the wake of the global financial crisis, the central role of economics has shifted. While the United States and Europe experienced sharp decline, China still had control over the banking and financial sectors; China got it right. While the traditional powers struggled to stay afloat, China became a great power. As such, and especially under the leadership of Xi Jinping, economic development has taken a back seat to national security. This is a different approach than that utilized by other rising leaders, and is most likely a tool in ensuring regime stability.

Nevertheless, economics still play a vital role in  China’s grand strategy.

What Implications Does This Shift Have? 

Norris then went on to explain that there are myriad security effects imposed by varying economic interactions. By utilizing the economic channel, a nation risks the costs/benefits of using the economy as either a means or an end. In contrast, by utilizing the military channel, a nation risks hollowing out and strategic transfer. Ultimately the relationship between the economy and the state can be explained via principal-agent (P-A) theory. Using P-A theory, Norris deduces that the state’s control over commercial actors is reliant on five factors: (1) goal compatibility, (2) unity of the state, (3) market fragmentation or the number of firms, (4) reporting relationship of the firm, whether it is state owned or private, and (5) the relative allocation of resources. The greater the distance or rift between the principal (the state) and the agent (commercial actors) on these issues, the less control the principal is able to exert over the actor.

In his book Chinese Economic Statecraft Norris examines this relationship through the lens of various cases including resource extraction, mainland/Taiwan economic relations, and sovereign wealth funds. In a brief interview following the talk, Norris relayed the case of the China National Petroleum Corporation (CNPC) in Sudan in the 1990s. The CNPC was building a poor reputation for China and in turn causing serious security ramifications. As a result, the Chinese Communist Party had to reassert state control. This case nicely illustrates the moving parts of economic statecraft. The majority of the work in this scenario is done by the state’s repossession, but at the same time, this greatly undermines the stakeholder narrative.

Why China?

In concluding his talk, Norris posed this question: Why examine China? China is an extremely relevant, mixed economy. Numerous indicators, such as One Belt, One Road and increasing Chinese foreign investment, signal China’s undoubtedly growing global influence. Additionally, domestic issues plaguing China – informal financing, capital flight, anti-corruption efforts, etc. – showcase the relationship between the state and commercial actors in China. They exemplify the unquestionable importance of the economy and commercial actors in creating both economic and security externalities and in determining China’s grand strategy.

Claire Huitt is a senior at Southern Methodist University triple majoring in public policy, economics, and political science with a focus on international relations and the Asian Pacific. She is a Bauer Scholar in Political Science, Hamilton Scholar, Engaged Learning Fellow, a representative of IGNITE Women in Politics, Chair on Asian Pacific Relations with the Tower Center Student Forum, Dedman School of Law Pre-Law Scholar, New Century Scholar, and a member of the University Honors Program. After graduation Claire intends to attend law school and pursue a career in international law and foreign affairs.