China's Modern Economic Statecraft: A Wealth-Power Dialectic
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Xiaotong, Zhang Book China's Modern Economic Statecraft: A Wealth-Power Dialectic Routledge Studies in the Modern World Economy Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Xiaotong, Zhang (2025) : China's Modern Economic Statecraft: A Wealth-Power Dialectic, Routledge Studies in the Modern World Economy, ISBN 978-1-040-26302-0, Routledge, Oxford, https://doi.org/10.4324/9781003270379 This Version is available at: https://hdl.handle.net/10419/312740 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/
China’s Modern Economic Statecraft This compelling exploration delves into President Xi Jinping’s ambitious efforts to restore China to its historical role as a global leader through innovative economic means. Bridging the philosophies of Mao Zedong and Deng Xiaoping, Xi’s approach is a unique synthesis of Marxist-Developmentalist ideas, aiming to convert China’s accumulated national wealth into great power status. At the heart of this narrative is a wealth-power dialectic, shaping the performance and challenges of China’s modern economic statecraft. The book chronicles the optimism of Xi’s first term, the overreach and subsequent retrenchment of his second, all set against the backdrop of a slowing domestic economy and intensifying strategic competition with the United States. Despite these hurdles, the Chinese government continues to expand its arsenal of economic tools and initiatives, showcasing resilience and adaptability. This book offers an insightful look into how Xi Jinping’s tenure might be remembered as a pinnacle in China’s Marxist-Developmentalist economic history. This book is a must-read for anyone interested in understanding the intricate strategies behind China’s quest for global preeminence. The Open Access version of this book, available at http://www.taylorfrancis.com, has been made available under a Creative Commons [AttributionNon Commercial-No Derivatives (CC-BY-NC-ND)] 4.0 license. Zhang Xiaotong is a professor in the Department of Political Science and International Relations and Director of the China and Central Asia Studies Center at KIMEP University, Kazakhstan. He obtained his PhD in political science from the Université Libre de Bruxelles (ULB) in Belgium.
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China’s Modern Economic Statecraft A Wealth-Power Dialectic Zhang Xiaotong
First published 2025 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2025 Zhang Xiaotong The right of Zhang Xiaotong to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. The Open Access version of this book, available at www.taylorfrancis. com, has been made available under a Creative Commons Attribution-Non Commercial-No Derivatives (CC-BY-NC-ND) 4.0 license. Any third party material in this book is not included in the OA Creative Commons license, unless indicated otherwise in a credit line to the material. Please direct any permissions enquiries to the original rightsholder. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Zhang, Xiaotong (College teacher), author. Title: China’s modern economic statecraft : a wealth-power dialectic / Zhang Xiaotong. Description: Abingdon, Oxon ; New York, NY : Routledge, 2025. | Series: Routledge studies in the modern world economy | Includes bibliographical references and index. Identifiers: LCCN 2024033831 | ISBN 9781032218700 (hardback) | ISBN 9781032218717 (paperback) | ISBN 9781003270379 (ebk) Subjects: LCSH: China--Economic policy--2000- | China--Economic conditions--2000Classification: LCC HC427.95 .Z435286 2025 | DDC 330.951--dc23/eng/20240828 LC record available at https://lccn.loc.gov/2024033831 ISBN: 9781032218700 (hbk) ISBN: 9781032218717 (pbk) ISBN: 9781003270379 (ebk) DOI: 10.4324/9781003270379 Typeset in Times New Roman by KnowledgeWorks Global Ltd.
List of Tables viii Abstract ix Acknowledgments x Introduction: China’s New Economic Statecraft in the Making 1 0.1 The Concept of “Major Country Economic Diplomacy” 2 0.2 China’s Major Country Economic Statecraft in the Making 4 0.2.1 China’s Current National Conditions and Stage of Development 4 0.2.2 China’s Regime Characteristics 6 0.2.3 China’s Civilizational Characteristics and Historical Depth 6 0.3 Major Challenges Preventing China from Practicing Great Power Economic Statecraft 7 0.4 Structure of This Book 8 1 China’s Classic Economic Statecraft: Confucius-Mencius Philosophy 11 1.1 Classic Chinese Thoughts on Statecraft – Confucius-Mencius Philosophy 11 1.2 Confucius-Mencius Thoughts on Economic Statecraft 15 1.3 The Tribute System: China’s Classic Institution of Economic Statecraft 16 Contents
vi Contents 1.4 Historical Initiatives of China’s Economic Statecraft 21 1.5 Major Challenges for China’s Classic Economic Statecraft 22 2 China’s Contemporary Economic Statecraft: A Marxist-Developmentalist Synthesis 26 2.1 Marxist Economic Statecraft: Mao Zedong’s Way 28 2.2 Developmentalist Economic Statecraft: Deng Xiaoping’s Way 33 2.3 A Continuation of Deng Xiaoping’s Way: Economic Statecraft of Jiang Zemin (1989–2002) 36 2.4 A Continuation of Deng Xiaoping’s Way: Economic Statecraft of Hu Jintao (2002–2012) 40 3 Hu Jintao’s Time: The Origin of China’s New Economic Statecraft 45 3.1 Rise of China’s Economy 45 3.2 Hu Jintao’s Developmentalist Economic Statecraft 46 3.3 Hu Jintao’s Efforts in Translating China’s Wealth to Global Influence 48 4 Xi Jinping’s New Economic Statecraft (2012–2017): Marxist-Developmentalist Synthesis Based on Confucius-Mencius Philosophy 55 4.1 Xi Jinping’s New Economic Statecraft (2012–2017): Marxist-Developmentalist Synthesis Based on Confucius-Mencius Philosophy 58 4.1.1 Xi Jinping’s Developmentalist Approach to Economic Statecraft 58 4.1.2 Xi Jinping’s Marxist Approach to Economic Statecraft 61
Contents vii 4.1.3 Xi Jinping’s Historical Approach to Economic Statecraft Based on Confucius-Mencius Philosophy 63 4.2 Xi Jinping’s Major-Country Diplomacy with Chinese Characteristics (2017–2022) 64 4.2.1 A Case Study: Xi Jinping’s Approach to the US 65 4.3 Xi Jinping’s Governance Revolution 67 5 Xi Jinping’s Economic Statecraft in the Era of Dramatic Changes Unseen in a Century (2018–2023) 71 5.1 China’s Diplomatic Confrontation with the West 72 5.2 China’s Strained Economy 74 5.3 Xi’s Economic Statecraft: Challenges, Retrenchment, and Resilience 77 Conclusion: The Wealth-Power Dialectic: Fundamental to China’s Economic Statecraft 84 6.1 Three Approaches of China’s Economic Statecraft 85 6.1.1 Emperor Zhu Di’s Approach to Economic Statecraft 85 6.1.2 Mao Zedong’s Approach to Economic Statecraft 86 6.1.3 Deng Xiaoping’s Approach to Economic Statecraft 86 6.2 China’s Post-1978 Economic Statecraft Model: Marxist-Developmentalist Compromise 87 6.3 Xi Jinping’s Grand Synthesis: Marxist-Developmentalist Statecraft Enlightened by Confucius-Mencius 88 6.4 Overstretch: The Biggest Challenge to Xi Jinping’s Major-Country Economic Statecraft 88 Index 91
2 China’s Modern Economic Statecraft wealth had accumulated to an extent that it needed to be wielded more effectively to enhance China’s global influence. 0.1 The Concept of “Major Country Economic Diplomacy” Since President Xi Jinping began implementing “Major Country Diplomacy with Chinese Characteristics” in 2013, the concept of “major country economic diplomacy” was accordingly developed and implemented. “Major country economic diplomacy” is, in simple terms, economic diplomacy as practiced by major countries (or great powers). Specifically, it refers to the act, art, and process of wealth-power conversion by a great power to realize and maintain its status as such.1 Great power economic diplomacy is generally characterized by three main features: the might, the will, and the influence of a great power.2 Below is a detailed explanation of these three main features of great power economic diplomacy, through which we can assess whether Xi’s China is practicing so-called great power economic diplomacy. First, the might of a great power. A great power is a country that is militarily and economically powerful, particularly its military might. A great power can wield substantial power resources in the exercise of economic diplomacy. It has strategic latitude and room for power maneuvers to impose or counter sanctions. But the reality of international relations is that no country is “all-mighty” in all areas of power. Even the United States is not an “all-round champion” with power resources in all sectors. The United States enjoys global supremacy in military power, but not in the economic field. Therefore, a measure of a great power is also its ability to channel power resources across fields, as well as the degree and efficiency of the mutual transformation of power resources from different sources. Robert Keohane and Joseph Nye, in their book Power and Interdependence, address this issue by saying: “Militarily and economically, states will dominate a variety of organizations and a variety of issues by linking their own policies on some issues to other states’ policies on other issues. By using their overall dominance to prevail on their weak issues, the strongest states will, in the traditional model, ensure a congruence between the overall structure of military and economic power and the pattern of outcomes on any one issue area. Thus, world politics can be treated as a seamless web” (Keohan and Nye, 2002). The underlying message is that great powers can link issues to redeploy power resources from one issue area to another, thereby ensuring their dominance in a particular area of interest. The author argues that great power economic diplomacy involves frequent political and economic interactions, and therefore, economic diplomacy can be defined as, “the two-way conversion between wealth and power” (Zhang, 2013). Second, the will of a great power. Apart from economic interests, major countries have strategic interests, political ambitions, and a strong sense of strategic planning. Economic diplomacy is “the act, art, and process of
Introduction 3 transforming wealth and power mutually through strategy, tactics, and institutional design by a national government in its external relations” (Zhang, 2013). It emphasizes initiative and long-term planning. Generally, based on its own strong wealth base and motivated by its ambitions and goals, a great power has strong demand for the two-way transformation of wealth and power, and therefore, a stronger will for such transformation than the mediumand small-sized countries. The intensity, speed, and scale of such transformation are much higher in a great power than in a small nation or a middle power. All these require the great power to plan ahead and craft forward-looking economic diplomacy. Emerging powers, on the other hand, must catch up with the established powers. For example, the United States caught up with Britain in the late 19th to mid-20th centuries, and Japan caught up with the United States in the 1970s and 1980s. Conversely, incumbent powers use all available resources to curb rising powers. As great power status is a scarce resource, competition for such status is conceivably intense. The final result is often that one will be the loser, worse-off, and in a more suppressed position than before (Zhang, 2007). Thus, great power economic diplomacy must follow the political ambitions of the great power. Great power economic diplomacy is essentially about serving the strategic interests of the great power through economic statecraft, and the strategic interests of a great power lie in pursuing its goals, participating in the power shift in the international system, and actively shaping the world order. Third, the influence of a great power. Great powers usually have influence beyond their own regions. Barry Buzan, an American scholar, suggests that the influence of a great power can span more than one region, and the influence of a superpower can extend to the entire international system (Buzan, 2011). Therefore, great power economic diplomacy emphasizes the acquisition of trans-regional influence, discourse power, control, and decision power. At present, the economic diplomacy of the United States, the EU,3 and China all contain a global perspective and global influence. Notwithstanding the impact of the global financial crisis, US economic diplomacy still maintains a global footprint. It advanced the negotiations of the Trans-Pacific Partnership (TPP) in the Asia-Pacific region, which was later canceled by President Donald Trump. The United States also diplomatically intervened in the Russia-Ukraine conflict in Eurasia, imposing economic sanctions on Russia, and consolidated its role in NATO for transatlantic relations. Additionally, it negotiated the Transatlantic Trade and Investment Partnership (TTIP) agreement with the European Union, which was again canceled by President Trump. Following the adoption of the Lisbon Treaty, the EU established the European External Action Service (EEAS) and proposed ten strategic partnerships to strengthen ties with other major powers and emerging economies. The EU actively pursued regionalism, exemplified by the US-EU Transatlantic Free Trade Agreement negotiations, and strengthened its economic ties with emerging economies in Asia. During this period, China’s economic diplomacy progressed from a focus on domestic (“interior line”) to international
4 China’s Modern Economic Statecraft (“exterior line”) affairs, expanding its influence to Africa, Latin America, and Europe. In summary, great power economic diplomacy is characterized by being guided by the ambitions of a great power. It is based on the strength of such powers and driven by the primary aim of acquiring or maintaining their status as great powers. The strategic goal of great power economic diplomacy is achieved through transforming national wealth into international power and influence, rather than vice versa. 0.2 China’s Major Country Economic Statecraft in the Making During President Hu Jintao’s tenure (2002–2012), China’s status as a major country was without serious dispute, but the extent to which China’s economic statecraft conformed to the model of great power economic statecraft defined above remains open to discussion. In the author’s view, China’s economic statecraft before Xi Jinping had the strength of a great power and practiced wealthpower transformation on a large scale and across sectors, along with a certain degree of international influence. However, it lacked a key element: the core objectives of great power economic statecraft. One must question whether the primary objective of China’s economic diplomacy was focused on power transition among great powers and shaping the international political and economic order, or on domestic economic and social development. During Hu Jintao’s tenure, the Chinese official statements suggested that the primary goal of China’s economic diplomacy was domestic economic and social development, paving the way for a comprehensive deepening of domestic reforms (Wang, 2013b). In this sense, prior to Xi Jinping’s leadership, China had not yet demonstrated the policy or strategic readiness for implementing great power economic statecraft and lacked the strong will and clear ambitions characteristic of a great power. However, under Xi Jinping’s leadership, there was a significant shift, with a growing emphasis on the core objective of China’s major-country economic statecraft being to foster power transition and to build a new international order. Thus, Xi Jinping’s approach to economic statecraft is closer to what can be qualified as “great power economic statecraft”, but it is not there yet. When Xi Jinping took over China’s statecraft from Hu Jintao, he inherited both advantages and challenges in cultivating a true sense of great power economic statecraft. Over time, these elements played out and had various effects on Xi Jinping’s ambition to move China to the center of the world stage. 0.2.1 China’s Current National Conditions and Stage of Development When implementing economic statecraft, China must consider its current stage of development, national conditions, and public opinion. Xi Jinping is no
Introduction 5 exception. To a large extent, the primary goal of the Chinese government’s economic statecraft remains to serve China’s economic and social development and to improve people’s living standards since 1978, when China started reform and opening-up. On the principles of China’s economic diplomacy, the then Chinese Commerce Minister Gao Hucheng argued in 2014 that “we must adhere to the strategic policy of having diplomacy serve economic goals” (Gao, 2014). During Xi Jinping’s first term (2012–2017), China’s major economic diplomacy initiatives, such as the BRI, high-speed rail diplomacy, and nuclear energy diplomacy, were all closely linked to domestic development. The landbased Silk Road Economic Belt was designed to develop the western region (especially Xinjiang) and to redress the current imbalance in development between the eastern and western regions. The Bangladesh-China-India-Myanmar (BCIM) Economic Corridor and the China-Pakistan Economic Corridor (CPEC) are aimed at developing China’s southwestern region, improving the region’s transportation and communication infrastructure, stimulating economic development in the border areas, narrowing the development gap across regions, and enhancing border defense. High-speed rail diplomacy aims to export the excess domestic manufacturing capacity of high-speed rail. China has high expectations for the high-speed rail in improving national modernization, technology sophistication, economic strength, international competitiveness, and independent innovation capacity and has vigorously invested in the sector. As a result, the mileage of high-speed railroads built by China in under a decade has exceeded that of newly-built high-speed railways by developed countries in the West over the past 50 years. The excess capacity made it imperative for China to adopt high-speed rail diplomacy and to export its highly-scaled high-speed rail technology and manufacturing capacity. This is evidence of a dual purpose in China’s economic statecraft, which shifts between economic development and the attainment of strategic goals as a great power, with the former being the central objective. This is necessitated by China’s basic national conditions of still being a developing country at the primary stage of socialism. In great power economic statecraft, economic and political interactions and wealth-power transformation are often at odds. When economic strength is a given factor, having the economy serve politics will likely affect economic growth. Conversely, having politics serve the economy can undermine the pursuit of great power status. In fact, for a long time, China’s economic diplomacy prioritized serving the domestic economy, with its primary goal being to foster economic and social development at home. Going forward, it remains to be seen whether the primary goal of China’s economic diplomacy will pivot to using economic strengths to pursue international power status. Despite Xi Jinping’s leadership, this approach has not fundamentally changed, as China has not yet achieved the status of a fully developed country. In fact, after Xi came into power, China’s economy slowed down, necessitating a focus on domestic economic and social development over competing for global leadership in its economic diplomacy.
6 China’s Modern Economic Statecraft 0.2.2 China’s Regime Characteristics The strong leadership of the Communist Party of China (CPC) and its efficient and powerful government are conducive to the implementation of great power economic statecraft. This is the second feature of China’s economic statecraft. In stark contrast to China, the US government has experienced repeated “shutdowns” due to budgetary constraints. Due to bipartisan disagreements in Congress, the fast-track authority for brokering trade deals has been terminated, which seriously undermined the credibility of the United States in TPP and TTIP negotiations. The IMF reform bill was also repeatedly shelved by Congress.4 All of these have greatly set back the international influence of the United States. The US system is known for the separation of powers, partisan fighting, and congressional constraints. From historical experience, a strong US executive and a weak Congress would make strong US economic diplomacy. On the contrary, a strong Congress and a weak executive will constrict its economic diplomacy. American scholar Fareed Zakaria found that the United States did not proactively transform its wealth into international influence during the 1865–1889 period when its economic power was rising rapidly. Instead, the United States adopted aggressive foreign diplomacy and rapidly expanded its overseas interests during 1889–1908. Why? Zakaria’s explanation is that the growth of government power and the realization by key policymakers of the relative strength of government power were the main reasons why the United States moved from under-expansion to active expansion. This is thought-provoking and helps us to better recognize the regime characteristics of China’s economic statecraft – the strong leadership of the CPC, active state leadership, and an efficient and assertive government. This is an important reason for the notable progress of China’s economic statecraft. Since Xi Jinping took office as General Secretary, China’s diplomacy has taken on a new look of progressiveness and innovation, as Wang Yi, China’s Foreign Minister proudly claimed (Wang, 2013c). During Xi’s rule, China relied on its regime and institutional strengths to further improve top-level design and drive the implementation of economic statecraft. One significant feature of Xi’s economic statecraft was that he placed the CPC in the driving seat, with the Party leading all aspects. 0.2.3 China’s Civilizational Characteristics and Historical Depth The foundation of China’s economic diplomacy with its own characteristics includes Xi Jinping’s “correct concept of righteousness and economic benefit”, which advocates balancing righteousness and benefit in engagement with developing countries with greater weight on righteousness (Wang, 2013a). It also includes the commercial culture that values ethics over profit and cautions against profiteering and egoism (Gao, 2014). Zhang Qian’s mission to
Introduction 7 the Western Regions led to the establishment of diplomatic ties between the Han Dynasty and the countries in the Western Regions and flourishing friendship along the ancient Silk Road. It also brought the civilization, knowledge, and products of the Western Regions back to China. In Chinese history, there were also Admiral Zheng He’s seven voyages to the Western Ocean, which is today’s Indian Ocean. These embodied the Confucian spirit of “accommodating people from afar, building harmony with all nations, and sharing peace around the world”, and facilitating economic engagement and commodity trade. This contrasts sharply with the slave trade and colonial rule by the Western powers through their powerful ships and cannons (Research Center of Economic Diplomacy, Wuhan University, 2014). China’s distinctive civilizational identity and heritage have helped the country chart a path of economic diplomacy different from that of other great powers – to engage with other countries from a civilizational perspective and to carry out majorcountry economic diplomacy more effectively. 0.3 Major Challenges Preventing China from Practicing Great Power Economic Statecraft In its transition to great power economic statecraft, China faced two major challenges during both Hu Jintao and Xi Jinping’s tenures. First, domestic constraints. The domestic interests of great powers are compound and multifaceted, and competing national objectives, friction, and constraints among different interest groups, power play among different government agencies, popular pressure, and the collision of different schools of thought may all contribute to the depletion of China’s existing strengths. For example, civil society has increasingly become a major actor in China’s economic diplomacy. At the apex of the European debt crisis, when Europe lacked liquidity, Wenzhou, a Chinese city, also plunged into a private sector credit crisis due to a lack of liquidity, and private enterprises went bankrupt. As to the question of whether China should bail out Europe or Wenzhou, public opinion was overwhelmingly in favor of Wenzhou (Bai, 2011), which added to the complexity of decision-making by the Chinese leadership. China’s aid to Macedonia’s school bus project, a routine aid operation, also triggered heated discussions on the internet. One user said, “I am not against helping others, but I can’t stand that our own schoolchildren are riding in scrapped buses and seriously overloaded vans!” (Phoenix Info, 2011) These civil pressures have raised a new question for the government: will foreign diplomacy and internal affairs become incongruent, and which should come first? Regardless of the answer, the current debate itself has already placed constraints on the external projection of China’s economic power. Second, overstretch and depletion of power resources. Historical experience suggests that squandering power resources will lead to the decline of great powers. According to Paul Kennedy, the decline of a great power is
8 China’s Modern Economic Statecraft the result of military overexpansion and lack of financial resources. Strategic overexpansion (e.g., encroaching on large territories and expensive wars) can lead to the decline of a great power (Kennedy, 2013). There is a limit to the transformation of wealth into power; over-expenditure of wealth and militarization will invite the decline of the state. The American political scientist Jack Snyder, in his book Myths of Empire, also mentions that empires often have the myth that national security can only be preserved by over-expansion. This notion is the main driver behind the over-expansion of all the industrialized powers, yet it is precisely this aggressive policy that has undermined national security (Snyder, 2007). The main reason why over-expansion undermines national security and interests is the inefficient conversion between wealth and power, wasting too much wealth without acquiring the expected power. The collapse of the Soviet Union was largely due to its insufficient economic base to support diplomatic, strategic, and military expansion. It was a failure of Soviet economic statecraft and a triumph of American economic statecraft. Therefore, in economic statecraft practices, the efficiency of wealth-power conversion is critical to the rise and fall of great powers. The history of the rise and fall of great powers has repeatedly demonstrated that overconsumption of wealth and militarization will lead to the decline of national power. Xi Jinping’s economic statecraft marks a significant departure from his predecessors and risks overstretching. Since he came to office, China’s economy has started to slowdown. Consequently, there is a need for China to explore “smart ways” to transform wealth into power in an affordable and sustainable manner. 0.4 Structure of This Book This book concentrates on China’s economic statecraft during Xi Jinping’s era. However, to fully comprehend Xi’s approach, it is essential to explore the roots of China’s economic statecraft in the classical age, specifically the ConfuciusMencius period. Further complicating this analysis is the fact that Xi’s philosophy of economic statecraft represents more of a continuation than a break from the contemporary economic statecraft philosophy of Mao Zedong and Deng Xiaoping, which blends Marxist and Developmentalist ideas. In essence, Xi’s economic statecraft can be seen as a synthesis: a MarxistDevelopmentalist approach infused with insights from Confucius and Mencius. This book is divided into five chapters. Chapter 1 delves into China’s classical economic statecraft, examining the principles of Confucius and Mencius. Chapter 2 explores the post-1949 Economic Statecraft Model in China, characterized as Marxist-Developmentalist with Chinese Characteristics. Chapter 3 sheds light on Hu Jintao’s economic statecraft (2002–2012), tracing the origins of China’s new economic statecraft. Chapter 4 analyzes Xi Jinping’s economic statecraft during his initial term from 2012 to 2017. Finally, Chapter 5 examines Xi’s second term (2017–2022) and the initial two years
Introduction 9 of his third term (2022–2023), providing insights into the evolving nature of his economic strategies. The Conclusion chapter finds that China’s economic statecraft has evolved through three distinct approaches: (1) The approach of Emperor Zhu Di, who initiated Admiral Zheng He’s voyages across the Indo-Pacific, symbolizing a period of exploration and maritime prowess. (2) Mao Zedong’s approach, rooted in Marxist ideology and intertwined with China’s classical history, representing a blend of ideological fervor and historical context. (3) Deng Xiaoping’s approach, characterized by a developmentalist philosophy, focusing on economic growth and modernization as the primary drivers of statecraft. This chapter concludes that the remarkable economic ascent of China since 1978 can be attributed to a unique blend of Marxist ideology and developmentalist economics, a compromise forged within the CPC. This compromise maintained Marxism as the dominant ideological framework while simultaneously embracing economic liberalism as the driving force behind China’s statecraft. However, the “Marxist-Developmentalist Compromise”, a concept prevailing since Deng Xiaoping’s era, is now being challenged. There is a growing risk of overextension in China’s new economic statecraft, particularly in the context of China’s economic slowdown and the Covid. Ultimately, the tension inherent in the conversion between wealth and power (wealth-power dialectic) remains one of the most significant challenges to China’s rise. That is exactly why this book is titled China’s Modern Economic Statecraft: A Wealth-Power Dialectic. Notes 1 In the article “The Construction of a Theory on China’s Economic Diplomacy: A Preliminary Attempt” (see Diplomatic Review, 2013, Issue 6), Zhang Xiaotong defines “economic diplomacy” as “the act, art, and process of a country’s government subjectively and actively transforming wealth into power and vice versa through strategic, tactical, and institutional design in international interactions.” Here, “wealth” refers to economic strength, economic resources (such as oil, raw materials, foreign exchange reserves, overseas investments, the strength of Chinese enterprises, etc.), economic means, and economic gains. “Power” refers to a position of advantage one party has over another, which can force the other party to accept its opinions and assertions and make them do things they originally did not want to do or had not planned to do. It is necessary to point out that power is not necessarily political or military power; it can also be economic power, cultural power, or power in any field. This book adopts this definition of economic diplomacy and provides a corresponding definition for “major-country economic diplomacy”. 2 It is worth noting that in China’s official narrative, “major country” is preferred over “great power”, since the latter evokes associations with great power competition in the 19th century. 3 The European Union is a sovereign body composed of 27 sovereign states and plays an important role in the current multipolar context. After more than half a century of integration, the EU’s main policy tools for economic diplomacy, such as trade policy, development aid, and enlargement, have largely become competencies of
10 China’s Modern Economic Statecraft the EU, implemented uniformly in foreign relations by the EU headquarters. For example, the European Commission is responsible for negotiating the “Transatlantic Trade and Investment Partnership Agreement” with the United States and bilateral investment treaty negotiations with China. At the same time, Eurozone countries implement a unified monetary policy and conduct unified financial diplomacy. In this context, we believe that the EU can be considered a group of great powers, and its economic diplomacy can be seen as that of a group of great powers. In fact, the EU’s overall economic diplomacy is often stronger and more effective than that of general great powers. To better understand the economic diplomacy of great powers, we categorize the EU’s economic diplomacy as a type of great power economic diplomacy. 4 On March 26, 2014, I attended a memorable debate in the United States. One side, consisting of the US government and the Democratic Party, proposed solving the International Monetary Fund (IMF)’s assistance to Ukraine and IMF quota reforms as a package deal. The other side, the Republican-controlled House of Representatives, opposed bundling IMF reform with the Ukrainian aid. Ultimately, the Democrats were forced to compromise, and the two issues were separated. Reference List Bai, M. (2011) Save Europe First or Wenzhou first?. 7 October. Available at: https:// www.guancha.cn/indexnews/2011_10_08_60320.shtml Buzan, B. (2011) “The Inaugural Kenneth N. Waltz Annual Lecture: A World Order without Superpowers: Decentered Globalism”, International Relations. 25(3), p. 4. Gao, H. C. (2014) “Let the Chinese Dream Light up a Better World: Learning and Implementing Xi Jinping’s Thoughts on Economic Diplomacy” [Qiushi] 1 April. Kennedy, P. (2013) “Introduction”, The Rise and Fall of Great Powers (Part 1) (in Chinese). Beijing: Citic Press. Keohan, R., and Nye, J. (2002) Power and Interdependence (in Chinese). Translated by Men, H. H. Beijing: Beijing University Press. Phoenix Info. (2011) “China’s Free Aid to Macedonian School Buses Sparks Online Debate” [Phoenix Info] 27 November. Available at: http://news.ifeng.com/mainland/special/gsyeyxiaochechehuo/content-3/detail_2011_11/27/10929244_0.shtml Research Center of Economic Diplomacy, Wuhan University. (2014) Advocating the ‘Zheng He Spirit’ and Implementing the ‘Zheng He Initiative’ to Vigorously Promote the Construction of the Maritime Silk Road. April. Snyder, J. (2007) Myths of Empire (in Chinese). Beijing: Beijing University Press. Wang, Y. (2013a) Exploring the Path of Major-country Diplomacy with Chinese Characteristics,” Speech at the Luncheon of the Second World Peace Forum. 27 June. Wang, Y. (2013b) Speech at the Symposium “New Starting Point, New Concept, New Practice: China and the World 2013”. Available at: http://live.people.com.cn/note. php?id=357131213185739_ctdzb_004 Wang, Y. (2013c) “The Successful Practice of Major-Country Diplomacy with Chinese Characteristics – Foreign Minister on China’s Diplomacy in 2013” [People’s Daily] 19 December. Zhang, X. J. (2007) The Road to the Revival of Great Powers. Beijing: People’s Publishing House. Zhang, X. T. (2013) “The Theoretical Framework of China’s Economic Diplomacy: A Preliminary Attempt”(in Chinese)”, Foreign Affairs Review. (6), p. 53.
DOI: 10.4324/9781003270379-2 This chapter has been made available under a CC-BY-NC-ND 4.0 license. China’s Classic Economic Statecraft Confucius-Mencius Philosophy 1 Economic statecraft, understood as the conversion of power into wealth, has been practiced by all dynasties and empires throughout human history. China is no exception; it has not only engaged in economic statecraft but also developed systematic theories of it over time. China’s prominent examples of economic statecraft practices include Zhang Qian’s mission to the Western Regions (139 BCE–126 BCE), the Tributary System (202 BCE–19th century CE), and Admiral Zheng He’s voyages (1405–1433 CE). Historically, China’s foreign policy largely relied on its economic supremacy. Ancient China’s economy was the strongest in the world for a long stretch of time. In 1700, China’s GDP accounted for 22.3% and in 1820, 32.9% of the world’s total (Angus, 2007). The ancient Chinese approach to economic statecraft significantly differed from the paradigms of Western great powers during modern times (1492 CE– 1914 CE), such as mercantilism, liberalism, imperialism, or Marxism (Zhang, 2023, pp. 28–43). The core philosophy underpinning China’s classical economic statecraft, rooted in Confucian ethics, focused not on profit but on morality and the sustenance of the Tributary System, which prevailed for over 2000 years (202 BCE to the end of the 19th century CE). In essence, ancient Chinese economic statecraft aimed at upholding a moral-based international order, reinforced through the Tributary System. This chapter focuses on classic Chinese thoughts on economic statecraft and its historical practices (see Table 1.1), as well as its challenges. 1.1 Classic Chinese Thoughts on Statecraft – Confucius-Mencius Philosophy “Statecraft” in Chinese is translated as “治国理政”. In Chinese, “治国理政” (zhì guó lǐ zhèng) directly translates to “govern the country and manage politics”. “治” (zhì) means “to govern” or “to rule”. “国” (guó) refers to “country” or “nation”. “理” (lǐ) means “to administer” or “to manage”. “政” (zhèng) pertains to “politics” or “government”.
18 China’s Modern Economic Statecraft merchants who seized these opportunities for trade activities, thereby promoting economic exchanges between China and neighboring countries. 3 Economic Stability and Peace: The Tribute System enhanced economic connections and interdependence, promoting regional peace and stability to a certain extent. When economic interests are closely related, the risk of conflict may reduce. 4 Economic Influence: Through the Tribute System, China expanded its economic and cultural influence. Neighboring countries might adopt Chinese technologies, products, and culture, deepening economic ties with China. 5 Tool of Diplomatic Strategies: Dynasties in Chinese history utilized the Tribute System as part of their economic diplomatic strategies to ensure regional peace, stability, and influence. In total, the Tribute System was a crucial part of ancient China’s economic statecraft, promoting peace, cooperation, and mutually beneficial relationships with neighboring countries through economic means. The Ming Dynasty (1368 AD–1644 AD) was one of the periods when the Chinese tributary system was most developed and active. During the Ming Dynasty, the tributary system, as a means of international relations and foreign policy, reached a relatively mature and systematic level. During the Ming Dynasty, due to its strong economic and military power, as well as the development of maritime trade and diplomacy, many countries and regions established tribute relationships with the Ming Dynasty. Some of the tributary countries or regions during this period include: (1) East Asia: Korea and Japan (though the tribute relationship with Ming was unstable and sometimes interrupted); (2) Southeast Asia: Vietnam, Siam (presentday Thailand), Malay states (including parts of present-day Malaysia and Indonesia), Brunei and Parts of the Philippines; (3) South Asia: Ceylon (present-day Sri Lanka); (4) Central and West Asia: Occasionally, envoys, merchants, or delegations from Central and West Asia would visit Ming, though this was slightly different from the fixed tribute relationships with East and Southeast Asia; and (5) Africa: Due to Admiral Zheng He’s seven voyages to the Western Seas, connections were established with some countries and city-states along the eastern coast of Africa, such as Mogadishu, Muscat, and Malindi. It should be noted that the tribute relationships did not imply that these countries were vassal states or territories of Ming. Instead, the Tribute System was more of a diplomatic and economic interaction method, through which trade, cultural exchanges, and political communications were conducted. Although at times conflicts and disputes existed, the Tribute System mainly served as a way for peripheral countries or regimes to offer tributes to central major countries (like China) to show loyalty and respect, expecting reciprocations, protection, or recognition in return. While in some cases, military aid or protection might be provided to tributary states by the central major country,
China’s Classic Economic Statecraft 19 the Tribute System didn’t automatically imply such military obligations or commitments. That being said, China did send troops to protect the tributary states and tried to maintain the Tributary System. Here are some obvious examples: 1 Wars with Vietnam: • Han-Nanyue War: From 111 BC to 108 BC, Emperor Wu of Han launched a conquest war against the Kingdom of Nanyue to unify the southern frontier. Although there was a tribute relationship between Nanyue and the Han Dynasty before this, military action was taken by the Han when Nanyue threatened Han’s interests. • Ming-Annam War: During the Ming Dynasty, Ming forces militarily intervened in Annam (now northern Vietnam) multiple times. Especially during the reigns of Yongle and Xuande, the Ming Dynasty sent troops to Annam multiple times to support their own candidates for tributary states. 2 Wars with Mongolia: The relationship between the Ming Dynasty and Mongolia was sometimes good and sometimes bad, and both sides had periods of accepting each other’s tributary relations. When the threat from Mongolia to Ming increased, the Ming Dynasty carried out military actions multiple times, such as the expeditions sent by Emperor Taizu to pacify Mongolia. 3 Wars with Japan: The Yuan Dynasty launched two famous Mongol invasions when trying to conquer Japan (1274 and 1281). Although there was a tributary relationship between Japan and the Yuan Dynasty before this, military action was taken by the Yuan Dynasty when Japan rejected the Yuan’s demands. 4 Military Intervention in Ryukyu: The Ming Dynasty had sent troops in the early days to support the Ryukyu Kingdom, which had a tributary relationship with it, to help stabilize its regime. To maintain the Tributary System was costly and often led to overextension. As a matter of fact, the high cost of maintaining the Tributary System was a key factor of the collapse of the Ming Dynasty and the Qing Dynasty, the last two dynasties in Chinese history. At the end of the 16th century, Japan’s Toyotomi Hideyoshi planned to invade Korea as part of his continental expansion strategy, ultimately intending to attack the Ming Dynasty. In 1592, Japan invaded Korea, quickly occupying most regions. The Korean Dynasty requested assistance from the Ming Dynasty in this dire situation. The Ming Dynasty saw Japan’s actions as a threat to its own security and felt responsible for assisting a long-term tributary state, deciding to send troops to aid Korea. This war lasted six years, until 1598, when Toyotomi Hideyoshi died, and Japan decided to withdraw its troops.6
20 China’s Modern Economic Statecraft The Imjin War (1592–1598) posed a significant burden on the treasury of the Ming Dynasty. To support this war, the Ming Dynasty mobilized a large amount of financial resources, materials, and manpower. According to historical records, the Ming Dynasty invested large amounts of food, gold and silver, weapons, and other materials in this war. This war not only consumed the economic resources of the Ming Dynasty but also resulted in a large number of soldiers being killed or injured. Additionally, to maintain frontline operations, the Ming Dynasty also needed to frequently levy taxes and conscript soldiers, leading to domestic dissatisfaction and difficulties. The pressure of this war on the Ming Dynasty’s treasury was so great that sometimes emergency financial measures, such as issuing paper money, were necessary to raise funds. The economic pressure brought by this war also affected the political stability of the Ming Dynasty. Although the Ming Dynasty successfully assisted Korea and won the war, long-term military expenditures emptied the treasury, and together with other domestic and foreign pressures, it laid the groundwork for the ultimate decline of the Ming Dynasty. Forty-six years later since the end of Imjin War, the Ming Dynasty finally collapsed in 1644 amid the peasant rebellion led by Li Zicheng. Li Zicheng was finally defeated by the Qing forces, who established China’s last imperial dynasty, Qing Dynasty (1644 AD–1912 AD). History repeats itself. The Qing Dynasty sent troops to Korea once again to maintain its Tribute System, with Japan emerging as the rival. China and Japan fought in the Battle of Jiawu (1894–1895), also known as the First SinoJapanese War, or the Battle of the Yalu River. This battle further weakened the Qing Dynasty and brought tremendous humiliations to the Chinese nation. One of the direct consequences of this war was the signing of the Treaty of Shimonoseki, according to which China was forced to cede Taiwan and its affiliated islands to Japan. In the late 19th century, although the Kingdom of Korea was nominally a tributary state of the Qing Dynasty, due to internal political and economic turmoil, a series of reformist and anti-reform factions emerged within the country. These factions often sought the support of external major powers, especially the Qing Dynasty and Japan, to consolidate or expand their power. Over time, Japan’s influence on the Korean Peninsula gradually increased, conflicting with the influence of the Qing Dynasty. In 1894, the Donghak Peasant Revolution occurred in Korea. The Korean government requested the Qing Dynasty to send troops to help suppress the uprising, and the Qing Dynasty complied and dispatched troops. However, Japan also took the opportunity to send troops to Korea, claiming it was to protect Japanese citizens and their interests in Korea, leading to a direct confrontation between Chinese and Japanese forces on the Korean Peninsula. The tense situation between the two sides in Korea quickly escalated into a full-scale war. In the subsequent military conflicts, the Battle of the Yalu River was the most crucial naval battle, in which the Japanese navy achieved a decisive victory.
China’s Classic Economic Statecraft 21 The two historical periods, the Ming Dynasty (1368–1644 AD) and the Qing Dynasty (1644–1912 AD), spanning more than 500 years, collectively demonstrate the significant importance of the Tribute System in China’s history. Maintaining the Tribute System was crucial for upholding the legitimacy of the imperial dynasties in China. However, the cost of doing so often resulted in the overextension and subsequent collapse of these imperial dynasties. Therefore, economic statecraft in ancient China was much more than a mere tactic or craft; it was integral to the survival of the dynasty and the international order that underpinned these dynasties. 1.4 Historical Initiatives of China’s Economic Statecraft Economic statecraft refers to a country using economic means to achieve diplomatic or strategic objectives, or the other way around. In Chinese history, there were many initiatives of economic statecraft. Below are some examples: 1 Silk Road: Starting from the Han Dynasty (202 BC–9 AD, 25–220 AD), the Silk Road was a trade and cultural exchange route connecting China with Western Asia, South Asia, and even Europe. It was not just a commercial route but also a channel for political and cultural exchange. During the reign of Emperor Wu of Han, Zhang Qian was sent to the Western Regions, successfully opening this route, allowing goods like silk and tea from China to flow into the West, while also enabling cultural exchanges with foreign regions. 2 Maritime Silk Road: South of the Silk Road, the Maritime Silk Road became another essential trade and cultural exchange route connecting China, Southeast Asia, South Asia, and East Africa. During the Tang and Song Dynasties, maritime trade flourished, and port cities like Quanzhou and Guangzhou had close ties with foreign countries. In the early 15th century, Admiral Zheng He made seven voyages to regions such as Southeast Asia, South Asia, the Middle East, and even East Africa. Although these voyages were mainly to display the power of the Ming Dynasty, they also boosted trade and cultural exchanges with these regions. 3 Tea-Horse Trade with Central and Western Asia during the Ming and Qing Dynasties: During the Ming and Qing Dynasties, Chinese tea was transported to Tibet and then entered Central and Western Asia via the Himalayas. Meanwhile, horses and other goods from foreign regions also entered China. This tea-horse trade had economic significance as well as political and strategic meanings. 4 Maritime Prohibition Policies: The maritime prohibition policies in the middle and late Ming Dynasty and early Qing Dynasty restricted China’s maritime trade with the outside world to protect the domestic economy and maintain national security. Before the Opium Wars in 1840s, the Qing Dynasty implemented a restricted foreign trade policy. This included
22 China’s Modern Economic Statecraft establishing “official merchant houses” for official trade and a single trading port system in Guangzhou. The maritime prohibition policies, representing a form of negative economic statecraft, were the opposite of the Silk Road policies, which exemplified positive economic statecraft. A significant example of China’s positive economic statecraft initiative was Admiral Zheng He’s voyages. Zheng He’s seven voyages took place between 1405 and 1433 AD and were major diplomatic activities during the reigns of Emperor Yongle and Emperor Xuande of the Ming Dynasty. The main purpose of Zheng He’s voyages was to display the authority and wealth of the Ming Dynasty and to establish diplomatic relations and expand the influence of the Ming Dynasty. This was a “great power diplomacy” strategy, spreading the culture and influence of the Ming Dynasty through peaceful means. During Zheng He’s voyages, although the Ming government allowed and supported these voyages, there were still strict restrictions on private maritime trade. This led to a contradictory situation: the government-approved and supported Zheng He’s voyages contrasted with the restrictive policies on private trade. After Zheng He’s death, the Ming Dynasty gradually abandoned this large-scale maritime diplomatic strategy. Meanwhile, the sea ban policy was further strengthened after Emperor Xuande. 1.5 Major Challenges for China’s Classic Economic Statecraft China’s economic statecraft has an inbuilt problem: overstretching. Maintaining a moral-based international order through the Tribute System was costly. In the Ming Dynasty, especially after Zheng He’s voyages, opposition voices appeared advocating for saving fiscal expenditures, concentrating resources on inland defense, and holding skeptical or even opposing attitudes toward maritime activities. This led to the restriction of maritime activities and the neglect or destruction of related materials. It is important to remember that the Tribute System was neither a form of free trade as advocated by liberalism, nor was it an export-oriented trade as championed by Mercantilism. The Tribute System was built upon state-led, non-reciprocal trade and the granting of gifts. Zheng He’s voyages caused a financial crisis: his voyages were primarily tribute missions, politically motivated, and overlooked practical economic benefits, often referred to as “generous outbound, meager return”. Historical records show that the grand rewards by Zheng He and Emperor Zhu Di to these foreign tributaries triggered panic in the empire. Just the expense on silver alone was six million taels per year, not including rewards for the 20,000 officials and soldiers. Due to the large amount of copper coins carried abroad for purchases, there was a significant outflow of currency, causing a domestic “money shortage”, severely depleting the national reserves and causing a massive devaluation of the currency.
China’s Classic Economic Statecraft 23 Moreover, Zheng He’s economic statecraft was state monopoly: on the surface, Zheng He’s fleet, each time it set sail, was magnificent and aweinspiring, “cloudy sails blocking the sun”, but essentially, it was a “lonely sail in the distance”. Behind it, there were no, nor were they allowed, ships from private maritime merchants. Emperor Zhu Di did not allow coastal military and civilians to “privately interact with foreign countries”, repeatedly ordering “strict prohibition against civilians sailing overseas privately”. As for the overseas trade of coastal residents, he ordered it to be “strictly prohibited and completely stopped”. The strict maritime prohibition jeopardized the livelihoods of coastal residents and also led to the closure of the seas when the state-organized voyages of Zheng He stopped. In other words, once the royal needs were met, once they heard the news of peace and tranquility, the ocean was completely closed off from the national level to the civilian level, resulting in the absence of the ocean in China’s modern history at a critical period in world history. When discussing economic statecraft, people tend to forget the following three key contradictions: • The contradiction between the relative scarcity of national wealth and the unlimited nature of a state’s pursuit of power. • The contradiction between the scarcity of state power and the unlimited pursuit of wealth by the state. • Finally, there exists a dialectical relationship between a state’s wealth strategy and power strategy, characterized by contradictions and complementarities, mutually shaping and constructing each other (Zhang, 2023, pp. 17–18). Emperor Yang Guang of the Sui Dynasty was a typical example of wealthpower dialectic. He was the second and last emperor of China’s Sui Dynasty, ruling from 604 to 618 AD. He is a highly controversial figure in history, marked by both his impressive achievements and the socioeconomic problems they engendered. His major accomplishments included: (1) Completing the construction of the Sui Dynasty’s capital, Daxing City (present-day Beijing); (2) Strengthening centralized power through a series of administrative reforms; and (3) Constructing the Grand Canal, connecting China’s north and south, facilitating economic and cultural exchange. However, his rule was also plagued with significant issues: 1 His investment in costly construction projects, such as Daxing City and the Grand Canal, exacerbated the state’s financial burdens and the taxation pressure on the people. 2 He initiated three costly military campaigns against Goguryeo (located in present-day Korean Peninsula and Northeast China), all ending in failure and draining national resources.
24 China’s Modern Economic Statecraft 3 In the later years of his rule, political corruption, embezzlement, and tyranny led to widespread public dissatisfaction, ultimately sparking rebellion. In 618 AD, Emperor Yang was assassinated, leading to the collapse of the Sui Dynasty and ushering in a new era in Chinese history—the Tang Dynasty. Tang Dynasty literary scholar Pi Rixiu wrote “Two Odes to the Reminiscence of the Bian River” to praise the achievements of Emperor Yang Guang. The first one: “Thousands of dragon boats with green silk sails, all reaching Yangzhou, never to return. It must be heaven’s instruction to open the Bian waterway, making a flat land for over a thousand miles without any mountains”. The second one: “Everyone says the fall of the Sui was because of this river, yet today for a thousand miles, it still relies on its flowing waves. If it weren’t for the dragon boat affairs at the water palace, in discussing achievements, it would be much more than those of Yu”.7 In the second half of the 19th century, China’s Tribute System began to collapse due to the internal weaknesses of the Qing Dynasty, Western imperialism and unequal treaties, Japanese aggression in East Asia, and the influence of nationalism and the concept of the modern nation-state. With the demise of the Tribute System came the end of China’s classic economic statecraft. However, Confucianism, particularly the teachings of Confucius and Mencius, remains the most influential philosophy in China. The Tribute System remains a prominent historical example from which Chinese policymakers continue to draw lessons and inspiration. The Tribute System of China, though historically concluded, still holds certain relevance for China’s economic statecraft today. It was based on cultural and political exchanges, emphasizing the establishment of relationships and networks. This way of thinking still echoes in China’s current foreign policy, such as in promoting the Belt and Road Initiative, where the focus is on cooperation and mutual benefit, not just economic interests. The Tribute System was centered on managing asymmetrical economic relations. This experience with unequal economic relationships remains relevant to China’s current economic and diplomatic dealings, particularly with developing countries. As an inherently hierarchical system, the Tribute System is no longer suitable for today’s international relations, making it impossible for China to reinstate a new Tribute System. It is crucial for China to critically assess the old Tribute System and consider the type of international order its new economic statecraft could help establish. In the subsequent chapters that discuss China’s new economic statecraft, we can still identify some distinct traces of the Tribute System, deeply rooted in the teachings of Confucius and Mencius. Notes 1 “The Great Learning” originally was one of the chapters in the “Book of Rites” and is one of the Confucian classics. Regarding the authorship of “The Great Learning,” there are various traditional viewpoints. The most widespread belief is that it
China’s Classic Economic Statecraft 25 was recorded and compiled by Confucius’s disciples and their later followers, but the specific author or editor is uncertain. In later annotations and interpretations, especially within the Neo-Confucianism of the Song and Ming dynasties, Zhu Xi reannotated “The Great Learning” and grouped it with “The Doctrine of the Mean,” “The Analects,” and “Mencius,” collectively known as the “Four Books.” These books became the primary textbooks for scholars studying Confucianism during the Ming and Qing dynasties. 2 The discussion in this paragraph is based on a conversation with OpenAI’s ChatGPT, where ChatGPT provided information and analysis based on its training data. The conversation took place on November 19, 2023. 3 ⟪孟子⟫,⟪尽心章句上⟫“The ‘Exhaustive Discussions’ section in the ‘Mencius’ text.” Mencius, also known by his birth name Meng Ke or Mengzi, was a famous Chinese philosopher who lived during the Warring States period from around 372 to 289 BCE. He is best known as the most famous follower of Confucius and a significant contributor to Confucian philosophy. Mencius expanded and developed Confucius’s ideas, emphasizing the inherent goodness of human nature (renxing) and the importance of nurturing one’s moral qualities and virtues to realize one’s full ethical potential. Mencius traveled from state to state, engaging with rulers and offering advice on governance and leadership based on Confucian principles. He believed that a ruler should be benevolent and virtuous to govern effectively and that the people’s well-being should be a priority. Mencius argued that if a ruler failed to provide for the people and act virtuously, the people had the moral right to overthrow him. His teachings and dialogues were later compiled into a text known as the “ Mencius” or “Mengzi,” which, along with the “Analects” of Confucius, became a central text in Confucian education. Along with Confucius and Xunzi, Mencius is considered one of the three most important Confucian philosophers, and his interpretations of Confucianism have been highly influential in the development of East Asian intellectual thought and moral philosophy. Source: Content derived from a conversation with OpenAI’s ChatGPT, accessed on November 19, 2023. 4 “The noble person is aware of morality, the lesser person is aware of profit.” This statement is from the “Analects of Confucius - Yong Ye” chapter. This implies that noble individuals should be guided by morality, while lesser individuals are guided by profit. 5 Chinese Text Project, “梁惠王上-Liang Hui Wang I”, available at: https://ctext.org/ mengzi/liang-hui-wang-i 6 The emperor of the Ming Dynasty during the Imjin War (1592–1598) was Emperor Wanli. His name was Zhu Yijun, and he was the 13th emperor of the Ming Dynasty, ruling from 1572 to 1620, making him the longest-reigning emperor in the history of the Ming Dynasty. Under his rule, the Ming Dynasty experienced early prosperity, but subsequently also encountered various internal and external difficulties, including the Imjin War with Japan. 7 Yu refers to Yu the Great, a legendary ruler in ancient China famed for his introduction of flood control. Reference List Angus, M. (2007) Development Centre Studies Chinese Economic Performance in the Long Run, 960–2030 AD, Second Edition, Revised and Updated. Paris: OECD Publishing. Zhang, X. T. (2023) New Economic Statecraft: China, the United States and the European Union. Oxford: Taylor & Francis.
DOI: 10.4324/9781003270379-3 This chapter has been made available under a CC-BY-NC-ND 4.0 license. China’s Contemporary Economic Statecraft A Marxist-Developmentalist Synthesis Since the founding of the People’s Republic of China (PRC) in 1949, the Communist Party of China (CPC) has maintained its hold on power, guiding the nation’s economic statecraft with Marxist ideology. However, a closer examination reveals that the situation is not as clear-cut as it might initially appear.WhatwefindabouttheguidingthoughtsofChina’seconomicstatecraft post-1949 is a Marxist-Developmentalist synthesis. Economicstatecraft,bydefinition,involvestheproductionofwealthandits conversion into power. Marxism, on the other hand, aims to achieve social justice through the redistribution of wealth. Thus, when a Marxist party governs a state and engages in statecraft, it faces an inherent dilemma between wealth creation and wealth distribution. In other words, a Marxist state must resolve this dilemma; failure to do so could lead to the downfall of the ruling Marxist party. Ultimately, wealth distribution is unsustainable without wealth creation. ForthefirstdecadeofMaoZedong’sruling,heunderstoodverywellthat China was in a situation of “extremely poor and blank” (“一穷二白”). So, he and his comrades focused on industrialization, agriculture, and improving people’s livelihoods. But he was too hasty in achieving Communism in China. His rash actions, including the “Three-Anti and Five-Anti Campaigns” (“三反五反”), “Great Leap Forward”, (“大跃进”) “Mass Steel Production” (“大炼钢铁”), and the goal to “Surpass the UK and Catch Up with the US” (“赶英超美”), led to catastrophe. Until Deng Xiaoping’s time, Mao’s wrongdoing has been corrected. Deng, as a Marxist, has adopted a pragmatic approach, which is a developmentalist approach. This Marxist-Developmentalist synthesis is central to understanding the long-term rule of China’s CPC. This synthesis alleviates the tensions inherentinMarxism,specificallythedilemmabetweenwealthcreationandwealth redistribution,or,insimplerterms,betweeneconomicefficiencyandsocial justice. For any Marxist party to govern long-term, the key lies in striking a balancebetweenefficiencyandjustice.ThedemiseoftheUSSRwaslargely due to its failure to maintain this balance. Mao’s mistakes were also related to this issue. 2
China’s Contemporary Economic Statecraft 27 China’s developmentalism is a combination of economic liberalism and mercantilism with a strong state. Since the People’s Republic was founded in 1949, Chinese leaders have embraced different guiding thoughts of economic statecraft, ranging from Marxism and mercantilism to economic liberalism (Table 2.1). Inthischapter,wewilldiscussMaoZedong’sMarxisteconomicstatecraft, Deng Xiaoping’s developmentalist economic statecraft, and the continuation ofDeng’sapproachbyJiangZeminandHuJintao. Table 2.1 China’sEconomicStatecraftfromMaoZedongtoXiJinping Political ideology Economic ideology Main tasks Economic statecraft (Wealth-power strategy) Mao Zedong Communist Marxist mixed with China’s traditional way of thinking as a central kingdom Anti-imperialism, independence, selfsufficiency, building a strong state Supporting Communist revolution, developing countries, supporting a new international economic order Deng Xiaoping Communist Developmentalism (leaning toward liberalism) Economic development, building a strong state GATT accession Jiang Zemin Communist Developmentalism (leaning toward liberalism) Economic development, building a strong state, the great rejuvenation of China, “Three Represents” GATT/WTO accession Hu Jintao Communist Developmentalism (Liberalism + light Mercantilism + Socialism) Economic development, building a strong state, great national rejuvenation The Outlook of Scientific Development Emerging strategic industries, selfinnovation (Continued)
34 China’s Modern Economic Statecraft Chairman Mao, and we always unswervingly follow whatever directive of Chairman Mao.” The public introduction of the “Two Whatevers” sparked a major discussion throughout the Party regarding the criterion of truth. On May 11, the “Guangming Daily” published a special commentator’s article titled “Practice is the Sole Criterion for Testing Truth.” The publication of this article immediately sparked heated discussions and had a tremendous impact. This debate over the criterion of truth was not just an ordinaryphilosophicalargument,butafundamentalrectificationofchaos in terms of thought and theory. Deng Xiaoping encouraged and led this debate about the “criterion of truth” and liberated the entire party and people of the nation from the mental shackles of dogmatism and personality cult. This debate also helped reestablish the party’s ideological line of seeking truth from facts, starting from reality in everything, and integrating theory with practice, thus preparing the ideological groundwork for further rectificationofchaos(News of the Communist Party of China, 2023). This debate paved the way for reform and opening-up. Thirdly,onforeignrelations.DuringMaoZedong’stime,despitetensions with the Soviet Union at certain periods, there was still a tendency to unite with socialist countries. During Deng Xiaoping’s time, China paid more attention to economic and diplomatic relations with all countries, including Western countries, and foreign strategies were no longer purely based on ideology. In other words, Mao’s economic statecraft, rooted in Marxist ideology, was practiced along the geopolitical divide of East vs. West. In contrast, Deng Xiaoping’s economic statecraft, prioritizing China’s needs for economic development, extended globally, transcending ideological boundaries. Fourthly,ontheattitudetowardseconomicreform.MaoZedongwasvigilant against capitalist tendencies and the danger of “taking the capitalist road”. Deng Xiaoping believed that some “capitalist” phenomena must be tolerated in the reform, and proposed the view of “letting some people getrichfirst”.DifferentfromMaoZedong,DengXiaopingbelievedthat engaging in theoretical debates would lead to missed opportunities and lost chances for development. Fruitless arguments are of no help; truth can only be tested in practice. We should boldly experiment and try things out, refraining from drawing conclusions prematurely; action should speak for itself. “It doesn’t matter if a cat is black or white; as long as it catches mice, it’s a good cat.” (China News, 2008) During the Cultural Revolution, the metaphor of “yellow cats and black cats” was criticized as “only caring about productivity” and faced condemnation. Around 1976, Mao ZedongspecificallycriticizedDengXiaoping.Maosaid,“Thisperson”— referring to Deng Xiaoping—“does not focus on class struggle; he has never emphasized this key issue. It’s still about the ‘white cat, black cat,’ regardless of whether it’s imperialism or Marxism.” (China News, 2008)
China’s Contemporary Economic Statecraft 35 In summary, Mao Zedong’s Communist beliefs were more focused on ideology and politics, while Deng Xiaoping paid more attention to pragmatism and economic development. If we describe Mao’s economic statecraft as staunchly Marxist, then Deng’s economic statecraft should be characterized as pragmatically developmentalist. When practicing economic statecraft, Deng Xiaoping very much emphasized enhancement and development of China’s national economic strength. Here are some of Deng Xiaoping’s core understandings and policy views on China’s national economic strength: Firstly, supremacy of economic construction. Deng Xiaoping emphasized the importance of China’s national economic construction. He believed that China’s economic strength is the foundation for achieving national prosperity and modernization. He proposed the view that “development is the absolute principle”, emphasizing that economic growth is China’s most urgent task. Secondly, Reform and Opening Up Policy. Deng Xiaoping led China’s reform and opening up policy, one of the core objectives of this policy is to improve China’s economic strength through market-oriented reforms and opening up to the outside world. He introduced a series of reform measures, including the rural land contract system, state-owned enterprise reforms, and foreign investment, to promote rapid economic growth and modernization. Thirdly, “Socialism with Chinese Characteristics”. Deng Xiaoping proposed the concept of “socialism with Chinese characteristics”, emphasizing that China can develop its unique economic path within the framework of socialism. He believed that China could maintain political stability and the socialist system while absorbing international experience and market mechanisms to enhance the country’s economic strength. Fourthly, emphasis on infrastructure construction. Deng Xiaoping believed that infrastructure construction is a key component of national economic strength. He supported investment in transportation, energy, communications, and other infrastructure sectors to support China’s modernization construction and economic growth. Fifthly, international cooperation and opening-up. Deng Xiaoping advocated actively participating in international economic cooperation, absorbing external resources and technology to promote China’s modernization. He encouraged foreign investment and technology introduction, while also advocating the “Five Principles of Peaceful Coexistence” to maintain international peace and stability. In general, Deng Xiaoping’s core views on China’s national economic strength include the supremacy of economic construction, reform and opening
36 China’s Modern Economic Statecraft up, socialism with Chinese characteristics, infrastructure construction, and international cooperation. Under his leadership, China achieved significant economic development, realizing the goals of national prosperity and modernization. These understandings and policy views became the cornerstone of China’s reform, opening up, and economic development. However, we need to understand Deng Xiaoping’s economic statecraft was far from a capitalist one. There was a clear political boundary, which is China’s Communist regime. That is why Deng emphasized the “Four Cardinal Principles”, also known as the “Four Upholds”: (1) Upholding the socialist path; (2) Upholding the dictatorship of the proletariat; (3) Upholding the leadership of the Communist Party; and (4) Upholding Marxism-Leninism andMaoZedongThought.DengXiaoping’seconomicliberalism,operating undertheumbrellaofCommunism,significantlyshapedChina’seconomic statecraft in the ensuing decades. TheseprinciplesholdasignificantpositioninChina’spoliticallifeand are considered the foundation of the theory and practice of socialism with Chinesecharacteristics.Despiteadjustmentsandflexibilityinactualpolicies and economic reforms, these Four Cardinal Principles are still regarded as unshakable guidelines. After a decade of recovery growth, China’s economy began to experiencecyclicalfluctuations.Withtherapiddevelopmentoflightindustries,the number of private enterprises surged, material supplies became increasingly tight, and nationwide prices started to soar uncontrollably. Illegal reselling of materials became rampant, and the reform of the contracting system in stateownedenterprisesneverfullymaterialized,resultinginsubstantialfinancial lossesandheavierfiscalburdens.Tobreakfreefromthispredicament,the central government was forced to increase currency issuance, further acceleratinginflation.Amidstthesecrises,decision-makersacceptedopinionslike those of Wu Jinglian, deciding to take the risk of quickly adjusting prices to be regulated by the market. The failure of this price adjustment in 1988 was one of the most disheartening events in the economic reform history of New Chinaandsignificantly altered China’spathto modernization.Thisfailure caused many reform initiatives that were already on the agenda at that time to bepostponed,withsomeevenbeingindefinitelydelayed.Inacertainsense, the failure to “break through” meant that China missed an opportunity to join the global wave of democratization (Wu, 2013). 2.3 A Continuation of Deng Xiaoping’s Way: Economic Statecraft of Jiang Zemin (1989–2002) Mao and Deng represent two different ways of China’s modern economic statecraft. Mao is largely Marxist, while Deng is much more pragmatic and developmentalist. Both ways feed into their successor leaderships: Jiang Zemin,HuJintao,andXiJinping.
China’s Contemporary Economic Statecraft 37 Following Deng Xiaoping’s retirement, General Secretary and President JiangZeminheldthereignsoftheChinesegovernment.Jiangadheredtothe line of reform and opening to the outside world designed by Deng. In the era of Jiang Zemin, China scored great achievements in economic diplomacy, opening up overseas markets, stabilizing resource supply, and improving the country’s economic cooperation with foreign countries. Jiang Zemin’s era witnessed many significant historical incidents, such as “the June 4th Incident”, the 1997 Southeast Asian Financial Crisis, 1999 NATO bombing of the Chinese Embassy in Yugoslavia, the collision of a US aircraft and a Chinese aircraft over the South China Sea in 2000, and the 9/11 attacks. But President Jiang Zemin strongly believed that despite all these challenges,thefirst20yearsofthe21stcenturywasaperiodofstrategicopportunities for China. It happened that he was right. TheoverarchingphilosophyofJiangZemin’sstatecraftcanbeencapsulatedinhis“ThreeRepresents”thought.JiangZemin’s“ThreeRepresents” thoughtwasproposedintheyear2000.Specifically,hefirstputforwardthe “Three Represents” thought on February 25, 2000, when he explicitly stated during his inspection work in Guangdong Province that the CPC must always represent the development requirements of China’s advanced productive forces, always represent the forward direction of China’s advanced culture, and always represent the fundamental interests of the broadest masses of the Chinese people (Li, 2022). This thought later became one of the guiding ideologies of the CPC. JiangZeminsaid:“Thethoughtofthe‘ThreeRepresents’didnotemerge out of thin air. It is the result of our continuous exploration and development in theory and practice over the past thirteen years”… Especially at the end of the 1980s and the beginning of the 1990s, when serious political turmoil occurred domestically, dramatic changes in Eastern Europe, the disintegration of the Soviet Union, and serious setbacks in world socialism, China’s socialist causefacedunprecedenteddifficultiesandpressures.OurPartyandcountry were at a crucial historical juncture that would determine their future and destiny (Hu, 2016). Guided by his belief in the “strategic opportunity period” and the “Three Represents” thought, Jiang continued to implement economic statecraft in the manner established by Deng Xiaoping. Jiang Zemin’s economic statecraft primarily revolved around the continuation and expansion of the economic reforms that had been initiated by his predecessors, Deng Xiaoping and Hu Yaobang. Jiang’s economic strategies were characterized by several key elements: Firstly, Market-Oriented Reforms. Jiang promoted market-oriented reforms, including the restructuring of state-owned enterprises (SOEs) to improveefficiencyandcompetitiveness.Healsoencouragedthedevelopment of the private sector and foreign direct investment.
38 China’s Modern Economic Statecraft Secondly, “Three Represents”. Jiang’s “Three Represents” theory emphasized that the Communist Party should represent the development trend of China’s advanced productive forces, the orientation of China’s advanced culture, and the fundamental interests of the overwhelming majority of the Chinese people. This also had economic implications, emphasizing the role of entrepreneurs and technological advancements in China’s development.DuringJiangZemin’sera,capitalistscouldalsojointheParty.This referstothesignificantpolicyshiftmadebytheCommunistPartyofChina (CPC) under Jiang Zemin’s leadership to allow private entrepreneurs (capitalists)tobecomePartymembers.Thischangeinpolicyreflectedthe Party’s adaptation to the evolving economic structure of China, especially against the backdrop of the advancing reform and opening-up policies. In traditional communist theory, capitalists were considered a class antagonistic to socialism. However, under Jiang’s leadership, the CPC gradually recognized that with the development of the market economy, private entrepreneurs had become an important force in China’s economic growth. Therefore, to better facilitate national economic development, the Party began to admit private entrepreneurs as its members. Thirdly, “Going Out” Strategy. Jiang promoted the “Going Out” strategy, encouraging Chinese enterprises to invest overseas, seek international cooperation, and explore global markets. Fourthly, engagement with global economy. Jiang encouraged China’s participation in global economic institutions and frameworks, paving the way for China’s accession to the World Trade Organization (WTO) in 2001. His leadership was crucial in negotiating and facilitating China’s integration into the global economic system. Fifthly, development of Western China. Jiang initiated strategies like the “Go West” policy, aimed at reducing regional disparities by promoting economic development in western and central provinces. Sixthly,promotionofaSocialistMarketEconomy.Jiangworkedondefining and promoting the concept of a “socialist market economy,” blending elements of socialism with market economy principles. Jiang saw this as one of his biggest achievements in statecraft. Jiang Zemin’s economic statecraft was about strategically employing economic resources and policies to facilitate China’s comprehensive development,globaleconomicintegration,andenhancingChina’sinfluenceand competitiveness on the world stage. His leadership was instrumental in shaping China’s economic trajectory in the global landscape and laying the foundations for its subsequent rapid economic rise.
China’s Contemporary Economic Statecraft 39 However, Jiang Zemin’s economic statecraft faced several major challengesduringhistenureasChina’sleader.Someofthemostsignificantchallenges included: Firstly, State-Owned Enterprises (SOEs) Reform. Reforming SOEs to improveefficiencyandcompetitivenesswhilemanagingunemploymentand social instability that might arise due to layoffs and restructuring was a major challenge. Secondly, Regional Disparities. Addressing regional disparities in economic development, especially between the more developed coastal regions and the less developed western and central regions, was a persistent issue. Thirdly,financialsectorvulnerabilities.TheChinesebankingandfinancial sectors faced issues like non-performing loans and required substantial reforms to improve their resilience and modernization. Fourthly, legal and regulatory frameworks. Building robust legal and regulatory frameworks to support a market-oriented economy, protect property rights, and facilitate foreign investment and business operations was essential. Fifthly, managing economic growth with social stability. Ensuring that economic reforms and growth did not lead to excessive social inequality or instability was crucial. Managing the social impacts of rapid economic changes, such as unemployment and labor mobility, required careful consideration. Sixthly, global economic integration. Navigating China’s accession to the World Trade Organization (WTO) and managing the implications of deeper global economic integration, such as increased competition and exposuretoglobalmarketfluctuations,weresignificantchallenges. Seventhly, environmental sustainability. Managing the environmental impacts of rapid industrialization and economic growth, and promoting sustainable development practices was a growing concern. Eighthly, innovation and technology. Promoting technological innovation and upgrading industries to move up the global value chain and reduce dependency on low-value-added manufacturing was a strategic challenge. Ninthly, corruption and governance. Combating corruption and improving governanceandbureaucraticefficiencieswithinthepartyandgovernment apparatus were also continuous challenges. Each of these challenges required strategic policy responses and governance adaptations. Jiang’s economic statecraft was characterized by navigating
40 China’s Modern Economic Statecraft through these complexities to maintain a trajectory of rapid economic development and reform while ensuring social stability and resilience against global economic uncertainties. After the 1990s, a subtle shift in China’s economic policy objectives occurred: the goal for the previous decade was economic recovery and solving theproblemofinsufficientproductioncapacity,thusindulgingtheprivatesector.Everythingbeneficialtoimprovingproductivitywasencouraged,evenif it crossed legal boundaries, it was tolerated. After this period, the objective changed, shifting toward strengthening the leadership ability of the ruling group,enhancingcontrol,andobtaininggreaterbenefitsindevelopment.Consequently, the central government reclaimed powers from local authorities, andthegovernmentcompetedwiththeprivatesectorforbenefits,markinga return to authoritarianism (Wu, 2013). Starting in 1994, the implementation of atax-sharingsystemhadasignificantimpactonChina’seconomiclandscape thereafter.In1994,thecentralgovernment’sfiscalrevenuesurgedby200% compared to the previous year. The most important outcome of this was that thecentralgovernmentregainedtheinitiativeineconomicpowerandbenefit distribution (Wu, 2013). Gradually, Jiang’s economic statecraft is assuming an increasingly salient developmentalist characteristic, with the central government playing a bigger role. There is a clear shift toward state intervention. 2.4 A Continuation of Deng Xiaoping’s Way: Economic Statecraft of Hu Jintao (2002–2012) InheritedfromDengXiaopingandJiangZemin,HuJintaocontinuedChina’s developmentalist economic statecraft. Hu’s economic statecraft is theorized asthe“ScientificDevelopment”philosophy. The outbreak of Severe Acute Respiratory Syndrome (SARS)3 in 2003 was closelyrelatedtotheproposalofthe“ScientificDevelopment”Concept.The ScientificDevelopmentConcept,proposedin2003,wasthefirstmajorchallengefacedbyHuJintaoaftertakingofficeandhadasignificantimpactonthe formationofhisthoughtsonscientificdevelopment. The outbreak and spread of SARS exposed new contradictions and problems in China after a phase of rapid economic development, such as uncoordinated development, lagging public health development, and an inadequate emergency response mechanism. This prompted the CPC Central Committee to deeply ponder over the development issues of China under the new situation. The major theoretical and practical question of “what kind of development to achieve and how to develop” was historically placed before the Chinese Communists. At the end of August and the beginning of September 2003, during hisinspectioninJiangxi,HuJintaoproposedtheconceptoftheScientific
China’s Contemporary Economic Statecraft 41 Development Concept, emphasizing the need to firmly establish a scientific view of coordinated, comprehensive, and sustainable development. In October, the Third Plenary Session of the 16th CPC Central Committee firstformallyputforwardtheScientificDevelopmentConceptintheParty’s officialdocument,stressing“adherencetopeople-orientedprinciples,establishing a comprehensive, coordinated, and sustainable view of development, and promoting the comprehensive development of the economy, society, and people”. On March 10, 2004, Hu Jintao made a comprehensive explanation of the scientificconnotation, basic requirements,andguiding significance ofthe Scientific Development Concept at the Central Population Resources and Environment Work Symposium. He pointed out that adhering to peopleoriented principles means aiming for the comprehensive development of people, seeking and promoting development based on the fundamental interests of the people, continuously meeting the growing material and cultural needs of the people, effectively safeguarding the economic, political, and cultural rights and interests of the people, and allowing the fruits of developmenttobenefit allthepeople.Comprehensive development means centering on economic construction, comprehensively advancing the construction of the economy, politics, and culture, and achieving economic development and overall social progress. Coordinated development means coordinating urban and rural development, regional development, economic and social development, harmonious development between man and nature, coordinating domestic development and opening up to the outside world, promoting the coordination between productive forces and production relations, and the economic base and the superstructure, and coordinating all aspects of economic, political, and cultural construction. Sustainable development means promoting harmony between man and nature, achieving coordination between economic development, and population, resources, and environment, adheringtothecivilizeddevelopmentpathofproductivedevelopment,affluent life, and good ecology, and ensuring sustainable development from generation to generation (Editorial Team of A Brief History of the Communist Party of China, 2021). IfwecompareJiangZeminandHuJintao,wecanobservesomedifferences in their understanding and practice of statecraft. Below are some of the major differences: Firstly, different focus on development. During Jiang’s tenure, Chinese policies emphasized economic construction and national economic modernization, pursuing enhanced national economic strength, with a focus on economic growth. In contrast, Hu Jintao placed more emphasis on social fairness and improving people’s livelihoods, proposing the concept of “building and sharing together,” focusing on social issues, ensuring that all people could share the growth results of national wealth.
42 China’s Modern Economic Statecraft Secondly,emphasisonsustainabledevelopment.AlthoughJiangZemin also paid attention to environmental issues, he relatively less emphasized environmental protection and ecological civilization, focusing more on economic construction. In contrast, Hu emphasized the importance of environmental protection and sustainable development, proposing the concept of building an ecological civilization and adopting a series of policies to promote environmental protection and sustainable development. Thirdly, handling political systems and social issues: During Jiang’s tenure, there was relatively more emphasis on political stability and social control, adopting relatively stringent measures on some social issues to maintain national stability. Hu, instead, advocated social harmony, paid more attention to handling social issues, adopted a series of policies to reduce poverty, improve education and medical levels, emphasizing social fairness and improving people’s livelihoods. Insummary,theerasofDengXiaopingandJiangZeminfocusedmoreon economic growth and the accumulation of economic strength, while the eras of Hu Jintao and Xi Jinping focused more on the transformation of economic strength. Hu Jintao emphasized the transformation of economic strength toward domestic aspects such as social harmony and environmental protection, while Xi Jinping focused on both domestic and international transformations, such as the external “Belt and Road Initiative” and the domestic “Three-Year Poverty Alleviation” and “Common Prosperity”. In many aspects, Hu Jintao’s approach lies somewhere between that of Deng Xiaoping and Xi Jinping. Once Xi Jinping assumed power, he began to implement a Marxist-Developmentalist synthesis in his approach to economic statecraft. Notes 1 Key characteristics and goals of developmentalism include: 1 Economic Growth and Development: The primary objective is to achieve rapid andsustainableeconomicgrowth.Thisofteninvolvessignificantinvestmentin infrastructure, industry, and technology to modernize the economy. 2 State-Led Initiatives: Governments play a proactive role in guiding the economy. This can include strategic planning, directing investment in key sectors, and sometimes directly managing certain industries or resources. 3 Industrialization: A major focus is often on developing a strong industrial base. This can involve moving away from an economy based primarily on agriculture orrawmaterialexportstoonethatismorediversifiedandindustrialized. 4 Protectionism and Trade Policy: Developmentalism may involve protecting nascent industries through tariffs and other trade barriers until they are competitiveinternationally.However,thisaspectcanvarydependingonthespecific strategies of a country.
China’s Contemporary Economic Statecraft 43 5 Improving Living Standards: Alongside economic growth, there’s often an emphasis on improving the general living standards of the population, including reducing poverty and increasing access to education and healthcare. In contrast to more laissez-faire or market-driven economic models, developmentalism relies on active government intervention and strategic planning to steer national economic development. This approach has been particularly prevalent in many East Asian economies, like South Korea and Taiwan, especially in the post-World War II era. The above discussion is based on a conversation with OpenAI’s ChatGPT, where ChatGPT provided information and analysis based on its training data. The conversation took place on November 24, 2023. 2 The “Two Newspapers and One Magazine” refers to two newspapers and one magazineinMainlandChinathatwerethemostauthoritativeandinfluentialduringand for a period after the Cultural Revolution. These three media outlets typically refer to the People’s Daily (⟪人民日报⟫), the PLA Daily (⟪解放军报⟫), and the Red Flag magazine (later renamed “Seeking Truth” or⟪求是⟫). 3 The outbreak of SARS occurred toward the end of 2002 and into 2003. This epidemicwasfirstidentifiedinNovember2002inGuangdongProvince,China.Itthen rapidly spread globally, particularly peaking in the spring of 2003. By July 2003, the World Health Organization (WHO) declared that the SARS epidemic was largely contained. Reference List Angus, M. (2007) Development Centre Studies Chinese Economic Performance in the Long Run, 960–2030 AD, Second Edition, Revised and Updated. Paris: OECD Publishing. Bottelier, P. (2018) Economic Policy Making in China (1949–2016): The Role of Economists. London: Routledge. China News. (2008) The Backstory of Deng Xiaoping’s ‘Black Cat, White Cat Theory’: Originally a Sichuan Colloquialism [China News] 17 December. Available at: http:// www.chinanews.com.cn/cul/news/2008/12-17/1490780.shtml Editorial Team of a Brief History of the Communist Party of China. (2021). A Brief History of the Communist Party of China. Beijing: People’s Publishing House. Available at: https://article.xuexi.cn/articles/pdf/index.html?art_id=165724132929 65867289&study_style_id=feeds_wm_list&pid=25525014109442846&ptype=75& source=share&share_to=wx_single Editorial Team of the Economic History of China. (2019) Economic History of China. Beijing: Higher Education Press. Hu, J. T. (2016) “Speech at a Presentation on the Study of Selected Works of Jiang Zemin”,Selected Works of Hu Jintao. Beijing: People’s Publishing House. Li, Q. G. (2022) How Did the Important Thought of Three Represents Come into Being? [Study Times] 2 December. Mao,Z.D. (1977) Selected Works of Mao Zedong (Volume 5). Beijing: People’s Publishing House. Mao,Z.D. (2002) “Don’t Strike Out on All Sides”, Selected Works of Mao Zedong. Beijing: CPC Central Party School Publishing House. National Bureau of Statistics. (1979) Summary of National Economic Statistics for the 30 Years after the Founding of the People’s Republic of China (1949–1978).
50 China’s Modern Economic Statecraft China’s inability to define for itself a leading position in the global economy is further illustrated, from the Chinese perspective, by its failure thus far to achieve so-called Market Economy Status (MES). China believed that the MES should be granted without objection 15 years after China’s accession to the WTO, which occurred in 2001. The United States and the EU, at least until now, seem to believe otherwise (Gary and Cathleen, 2015). In July 2008, the World Trade Organization’s Doha Round of negotiations, involving a small group of ministers, ended once again without any results. The global trade sector was immersed in extreme disappointment. During the meeting where Pascal Lamy announced the breakdown of the negotiations, the EU’s Commissioner for agriculture was choked up several times while speaking (Chai, 2015). The failure of the 2008 WTO Ministerial meeting also served as a wake-up call for Chen Deming, the Chinese Minister of Commerce. He delved deeper into these reflections in his book “Economic Crisis and Rule Reconstruction” (Chen, 2014). As a key policy figure under Hu Jintao’s leadership, Chen believed in the necessity of reforming the existing rules of the global economic system. Secondly on finance. Finance is the second origin of the Chinese perspective on economic statecraft. For example, in 2009 during the peak of the financial crisis, the Chinese central bank governor Zhou Xiaochuan wrote an article titled “Reform the International Monetary System”, proposing for a “super-sovereign international reserve currency”, which reflected China’s aspirations and dissatisfaction with the US dollar hegemony (Zhou, 2009). For Zhou Xiaochuan, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The outbreak of the Global Financial Crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system. Zhou believes that the desirable goal of reforming the international monetary system is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies (Zhou, 2009). Zhou proposed replacing the US dollar with a super-sovereign international reserve currency as the world’s reserve currency. He suggested that Keynes’s “Bancor”, introduced during the Bretton Woods Conference, was a more farsighted concept. This foresight, according to Zhou, is evidenced by the collapse of the Bretton Woods system, which relied on the approach proposed by Harry White (Zhou, 2009). Amidst the financial crisis, Zhou Xiaochuan’s article sent shockwaves around the world and was widely regarded as China’s first open challenge
Hu Jintao’s Time 51 to the international status of the US dollar (Drezner, 2009). It also marked a significant debut for China on the international financial diplomacy stage, representing the first time China systematically expressed its dissatisfaction with the existing international financial order. In fact, just days before Zhou Xiaochuan’s article was published, Russia had already put forward a similar proposition. However, there was no international response to Russia’s suggestion until Zhou Xiaochuan made his proposal, at which point the international community reacted as if a pot of oil had exploded. Zhou Xiaochuan’s article received positive responses from emerging countries such as Russia, Brazil, India, Argentina, and Indonesia, demonstrating the appeal of China’s financial diplomacy (Li, 2015). Furthermore, to acknowledge the significance of China’s financial power, France, the rotating president of the G20 summit in 2011, specifically hosted a seminar on “Reforming the International Monetary System” in Nanjing, China. This seminar gathered finance ministers, central bank governors from the G20 and related countries, representatives of international organizations, and key scholars in the fields of international economics and currency. However, China’s financial diplomacy in reforming the international monetary system has achieved very limited success. Most Western countries have expressed opposition to China’s suggestion to switch reserve currencies. The United States reacted swiftly and strongly, with President Obama responding promptly to Zhou Xiaochuan’s suggestion by stating that there is no need to create a new global currency. Although the European Union supports a greater role for emerging countries, it is less enthusiastic about changing the reserve currency. Joaquín Almunia, the EU Commissioner for Economic and Monetary Affairs, said in an interview that he did not see a significant structural change in the dollar’s role as a major reserve currency today. After a meeting at the European Commission, Almunia remarked, “Everyone believes that the current global reserve currency, the dollar, is still here and will remain so for a long time”. Australian Prime Minister Kevin Rudd also expressed a similar sentiment during his visit to the United States, stating in Washington that the dollar’s status as a reserve currency is indisputable (Jiemian News, 2009). As a result, the US dollar remains the world’s dominant reserve currency. Third, on energy, China is deeply and increasingly concerned about potential disruptions to its sea lanes of economic supply, especially the narrow passage of the Malacca Strait, which from Beijing’s perspective could be easily blockaded to the detriment of China’s economic development and security. Accordingly, China is seeking to lock up sources of supply and create alternate routes of delivery that require its innovative use of channels of investment not beholden to the West (Zhang and Keith, 2017). From 2002 to 2012, the most notable achievement in Sino-Russian energy diplomacy was the completion of the China-Russia crude oil pipeline. This pipeline is part of the “East Siberia-Pacific Ocean Pipeline” system, aimed at exporting Russian crude oil to the Asia-Pacific market.
52 China’s Modern Economic Statecraft Negotiations for the China-Russia crude oil pipeline began in 1997 but progressed slowly due to various reasons. In 2009, China and Russia signed an agreement in which China provided a $25 billion loan to Russia. In exchange, starting from 2011, China would import 15 million tons of oil annually from Russia over a 20-year period. As part of this agreement, it was decided to lay a pipeline from Skovorodino in Russia to Daqing in China. This pipeline was completed on September 27, 2010. Since January 1, 2011, it has been transporting 300,000 barrels of oil per day. This is known as the “loan-for-oil” project. Between 2002 and 2012, the most prominent achievement in China’s energy diplomacy with Central Asia was the construction of the China-Central Asia natural gas pipeline. The initial intention behind building the ChinaCentral Asia natural gas pipeline was to extend the existing China-Kazakhstan oil pipeline. The actual construction of the natural gas pipeline has provided China with a steady supply of natural gas and has spurred economic development in Central Asian countries. Its significance for China and the Central Asian countries is similar to that of the China-Russia crude oil pipeline project (Wu, 2015). Fourth, on technology, China has become even more deeply frustrated with the persistent arms embargo and export controls of dual-use products imposed by the Western world. Some of these measures date from normalization and have evolved; that evolution was affected by the “Tiananmen Incident” on June 4, 1989 (Zhang and Keith, 2017). In response, China started to implement the Innovation-Driven Development Strategy (IDDS) in 2006. The IDDS is built around the idea that a very specific wave of technological change is beginning. The configuration of this wave of technological change thus gives increasingly a definite form to policy. It also means that, in the IDDS, the opportunity to move directly to the technological frontier and surpass other economies is no longer a wished-for feature of a few random sectors but rather a fundamental feature of the current global moment. Increasingly, Chinese industrial policy is based on the idea that China has a once-in-a-lifetime opportunity to get in on the ground floor of a technological revolution and vault into the leading ranks of economic and technological powers (Naughton, 2021). In summary, Hu Jintao’s economic statecraft yielded mixed results. While there were successes, most achievements were only partially realized, whether in the realm of WTO leadership or in efforts to reform the international monetary system. Hu Jintao’s tenure witnessed China’s rapid economic ascent. However, this period was also marked by a significant dilemma: despite growing economic strengths, China faced an increasingly challenging international environment, characterized by heightened pushback and skepticism about its global role. This predicament significantly shaped the economic statecraft of both Hu Jintao and his successor. In response, Hu initiated economic statecraft
Hu Jintao’s Time 53 initiatives focused on reforming global economic governance, leveraging China’s burgeoning economic capabilities. However, these efforts were far from complete, leading to frustration among Chinese policy elites and setting the stage for Xi Jinping’s new approach to economic statecraft. Reference List Chai, X. L. (2015) “the WTO”, in Zhang, X. T. and Wang, H. Y., co-eds, Chinese Economic Diplomacy: The PRC’s Growing International Influence in the 21st Century. London: ACA Publishing Ltd. Chen, D. M. (2014) The Economic Crisis and the Restructuring of Rules. Beijing: The Commercial Press. China Government Website. (2009) Premier Wen Jiabao Attended the World Economic Forum Annual Meeting and Delivered a Special Speech. 29 January. Available at: https://www.gov.cn/ldhd/2009-01/29/content_1216758.htm Drezner, D. W. (2009) “Bad Debts: Assessing China’s Financial Influence in Great Power Politics”, International Security. 34(2), p. 39. Gary, C. H., and Cathleen, C. (2015) Looming US-China Trade Battles?: Market Economy Status [Part II] 9 March, Peterson Institute. Available at: https://piie. com/blogs/trade-investment-policy-watch/looming-us-china-trade-battles-marketeconomy-status-part-ii. Hu, J. T. (2016a) “Accurately Grasp the New Characteristics of World Economic Development: Speech at the Central Economic Work Conference”, Selected Works of Hu Jintao (Volume 3). Beijing: People’s Publishing House. Hu, J. T. (2016b) “Accurately Grasp the Profound Connotation and Basic Requirements of the Scientific Outlook on Development – Speech at the Central Symposium on Population, Resources and Environment Work”, Selected Works of Hu Jintao (Volume 2). Beijing: People’s Publishing House. Hu, J. T. (2016c) “Be Prepared for Difficult Situations”, Selected Works of Hu Jintao (Volume 3). Beijing: People’s Publishing House. Hu, J. T. (2016d) “Coordinating the Two Overall Situations at Home and Abroad: Speech at the 11th Meeting of Diplomatic Envoys Abroad”, Selected Works of Hu Jintao (Volume 3). Beijing: People’s Publishing House. Jiemian News. (2009) Zhou Xiaochuan’s ‘Super-sovereign’ Currency is Opposed by the West [in Chinese] 30 March. Available at: https://finance.sina.cn/sa/2009-03-30/ detail-ikknscsi7080896.d.html?from=wap Li, W. (2015) “Fiscal and Financial Diplomacy”, in Zhang, X. T. and Wang, H. Y., coeds, Chinese Economic Diplomacy: The PRC’s Growing International Influence in the 21st Century. London: ACA Publishing Ltd. Naughton, B. (2021) The Rise of China’s Industrial Policy, 1978 to 2020. Mexico City: Universidad Nacional Autónoma de México. Paulson, H. M. J. (2016) Dealing with China: An Insider Unmasks the New Economic Superpower (in Chinese). Translated by Wang, Y. G., Zhu, Y., Zhu, Q. W., and Wang, H. Hongkong: The Chinese University Press. Phoenix Info, (2016) Is the WTO Still Useful? The First Chinese Ambassador Explains How China Managed to be Part of the Core Decision-Making [in Chinese] 11 December. Available at: http://www.ccg.org.cn/archives/30254
54 China’s Modern Economic Statecraft Wu, J. (2015) “Energy Diplomacy”, in Zhang, X. T. and Wang, H. Y., co-eds, Chinese Economic Diplomacy: The PRC’s Growing International Influence in the 21st Century. London: ACA Publishing Ltd. Zhang, X. T., and Keith, J. (2017) “From Wealth to Power: China’s New Economic Statecraft”. The Washington Quarterly [Spring], p. 189. Zhou, X. C. (2009) Reflections on the Reform of International Monetary System [in Chinese], People’s Bank of China, 23 March. Available at: http://www.pbc.gov.cn/ hanglingdao/128697/128719/128772/825742/index.html.
DOI: 10.4324/9781003270379-5 This chapter has been made available under a CC-BY-NC-ND 4.0 license. Xi Jinping’s New Economic Statecraft (2012–2017) Marxist-Developmentalist Synthesis Based on Confucius-Mencius Philosophy 4 President Xi Jinping has championed China’s new economic statecraft, exemplified by numerous ambitious projects such as the Belt and Road Initiative (BRI), the Asian Infrastructure Investment Bank (AIIB), Bilateral Investment Treaties (BITs) with the EU and the USA, and the Regional Comprehensive Economic Partnership (RCEP). Xi is the first Chinese leader since Mao Zedong to actively seek to transform China’s accumulated national wealth into a prominent position on the world stage. He had strong motivations to do that. After assuming office, Xi Jinping faced significant responsibilities, with the accumulated issues from previous generations of leaders weighing on him alone. He is dedicated to addressing a series of governance problems in China that have persisted since the era of Deng Xiaoping. Xi’s worldview is rooted in a fearless, Marxist perspective. Alongside his Politburo colleagues, including the new Premier Li Keqiang and Vice Premier Wang Yang, he sought transformative changes. Under Xi’s leadership, Li Keqiang’s landmark initiative was the establishment of the Free Trade Zones (FTZs) and the supply-side structural reform. Vice Premier Wang Yang notably contributed to this direction by playing a key role in negotiating the Bilateral Investment Treaty with the United States. During Xi’s first term (2012–2017), there appeared to be a consensus within the Communist Party of China (CPC) toward further reform and opening-up. In other words, within the CPC’s Marxist political ideological framework, economic liberalism remained a vibrant force. For Xi Jinping, he had a higher political pursuit – to achieve China’s Great Rejuvenation. On November 29, 2012, shortly after the closing of the 18th National Congress of the CPC, Xi Jinping, along with members of the Politburo Standing Committee including Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Liu Yunshan, Wang Qishan, and Zhang Gaoli, visited the “Road to Revival” exhibition at the National Museum. Through this exhibition, they reviewed the arduous journey of the Chinese nation since modern times and emphasized the historical mission of realizing the great rejuvenation of the Chinese nation and the Chinese Dream.
56 China’s Modern Economic Statecraft When Xi Jinping introduced a new type of economic statecraft with the BRI, he drew upon two sources that he critiqued: the ancient Chinese Confucius-Mencius philosophy coupled with the Tribute System, and the more contemporary American Marshall Plan. The former has been a part of Chinese culture for over two millennia, while the latter represents a relatively recent development. Both sources were inspirational yet problematic. For Xi and his colleagues, critically evaluating both the Tribute System and the Marshall Plan was essential in shaping China’s newly emerging economic statecraft (CGTN, 2019). To pursue China’s Great Rejuvenation, Xi started to implement the “MajorCountry Diplomacy” with Chinese characteristics (“中国特色大国 外交”). In 2014, Xi Jinping first proposed at the Central Foreign Affairs Work Conference that China must have its own characteristic major-country diplomacy, which should embody distinctive Chinese features, Chinese style, and Chinese grandeur in its foreign affairs work. In 2017, Xi explicitly stated in the report of the 19th National Congress of the Communist Party the need to “comprehensively advance China’s characteristic major-country diplomacy”, and incorporated it into the guiding ideology and strategic deployment for adhering to and developing socialism with Chinese characteristics in the new era (Wang, 2022). Within the framework of China’s Major-Country Diplomacy, 2013, marked a new beginning for China’s economic statecraft. For over 30 years since 1978, China’s diplomacy has primarily served economic development. However, with the rapidly evolving global context and China’s more proactive role in international affairs, the nation has increasingly utilized economic statecraft to transform its national wealth into global influence. Since Xi’s new leadership took office, China has implemented a series of major economic diplomacy initiatives, such as the “BRI”, “Two Corridors and Two Banks”,1 “High-speed Rail Diplomacy”,2 and “Nuclear Energy Diplomacy”.3 Each of these initiatives involves major financial commitments and covers multiple countries and regions (see Table 4.1 for details). Economic diplomacy is becoming an increasingly important tool for China to achieve its great power ambitions. In 2010, China’s GDP surpassed that of Japan, making it the world’s secondlargest economy. China has become a major economic power with global influence. The development of China is not only that of a large-scale country but also that of a developing country. For Chinese policy elites, how to better transform the comprehensive strength of a major country into its diplomatic capabilities has become a significant issue that concerns both the nation’s destiny and the fate of humanity (Wang, 2017). China’s peaceful development faces a series of dilemmas. First is the security dilemma: China needs peaceful development, but national security is challenged by issues of sovereignty and territorial disputes, including the South China Sea dispute, the East China Sea dispute, and the India-China
Xi Jinping’s New Economic Statecraft (2012–2017) 57 Table 4.1 List of regions, sectors, and financial commitments covered by China’s new economic diplomacy initiatives Belt and Road Two corridors and two banks High-speed rail diplomacy Nuclear energy diplomacy Countries and Regions Covered The Silk Road Economic Belt mainly involves Central Asia, West Asia, and Central and Eastern Europe, including countries such as Russia, Kazakhstan, Russia, Iran, and Saudi Arabia. The 21st-century Maritime Silk Road mainly involves Southeast Asia, South Asia, West Asia, and North Africa, with involvement from Indonesia, Thailand, Bangladesh, India, Pakistan, Oman, Kenya, and Egypt. The Bangladesh-China-India-Myanmar (BCIM) Economic Corridor mainly involves South Asia, including India, Myanmar, and Bangladesh. The China-Pakistan Economic Corridor (CPEC) mainly involves Pakistan. The Asian Infrastructure Investment Bank (AIIB) is primarily for Asia, focusing on developing countries in the continent. The New Development Bank (NDB) supports infrastructure construction in member and related countries and the expansion of overseas interests; it has set up a Contingency Reserve Arrangement (CRA) to provide assistance funding to members in the event of financial emergencies, such as capital flight or debt crises. China’s “high-speed rail diplomacy” covers East Asia, South Asia, Southeast Asia, Central Asia, West Asia, Central and Eastern Europe, the Americas, and Africa, including Russia, the United States, the United Kingdom, Brazil, Venezuela, Vietnam, Myanmar, India, Pakistan, Iran, Thailand, Turkey, Saudi Arabia, Kenya, and certain Central and Eastern European countries. China’s “nuclear energy diplomacy” covers Europe and North America, including the United States, France, the United Kingdom, and Romania. Sectors Energy, finance, investment, trade, communications, transportation, agriculture Critical projects, infrastructure, energy and resources, agriculture and water resources, and information and communication Transportation Energy Source: Made by the author.
58 China’s Modern Economic Statecraft border dispute. Second is the development dilemma: China’s domestic economy needs upgrading and rejuvenation due to insufficient economic driving forces, yet China also faces the task of safeguarding its expanding overseas interests. While China’s domestic economic growth is slowing down and its economic development model is in a transitional and challenging phase, it urgently needs to rely on its economic strength to provide material support for expanding international influence. These issues constitute the twin dilemmas of security and development for China, leading to contradictions between the deepening global interdependence and China’s need to strengthen strategic autonomy, and between China’s narrative of “major country responsibilities” and its status and power as a developing country. Resolving these two major dilemmas is necessary (Wang, 2017). 4.1 Xi Jinping’s New Economic Statecraft (2012–2017): Marxist-Developmentalist Synthesis Based on Confucius-Mencius Philosophy Xi Jinping’s economic statecraft is largely a synthesis of the developmentalist and Marxist approaches, combined with China’s classic Confucian philosophy. To a large extent, Xi Jinping’s economic statecraft combines the approaches of Mao Zedong and Deng Xiaoping. 4.1.1 Xi Jinping’s Developmentalist Approach to Economic Statecraft Unlike America, China’s economic statecraft has traditionally been developmentalist. Even during Xi Jinping’s tenure, the focus of China’s economic statecraft remains heavily on economic development. In other words, in China’s approach to economic statecraft, power is utilized to generate wealth, and wealth is leveraged to increase power. This creates a continuous dialectic interaction between wealth and power. Against this background, Xi Jinping proposed the BRI. He pointed out that the construction of the “Belt and Road” is a major strategic move for China to expand its opening-up to the outside world and is the top-level design of its economic diplomacy. It serves as the master plan for China’s external openingup and cooperation for a considerable period in the future, and it is also China’s proactive approach in promoting the reform of the global governance system (Zhong, 2017). Originally envisioned as summit deliverables during his visits to Kazakhstan and Indonesia, Xi Jinping rapidly transformed the BRI into the most significant economic statecraft initiative of his tenure. The BRI was evidently President Xi’s favored project. It had not existed on any think tank’s desk, nor was it mentioned. Even in a significant policy speech delivered by
Xi Jinping’s New Economic Statecraft (2012–2017) 59 then-Foreign Minister Wang Yi in June 2013, this concept was absent (Wang, 2013a). It is said that President Xi greatly enjoyed his trip to Kazakhstan and was impressed by the enthusiasm in Kazakhstan for his idea of the Silk Road Economic Belt. The BRI has a dual purpose. On one hand, it aims to foster domestic economic growth. On the other hand, it is designed to convert China’s economic strengths into global influence. These two purposes reinforce each other. The Chinese policy elites are fully aware that China’s weight in the world economy and global governance has risen rapidly, but the issue of being a large yet not strong economy remains prominent. The transformation of China’s economic strength into international institutional power still requires strenuous effort. China’s opening-up has entered a more balanced stage of both bringing in and going out, but the systems and forces supporting high-level opening-up and large-scale outward expansion still appear weak (Publicity Department of the Communist Party of China, 2016, p. 135). To establish an open development concept, it is necessary to conform to the trend of China’s economy deeply integrating into the world economy. This involves pursuing a mutually beneficial and win-win open strategy, maintaining a balance between domestic and foreign demands, balancing imports and exports, giving equal importance to both attracting investment and going global, and concurrently focusing on attracting capital, technology, and intelligence. It’s about developing a higher-level open economy, actively participating in global economic governance and the provision of public goods, enhancing China’s institutional say in global economic governance, and building a broad community of shared interests (Publicity Department of the Communist Party of China, 2016, pp. 135–136). So, the first characteristic of Xi Jinping’s economic statecraft is developmentalism. In many ways, Xi’s economic statecraft, particularly during his first term (2012–2017), represents a continuation of the developmentalism that began in China with Deng Xiaoping. Xi Jinping’s developmentalist economic statecraft is linked to the state of the domestic economy. China’s economic growth – based on fixed asset investment, the main engine of wealth creation – has decelerated since 2014 and entered into a “new normal”, to use a popular term. This new phase represents a downshifting from a high-speed growth pattern of 1992–2012 toward a sustainable, midto high-speed growth rate with higher efficiency and lower costs. There is considerable debate about the degree to which China can succeed in this economic restructuring. The economic slowdown has spurred China’s ambitious agenda of economic statecraft and posed main challenges, which significantly constrain the translation of China’s wealth into power and global influence (Zhang and Keith, 2017). This is why President Xi and his colleagues vigorously promoted economic statecraft projects like the BRI to enhance the conversion of wealth into power. In many ways, the economic slowdown and overcapacity spurred Chinese leaders to develop innovative
66 China’s Modern Economic Statecraft During his meeting with Obama at the Annenberg Retreat in Sunnylands, California, in 2013, Xi Jinping and Obama agreed to establish a new type of major-country relationship. Xi Jinping believed that the essential question facing US-China relations is whether and how to overcome the so-called “Thucydides Trap”, the inevitable confrontation between a rising power and an established one. The new type of major-country relationship fit well with Xi Jinping’s major-country diplomatic vision and helped to maintain the overall stability of the US-China relationship during Xi’s first term. As a matter of fact, as early as in February 2012, the then Vice President Xi Jinping, during his visit to the United States, had already proposed that China and the United States should embark on a new path of major-country relations. In March 2012, during the fourth round of the China-US Strategic and Economic Dialogue, the Chinese side focused on explaining its policy concepts and comprehensive propositions for constructing a new model of majorcountry relations between China and the United States (Dai, 2016, p. 172). Dai Bingguo, the former State Councilor in charge of foreign relations under Hu Jintao’s leadership, stated in his memoire that, in fact, “new model of major-country relations” is not a new term; since the first round of the ChinaUS Strategic Dialogue (in 2009), both sides have been progressively exploring in-depth how to avoid conflict and confrontation, and jointly work toward developing a new model of major-country relations characterized by mutual respect and win-win cooperation (Dai, 2016, pp. 172–173). The consensus between Obama and Xi on developing a new model of major-country relationship was significant for Xi’s first term, as it largely stabilized China’s external relationships. This consensus also represents a continuation of the strategic management of great power relations that began in 2006 with the establishment of the Strategic Economic Dialogue between the United States and China. However, the Obama-Xi consensus signifies different things to Obama and Xi. For Obama, it implies that China’s rise will be framed within an institutional framework led by the United States. For Xi, it means that China will continue to ascend with a fully-fledged new diplomatic agenda, one that is destined to change the world and restore China to its rightful historical central position. On May 21, 2014, in Shanghai, Xi Jinping’s major-country diplomacy took the world by surprise. At the Conference on Interaction and Confidence Building Measures in Asia (CICA), China introduced a diplomatic concept known as the “Asian Security Concept”. This was quickly criticized and likened to a “Chinese version of the Monroe Doctrine” (The Paper, 2014). What Xi Jinping specifically stated was, “Ultimately, the affairs of Asia must be managed by the people of Asia; the problems of Asia must be resolved by the people of Asia; the security of Asia must be upheld by the people of Asia. The people of Asia have the capability and wisdom to achieve peace and stability in Asia through strengthened cooperation (Xinhuanet, 2014)”.
Xi Jinping’s New Economic Statecraft (2012–2017) 67 The core of this new Asian Security Concept is to promote the idea that “Asian countries should lead Asian affairs”, aiming to emphasize China’s leadership role in the Asia-Pacific region. This move is seen by the international community as China’s attempt to reshape the regional security architecture and its comprehensive competition with the United States in the Asia-Pacific. Particularly during the preparation of the CICA, the changes in China’s diplomatic discourse attracted attention from Western countries and neighboring countries of China. That is why we argue that Xi Jinping’s new diplomatic approach represents not merely a readjustment but a diplomatic revolution. His diplomacy is rooted in Marxism and is driven by the historical ambition of restoring China to its rightful central position in history. According to Xi Jinping, the biggest challenge China faces is still the suppression by a coalition of Western countries led by the US hegemon. The dominance of Western institutions at a global level has become a barrier to the development of emerging developing nations. This is a long-term problem that cannot be quickly resolved. To overcome these challenges of rising and development, China needs to make concerted efforts at the global level and within the international system, aiming to achieve new forms of development (Wang, 2022). 4.3 Xi Jinping’s Governance Revolution While Jiang Zemin and Hu Jintao are regarded as continuations of Deng Xiaoping’s policies, Xi Jinping represents a departure in many aspects. Indeed, Xi’s approach can be seen as a revival of Mao Zedong’s principles. However, Xi’s resemblance to Mao was not very evident during his first term. It was only during his second and third terms that these similarities gradually became more pronounced. That being said, traces of Xi’s similarities to Mao can still be observed by comparing his leadership style and policies with those of Hu Jintao: 1 Emphasis on Political Philosophy and Ideology: Xi Jinping emphasizes the importance of Socialism with Chinese characteristics and the Chinese Dream, as well as the goal of the great rejuvenation of the Chinese nation. During Hu Jintao’s tenure, there was more emphasis on building a “ harmonious society”. 2 Anti-Corruption Campaign: After coming to power, Xi Jinping initiated an unprecedented anti-corruption campaign to purify the Party and government, with the goal of enhancing government efficiency and credibility. In contrast, Hu Jintao did not launch an anti-corruption campaign on the same scale as Xi’s. 3 Centralization of Power: Xi Jinping strengthened centralization, enhancing the power and influence of central leadership. In contrast, during
68 China’s Modern Economic Statecraft Hu Jintao’s era, the distribution of power between the central and local governments was more balanced. 4 Economic Reforms: Xi Jinping has championed supply-side structural reforms, placing an emphasis on innovation-driven and high-quality development. In contrast, Hu Jintao’s tenure was characterized by a focus on stable growth and expanding domestic demand. During Xi’s first term, there was a notable embrace of reform and opening-up policies, which had undertones of economic liberalism. This stance becomes particularly notable considering Xi’s pivot away from economic liberalism toward the end of his second term and into his third. 5 Military Reforms: Xi Jinping undertook profound military reforms, including restructuring military regions and promoting the integration of military and civilian development. 6 Establishment of the National Supervisory Law and the National Supervision Commission: During Xi Jinping’s tenure, China passed the National Supervisory Law and established the National Supervision Commission, further strengthening anti-corruption and government oversight mechanisms. 7 Ideological Control: During Xi Jinping’s tenure, there was increased control over ideology, emphasizing the importance of the Party’s leadership and social stability. On November 17, 2012, shortly after being elected as the General Secretary of the CPC, Xi Jinping, while presiding over the first group study session of the 18th Central Politburo, made explicit demands for upholding the Party’s leadership. He emphasized that “in all aspects of party, government, military, civilian, and academia, and across all regions – east, west, south, north, and center, the Party is the leader of everything (People, 2022)”. These changes reflect Xi Jinping’s different views and strategies on China’s future development and global status and also highlight the differences in focus and methods in governance and statecraft compared to Hu Jintao. Notes 1 “The Silk Road Economic Belt”, “The 21st Century Maritime Silk Road”, “ChinaIndia-Myanmar-Bangladesh Economic Corridor”, “China-Pakistan Economic Corridor”, “Asian Infrastructure Investment Bank”, and “BRICS Development Bank”. 2 The concept of “High-Speed Rail Diplomacy” was first proposed by Hong Kong’s “South China Morning Post” in an article titled “China Plans to Build a TransEurasian Railway Network” published on March 8, 2010. The article posited that negotiations were underway regarding China’s plans to expand its high-speed rail network to 17 countries. These railways would connect and open up the whole of Central Asia, East Asia, and Southeast Asia, aiding China in more efficiently transporting vital raw materials. Targeting neighboring countries such as those in Southeast Asia and Central Asia as markets for its high-speed railways has become an important aspect of China’s foreign policy. Through “High-Speed Rail Diplomacy”,
Xi Jinping’s New Economic Statecraft (2012–2017) 69 China is actively constructing a high-speed rail network originating within its borders to facilitate the import of energy resources like coal and iron ore and expand its influence in neighboring countries. 3 China’s “Nuclear Power Diplomacy” began in the 1980s, when it introduced technology and capital from France, a nuclear power powerhouse, to start building the Daya Bay Nuclear Power Plant in Guangdong. Starting from Daya Bay, SinoFrench nuclear cooperation has gone through three stages: initially “French-led with Chinese assistance”, then transitioning to “Chinese-led with French support”, and finally to “joint design and construction”. China’s nuclear technology capabilities have continuously grown stronger. In recent years, it has started to participate in international competition. A significant breakthrough was made in 2013 in its “going global” strategy when China National Nuclear Corporation and China General Nuclear Power Group, in collaboration with two French companies, reached an agreement with the British government to build two third-generation pressurized water reactor nuclear units at Hinkley Point in the southwest of England. This marked the first time Chinese nuclear technology entered a developed country. After Xi Jinping and the new leadership took office, Chinese national leaders have increasingly used nuclear power as a diplomatic card during their visits abroad, promoting cooperation in the field of nuclear power between both sides. Reference List CGTN (2019) Xi says Belt and Road Initiative Is Not China’s Marshall Plan. [online] Available at: https://news.cgtn.com/news/3d3d514e3559544d35457a6333566d54/ index.html. Dai, B. G. (2016) Strategic Dialogue: Memoirs of Dai Bingguo. Beijing: People’s Publishing House. Gong, W., Xu, Z. F., and Wang, K. (2016) Authoritative People on China’s Contemporary Economy: The Supply-Side Reform Guides the New Normal [People’s Daily] 4 January. Available at: http://politics.people.com.cn/n1/2016/0104/c1001-28006547. html. Gong, W., Xu, Z. F., and Wu, Q. Y. (2016) Authoritative People Talking about China’s Economy [People’s Daily] 9 May. Available at: http://politics.people.com.cn/ n1/2016/0509/c1001-28333725.html. People (2014) Xi Jinping Emphasized during His Visit to Henan Province: Deepening Reforms and Giving Full Play to Advantages, Innovating Ideas and Taking a Balanced Approach to Ensure Sustained and Healthy Economic Development and Social Harmony and Stability [People] 11 May. Available at: http://cpc.people.com. cn/n/2014/0511/c64094-25001070.html. People (2022) The Party, the Government, the Military, the People, the East, the West, the South, the North, the South, the South, the North, the Party Is the Leader of All [People] 14 February. Available at: http://dangjian.people.com.cn/n1/2022/0214/ c117092-32351226.html. Publicity Department of the Communist Party of China (2016) Xi Jinping General Secretary Series of Important Lectures Readings. Beijing: Xue Xi Chu Ban She. The Communist Party (2021) The Governance of China IV: Combining the Promotion of Outstanding Traditional Culture with Marxist Position and Viewpoint Methods [The Communist Party] 22 March. Available at: https://www.12371.cn/2022/09/21/ ARTI1663740589405824.shtml.
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DOI: 10.4324/9781003270379-6 This chapter has been made available under a CC-BY-NC-ND 4.0 license. Xi Jinping’s Economic Statecraft in the Era of Dramatic Changes Unseen in a Century (2018–2023) The year 2018 was a watershed moment, marking the beginning of Xi Jinping’s challenging second term. In many ways, 2018 represented a climax after several years of upheaval both domestically and on the global stage. Domestically, 2014 marked a transitional year as China’s economy began to slowdown, leading Xi Jinping to introduce the concept of the “Economic New Normal”. In 2016, the strains in China’s economy became even more apparent. The pandemic, which started in Wuhan in December 2019, further devastated China’s economy. On the global front, we witnessed significant events including the Russia-Ukraine crisis, Brexit, and the election of Donald Trump as the US President, a populist leader who caused a major, unexpected shock in global diplomacy. Trump’s transactional approach to diplomacy and his bullying style took many world leaders by surprise. Xi Jinping was likely the first global leader to perceive the significant changes of our times, and he has a strong sense of urgency. As early as 2017, he recognized that we were experiencing profound shifts not seen in a century (“百年未有之大变局”) (Xi, 2018). President Xi Jinping proposed this concept at the 2017 annual conference for Chinese ambassadors and consuls abroad: “Socialism with Chinese characteristics has entered a new era. To do a good job in diplomatic work in the new era, we must first deeply understand the spirit of the 19th National Congress of the Communist Party of China and correctly grasp the current trends of the times and the international situation. Looking at the world, we are facing a great change not seen in a century (Xinhuanet, 2017)”. Six months later, Xi further elaborated on this concept by distinguishing between the domestic and global situations: “Currently, our country is in the best development period since modern times, and the world is undergoing a great change not seen in a century. The two are intertwined and interact with each other (Xinhuanet, 2018)”. When he first proposed this concept, many were skeptical, questioning whether we were indeed on the brink of dramatic changes akin to those last witnessed during the First World War. Gradually, as numerous “gray rhino” and “black swan” events unfolded one after another, people became convinced. 5
72 China’s Modern Economic Statecraft Recognizing the shifting tides doesn’t necessarily mean that China was fully prepared or managed all crises effectively. While it’s challenging to make generalizations, it’s fair to say that China’s relationship with Western countries deteriorated, whereas its relations with developing nations generally improved. This dynamic also signals a new form of Cold War, with China and the United States leading two not entirely defined camps. During Xi Jinping’s second term (2017–2022), China’s economic statecraft faced considerable challenges as the country’s economy slowed significantly and its relationship with the West deteriorated. Despite these difficulties, China demonstrated notable resilience during and after the pandemic. 5.1 China’s Diplomatic Confrontation with the West Since Xi Jinping assumed office, China’s diplomatic elites have increasingly embraced the belief of “The East Rises and the West Declines” (东升西降) (People, 2021). The concept of “East Rising, West Declining” was articulated by Xi Jinping on various occasions since 2021. During the pandemic, Xi Jinping (2022) also articulated the concept of “Good Governance in China and Chaos in the West” (中治西乱). These statements reflect the worsening US-China relationship and Xi Jinping’s efforts to bolster national confidence in China. This concept bears a striking resemblance to Mao Zedong’s assertion in November 1957 about the “East Wind prevailing over the West Wind”. We must bear in mind that there is a distinctive shift in Xi Jinping’s attitude toward the United States. When he met Obama in 2013, the US-China relationship was still in good shape, and it was highly unlikely that Xi would publicly articulate concepts like “East Rising, West Declining” or “Good Governance in China and Western Chaos”. For many years before Xi, China’s diplomatic narrative largely accepted America’s leadership, with the United States in turn welcoming China’s peaceful rise. Therefore, to understand Xi’s attitude shift, it is necessary to identify the factors and timeline of the deterioration in the US-China relationship. The year 2018 was a turning point for US-China relations. Before Trump’s rise to power and its aggressive unilateral stance on trade, the Chinese reacted to Americans increased presence in their neighborhood by the adoption of a strategy characterized by summit and economic diplomacy, an effort to stabilize China-US economic and trade relations. In hope of pursuing on the same diplomatic path, on April 6–7, 2017, within 100 days of President Trump’s accession to the White House, Chinese President Xi Jinping met with the latter at Mar-a-Lago in Florida, claiming that “there are a thousand reasons to make the China-US relationship work, and no reason to break it”(People’s Daily, 2017). China and the United States have also agreed on a Comprehensive Economic Dialogue, the first of which was held in Washington on July 19, 2017. On the surface, everything seemed to run smoothly during the first visit to China by President Trump on 8th–10th November of the same year.
Xi Jinping’s Economic Statecraft in the Era of Dramatic Changes 73 China agreed to a major purchase of American goods, amounting to US$253.5 billion, including a Chinese pledge to buy 300 aircraft from Boeing, with a list value of $38 billion. The Chinese also agreed to import up to $12 billion in mobile phone chips and made a commitment to invest $83 billion in the US petrochemical industry to develop shale gases. The agreement did not assuage Trump’s aggressive stance, as he judged that the Chinese proposal would do little to redress his country’s commercial imbalance toward Beijing. As negotiations were ongoing, Americans maintained the pressure. In fact, as early as August 18, 2017, one month after the conclusion of the Comprehensive Economic Dialogue and three months before Trump’s visit to China, the American president signed the Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation to probe whether Chinese laws and regulations implement mandatory technology transfer and whether it harms US intellectual property and innovation. This shows that President Trump was maintaining a double-edged trading strategy, as he planned to launch a “trade offensive” against China, even before his visit to China. It soon became clear that Trump would pursue a strategy of aggressive unilateralism over negotiations with his Chinese counterpart. On December 18, 2017, just one month after his visit to China, Trump’s administration unveiled its first National Security Strategy Report, which identified China as a “competitor”, “rival”, and “adversary”. This formulation was far more stringent than any reports put forth by previous administrations. Harsh words led to quick actions. On March 22, 2018, the Trump administration announced on the basis of its 301 investigation that punitive tariffs will be slapped on some US$50 billion worth of imports from China due to intellectual property infringement. China immediately counterattacked, marking the outbreak of the China-US trade war. From that point on, the trade war has escalated with nearly all Chinese exports to the United States covered by punitive tariffs, and the United States has even considered the “decoupling” of Chinese and American economies as a potential policy option (New York Times, 2019). The launch of the trade war against China by President Trump triggered a far-reaching ideological competition between China and the United States, the two leading countries in the world, effectively plunging the world into a new Cold War. As Susan Shirk suggested, Xi Jinping also casted the relationship with the West as a cold-war-type ideological contest between socialism and capitalism. Socialism with Chinese characteristics would triumph over capitalism and have increasingly greater influence in the world. Officials in both the Trump and Biden administrations framed the relationship as a contest between the two systems, Chinese communist autocracy versus Western market democracy (Shirk, 2023, p. 184). Against this backdrop, China’s diplomatic approach has increasingly shifted toward “Wolf Warrior Diplomacy” (战狼外交). The term “Wolf Warrior Diplomacy” reflects a more assertive trend in China’s foreign policy in
74 China’s Modern Economic Statecraft recent years. This term originates from the 2015 movie “Wolf Warrior”, directed by Wu Jing, which showcased strong nationalist sentiments. The film, gaining widespread attention, told the legendary story of an underdog hero rising to save his country’s and nation’s fate. The term began to gain attention on December 8, 2020, when Germany’s Der Spiegel published a report criticizing China’s foreign policy. The report described Chinese diplomats’ behavior as “more aggressive” and pointed out that China had adopted “Wolf Warrior Diplomacy”. The core characteristic of “Wolf Warrior Diplomacy” is its toughness and directness. This diplomatic style is seen as a label for China’s assertive foreign policy since Xi Jinping became General Secretary of the Communist Party of China. Western countries believe that during this period, Chinese diplomats and leaders have shown a provocative attitude, issuing a series of aggressive statements. The underlying policy of this diplomatic strategy dates back to the 18th National Congress of the Communist Party of China in 2012, when Xi Jinping ascended to power and promoted the policy of “advancing major-country diplomacy with Chinese characteristics, with the mission of achieving the great rejuvenation of the Chinese nation”. A key concept of this policy is “daring to show the sword”, meaning to adopt a tough stance at critical moments. In the international community, “Wolf Warrior Diplomacy” has become one of China’s diplomatic brands. For example, China’s most senior foreign policy official, Yang Jiechi, has told the United States that it isn’t qualified to “speak from a position of strength” when criticizing China (BBC, 2021). It is also seen as an embodiment of “Wolf Warrior Diplomacy”. 5.2 China’s Strained Economy China’s economy slowed down from a double-digit pace in the decade up to 2011 to a range of 6–7% since then. Notably, the economy began to slowdown significantly in 2018. China’s GDP growth rate decreased from 7.9% in 2012 to 6.7% in 2018 (World Bank, 2023). In 2015, Xi Jinping (2017, p. 239) persuaded the Chinese people that this was the “New Normal”. He stated that since the current problem is mainly structural rather than cyclical, a V-shaped rebound through short-term stimulation was impossible, and China’s economy may experience an L-shaped growth phase. Xi warned of the need to be prepared for a protracted battle, to be willing to endure significant challenges, to appropriately increase tolerance for gear shifting and slowing down, to first establish a foundation, and then aim for recovery. Xi’s policy solution in 2015 was supply-side structural reform, a policy also associated with Premier Li Keqiang. The concept of supply-side economics emerged in the 1970s as a response to stagflation (simultaneous inflation and stagnant economic growth), challenging the then-dominant Keynesian emphasis on demand management. Supply-side reforms gained prominence in the United States during the
Xi Jinping’s Economic Statecraft in the Era of Dramatic Changes 75 Reagan administration in the 1980s, which argued that reducing taxes and regulatory burdens would lead to increased production, job creation, and economic growth. In the context of China, supply-side structural reform became a significant policy focus under the leadership of Xi Jinping. The Chinese government officially endorsed the concept at the Central Economic Work Conference in December 2015 (People, 2015). The reforms were introduced to address various structural imbalances in the Chinese economy, such as overcapacity in certain industries (like steel and coal), real estate bubbles, and the need for a transition from an investment-driven to a more consumptionand innovationdriven growth model. The primary objectives of China’s supply-side structural reforms include: deleveraging (reducing the high levels of debt within the economy, particularly corporate debt), reducing overcapacity, destocking (reducing high levels of unsold real estate inventory), improving corporate efficiency, and risk mitigation (addressing financial risks and ensuring stability in the financial sector). China’s economy slowed further during Xi Jinping’s second term (2017– 2022), with the annual growth rate decreasing from 6.7% in 2018 to 2.2% in 2020. This considerable economic slowdown since 2018 is attributed more to policy management and exogenous shocks than to a natural economic slowdown trajectory, a situation Xi Jinping has originally referred to as the “New Normal”. Key contributing factors include the US-China trade war in 2018 that continued until January 2020, and the COVID-19, which further devastated China’s economy. People began questioning why the economy slid so drastically and why social stresses were increasing. The West started to feel China’s economic slowdown during and after the COVID-19 and heavily criticized Xi Jinping for deviating from market principles. Nicholas Lardy (2019, p. 4), a senior researcher of Peterson Institute, argues, one of the most important contributors to China’s slowing economic growth is the slowing pace of domestic economic reform and the resurgence of the role of the state in resource allocation. These trends stifled the competitive forces that had previously powered the Chinese economy, placing more investment in poorly performing and indeed deteriorating state-owned enterprises. Nicholas Lardy’s analysis shows that a main driving factor was the turn away from the market orientation that guided economic reform for more than three decades starting in 1978. But a visible change in strategy, in favor of state-led growth, accelerated under the leadership of Xi Jinping starting in 2012 (Posen, 2019, p. x). It remains debatable whether Xi Jinping has abandoned market principles. If he has, it is puzzling why he underwent a U-turn in his attitude toward the market. Back in November 2013, at the Third Plenary Session of the 18th Central Committee of the Communist Party of China, President Xi Jinping particularly emphasized the market’s decisive role in resource allocation. This stance left the world with the impression that Xi would continue to advance
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Xi Jinping’s Economic Statecraft in the Era of Dramatic Changes 83 Xi, J. P. (2017) The Governance of China. II. Beijing, China: Foreign Languages Press. Xi, J. P. (2018) Full Text of Chinese President Xi Jinping’s Speech at Opening Ceremony of the 2018 Forum on China-Africa Cooperation (FOCAC) Beijing Summit [China Daily] 4 September. Available at: http://www.chinadaily.com.cn/a/201809/04/WS5b8d5c25a310add14f389592.html. Xi, J. P. (2019a) Speech by President Xi Jinping at the Opening Ceremony of the Seminar for Provincial and Ministerial-level Leading Officials on Adhering to Bottomline Thinking and Focusing on Preventing and Resolving Major Risks, 21 January. Xi, J. P. (2019b) Speech by President Xi Jinping at the Opening Ceremony of the Training Class for Young and Middle-aged Officials at the Central Party School, 3 September, Beijing. Xi, J. P. (2022) Speech at the Opening Ceremony of the Training Course for Young and Middle-aged Cadres of the Central Party School (National School of Administration) for the Spring Semester of 2022 [Ministry of Education of the People’s Republic of China] 1 March. Available at: http://www.moe.gov.cn/jyb_xwfb/moe_176/202306/ t20230630_1066550.html. Xinhuanet (2017) Xi Jinping Receives Envoys Attending 2017 Annual Conference for Chinese Ambassadors and Consuls Abroad and Delivered an Important Speech Xi Jinping Proposed This Concept at the 2017 Annual Conference for Chinese Ambassadors and Consuls Abroad [The State Council of The People’s Republic of China] 28 December. Available at: https://www.gov.cn/xinwen/2017-12/28/ content_5251251.htm. Xinhuanet (2018) Xi Jinping: Efforts to Create a New Situation in Great Power Diplomacy with Chinese Characteristics [Xinhuanet] 23 June. Available at: http://www. xinhuanet.com/politics/2018-06/23/c_1123025806.htm. Xinhuanet (2023a) Full Text of Xi Jinping’s Keynote Speech at 3rd Belt and Road Forum for International Cooperation [Xinhuanet] 18 October. Available at: https://english.news.cn/20231018/7bfc16ac51d443c6a7a00ce25c972104/c.html. Xinhuanet (2023b) Going on a New Journey of Chinese-Style Modernization–Sidebar on General Secretary Xi Jinping’s Visit to Members of the People’s Political Consultative Conference (CPPCC) Sector of the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) and Participation in the Group Meeting [The State Council of The People’s Republic of China] 7 March. Available at: https:// www.gov.cn/xinwen/2023-03/07/content_5745127.htm. Zhang, X. T. (2024) New Economic Statecraft: China, the United States and the European Union. London and New York, NY: Routledge, 2024.
DOI: 10.4324/9781003270379-7 This chapter has been made available under a CC-BY-NC-ND 4.0 license. Economic statecraft is the strategy employed by a country to expand its economy and leverage its economic strengths to become a strong nation and maintain that status in international politics (Zhang, 2024, p. 1). At the heart of economic statecraft lies the wealth-power conversion. In practicing this strategy, countries, particularly great powers, often concentrate on converting wealth into power. However, they sometimes overlook the inverse process: converting power back into wealth. This oversight is a symptom of what Paul Kennedy (1987) described as “overstretching” in his book “The Rise and Fall of the Great Powers”. When a country conducts economic statecraft, there are three implicit premises: (1) economic resources are relatively sufficient or even unlimited; (2) economic power is fungible and transformable; and (3) the relationship between wealth and power is harmonious, or at least nonconflicting and noncontradictory. However, these three premises are not always present, and thus, three limiting conditions emerge for the implementation of a country’s economic statecraft: (1) economic resources are not sufficient but rather are scarce; (2) economic power may not always be transformable; and (3) wealth and power are in a relationship of unity of opposites. The neglect or underestimation of these three implicit premises is often key to the failure of economic statecraft. Economic statecraft should examine these three implicit premises that previous studies have overlooked, that is, how to achieve economic growth, extract economic resources, and achieve the two-way conversion of wealth and power (Zhang, 2024, pp. 17–18). Here, we posit that a wealth-power dialectic exists in the economic statecraft of any country, and China is no exception. Xi Jinping’s new economic statecraft trajectory vividly exemplifies the wealth-power dialectic. Building on the substantial national wealth accumulated since the 1978 reform and opening-up, Xi began to explore how to convert this national wealth into power, gradually steering toward what is termed “great power economic statecraft”. Through flagship initiatives like the Belt and Road Initiative (BRI) and drawing inspiration from Confucius-Mencius philosophy, Xi sought to restore China’s historical prestige. The newly formulated “righteousness-benefit concept” is a prominent example of this. While Conclusion The Wealth-Power Dialectic: Fundamental to China’s Economic Statecraft
Conclusion 85 Xi has made significant strides in advancing China’s new economic statecraft, marking a high point in the country’s economic diplomacy, his approach has not sufficiently addressed the wealth-generation aspect. Instead, there has been an excessive focus on the power-play dimension, thereby disrupting the delicate balance between wealth and power. Upon concluding this book and reflecting on its contents, we have identified four major findings to share. 6.1 Three Approaches of China’s Economic Statecraft China’s economic statecraft has evolved through three distinct approaches: (1) The approach of Emperor Zhu Di, who initiated Admiral Zheng He’s voyages across the Indo-Pacific, symbolizing a period of exploration and maritime prowess. (2) Mao Zedong’s approach, rooted in Marxist ideology and intertwined with China’s classical history, representing a blend of ideological fervor and historical context. (3) Deng Xiaoping’s approach, characterized by a developmentalist philosophy, focusing on economic growth and modernization as the primary drivers of statecraft. 6.1.1 Emperor Zhu Di’s Approach to Economic Statecraft Emperor Zhu Di of China, like several other capable and ambitious Chinese emperors, adeptly utilized a traditional Chinese economic statecraft approach. His primary goal was to convert wealth into power, thereby reinforcing the Tributary System. This strategy was integral to ensuring that China maintained its status as the “Central Kingdom”. By doing so, Zhu Di sought to sustain China’s cultural and economic influence over the nations within the Tributary System, a key aspect of the country’s foreign policy during his reign. Emperor Zhu Di’s approach to economic statecraft was rooted in traditional Chinese philosophy, particularly the teachings of Confucius and Mencius. This strategy emphasized China’s economic superiority but did not aim for direct economic gain. Instead, it focused on upholding the “Tianxia system”, a China-centric world order. Unlike colonialism, which sought territorial conquest, China’s approach aimed to preserve a cultural hierarchy with China at the apex of the Tributary System. A significant challenge in maintaining this system was overextension, exemplified by the cessation of Admiral Zheng He’s voyages and the destruction of his travel logs after Zhu Di’s death, largely due to internal dissent. The agricultural nature of China’s economy, vulnerable to weather and land limitations, made sustaining the Tributary System financially burdensome. For ambitious emperors like Zhu Di (1402–1424 AD), Han Wu (141 BC–87 BC), and Sui Yang (605–618 AD), a key challenge was mobilizing economic resources for military and major statecraft projects, where failure could lead to the dynasty’s downfall.
86 China’s Modern Economic Statecraft 6.1.2 Mao Zedong’s Approach to Economic Statecraft Mao Zedong, a prominent Marxist, adapted the ideology to fit China’s unique conditions and historical context. He developed a distinct path of Marxism with Chinese characteristics, avoiding dogmatic adherence to the theory. However, his approach to economic statecraft, which combined Marxism with traditional Chinese methods, placed significant strain on China’s economy. Marxism’s strengths lay in mobilizing resources for wartime efforts and regime survival, but its planned economic aspects were less effective in fostering long-term economic growth. Mao’s hasty efforts to implement Communism resulted in economic and political turmoil, exemplified by the “Great Leap Forward” campaign. Simultaneously, Mao’s perspective was deeply influenced by China’s historical context, viewing China as a major nation with responsibilities toward smaller countries. His profound understanding of Chinese history, particularly the strategic importance of Korea across different dynasties, influenced his decision to support Korea, even at the expense of engaging in conflict with UN-allied forces led by the United States. This decision reflected a blend of ideological commitment and historical awareness in Mao’s economic and diplomatic strategies. In many ways, Mao Zedong represented China’s Marxist economic statecraft with the influence of traditional Chinese history. Mao Zedong’s approach to economic statecraft was a unique blend of Marxist principles, adapted to align with China’s specific needs and circumstances, and influenced by the nation’s rich traditional history. This synthesis allowed him to craft policies that reflected both the revolutionary ideals of Marxism and the enduring lessons from China’s historical experiences. 6.1.3 Deng Xiaoping’s Approach to Economic Statecraft While Deng Xiaoping was a Marxist, his approach to economic statecraft diverged significantly from traditional Marxist doctrines, focusing instead on developmental pragmatism. He maintained respect for Mao Zedong, his predecessor, recognizing Mao’s achievements while also addressing his errors. Deng’s perspective on world affairs transcended ideological lines, prioritizing pragmatic diplomacy and economic development. Deng’s legacy is most notably marked by his initiation of the reform and opening-up policies and his influential “Southern Tour”, which played a crucial role in integrating China into the global market economy. His economic strategies emphasized modernization, integration with international financial institutions, and practical solutions over ideological rigidity. Deng’s focus was on wealth generation rather than its conversion into power. He is known for advocating the principle of “keeping a low profile” and “biding time”, contributing to a period of sustained economic growth and relative international peace for China.
Conclusion 87 Under Deng’s guidance, China’s economic policy shifted toward a market economy and global engagement. His chosen successors, Jiang Zemin and Hu Jintao, continued to adhere to and expand upon these developmental strategies. Deng Xiaoping’s approach to economic statecraft, emphasizing reform, opening-up, and pragmatic engagement with the global economy, is widely regarded as one of the most successful in China’s post1949 history. 6.2 China’s Post-1978 Economic Statecraft Model: Marxist-Developmentalist Compromise The remarkable economic ascent of China since 1978 can be attributed to a unique blend of Marxist ideology and developmentalist economics, a compromise forged within the Communist Party of China (CPC). This compromise maintained Marxism as the dominant ideological framework while simultaneously embracing economic liberalism as the driving force behind China’s statecraft. Jiang Zemin, Deng Xiaoping’s handpicked successor, encapsulated this approach with the concept of the Socialist Market Economy. This model symbolizes the Marxist-Developmentalist compromise, representing more of a middle ground between the CPC’s left-wing preference for planned economics and the right-wing inclination toward market mechanisms and capitalist elements. The balance struck between Marxist ideology and developmentalist economics has been instrumental in guiding China’s development since the initiation of the reform and opening-up policies in 1978. Despite facing challenges, this equilibrium has effectively steered China’s rapid economic growth and transformation. Deng Xiaoping’s philosophy, known as the “three favorables”, emphasized policies that were favorable to enhancing productivity, national power, and the living standards of the people. This approach was used as a metric to assess whether China’s developments aligned with socialist or capitalist principles. Jiang Zemin’s “three represents” philosophy highlighted the CPC’s representation of the most advanced productivity, culture, and people’s interests. Hu Jintao introduced the “Scientific Development Philosophy”, while Xi Jinping advocates the “New Development Philosophy”, which emphasizes innovation, coordination, green development, openness, and sharing, proposed in October 2015 during the Fifth Plenary Session of the 18th Communist Party of China Central Committee (Qiushi, 2021). These philosophies collectively embody the enduring Marxist-Developmentalist Compromise, crucial to the CPC’s long-term governance strategy. Xi Jinping continues to uphold this compromise, though he faces the complex task of balancing traditional Marxist principles with the realities of economic liberalism. This balancing act is central to understanding the current dynamics of China’s economic statecraft and its future trajectory.
88 China’s Modern Economic Statecraft 6.3 Xi Jinping’s Grand Synthesis: MarxistDevelopmentalist Statecraft Enlightened by Confucius-Mencius Xi Jinping’s approach to economic statecraft represents a comprehensive synthesis, amalgamating elements from the strategies of historical figures like Emperor Zhu Di, Mao Zedong, and Deng Xiaoping. This approach can be characterized as “Marxist-Developmentalist Statecraft Enlightened by Confucius-Mencius”. Xi Jinping (2022) shows a deep appreciation for Confucius-Mencius philosophy, echoing Confucius’s ideal of a gentleman who cultivates himself, manages his household, governs the state, and ultimately brings peace to the world. His focus on “governing the state” is evident in his most significant writings. Moreover, Xi Jinping demonstrates a profound understanding of the philosophy of history, contemplating the enduring question of overcoming the dynastic cycle of rise and decline – a question also pondered by Mao Zedong. Mao’s solution was “public supervision”, advocating that government accountability to the people prevents governance lapses. At the 6th Plenary Session of the 19th CPC Central Committee, Xi Jinping offered his own answer: “self-revolution”, emphasizing the need to confront internal challenges, maintain the party’s progressiveness and purity, and continually enhance its creativity, cohesion, and combat effectiveness (Liu, 2022). While a committed Marxist, Xi Jinping respects the “Marxist-Developmentalist Compromise” established since Deng Xiaoping’s era. Recognizing the importance of economic growth, Xi Jinping was also aware early in his tenure that the era of double-digit economic growth was over, and a “New Normal” of slower growth would be China’s reality in the coming decade. The effectiveness of Xi Jinping’s approach in addressing the “New Normal” of China’s economic statecraft remains an open question, particularly as his second term progresses and beyond. Ambitious, determined, ideologically driven, and yet pragmatically experienced, Xi Jinping has endeavored to create a grand synthesis, blending Marxist-Developmentalist Statecraft with insights from Confucius-Mencius and Chinese history. This synthesis is reflected in initiatives like the BRI, the “New Righteousness-Benefit Philosophy”, and the concept of a “Community of Shared Future for Mankind”. Xi Jinping carries a strong sense of historical responsibility and urgency to accomplish significant objectives within his tenure, leading to an ambitious agenda. However, this haste has also led to overextension and stress, impacting both China and the global community. 6.4 Overstretch: The Biggest Challenge to Xi Jinping’s Major-Country Economic Statecraft Xi Jinping’s approach to major-country economic statecraft is a natural progression for an ambitious and capable leader, and he has achieved notable
Conclusion 89 success, particularly in enhancing China’s international reputation in developing countries. This success has instilled a sense of pride among many Chinese citizens regarding China’s elevated global standing. Initiatives like the BRI and the Asian Infrastructure Investment Bank (AIIB) are innovative and aimed at righteous causes. However, the challenges Xi faces lie primarily in the wealth-power dialectic intrinsic to economic statecraft – a dilemma not unique to China but common among great powers. The cornerstone of successful economic statecraft for any great power is its economic growth. Xi inherited a substantial national wealth accumulated since 1978, allowing him to wield economic power in ways his predecessors could not. Yet, he also faced the challenge of a slowing economy early in his rule, creating tension between his ambitious statecraft agenda and the reality of China’s economic slowdown. As a staunch Marxist, Xi has made significant strides, such as eradicating absolute poverty in China within three years (2018–2020) (Xinhuanet, 2021). However, his strict adherence to Marxist ideology has clashed with capitalist elements in China’s economy. His efforts to regulate sectors like the Internet, housing, finance, and even education have led to a decline in private sector confidence. Maintaining the balance between Marxism and economic liberalism has become increasingly challenging in his second term and beyond. The private sector plays a crucial role in China’s economic growth, contributing significantly to tax revenue and job creation. A market economy necessitates advanced institutions for effective economic management. Over-reliance on Marxist-style planned economy approaches and excessive state interventions can potentially hinder China’s economic growth. Additionally, Xi’s relations with the United States and the West in general have deteriorated, complicating his diplomatic and statecraft efforts. The more adversarial the West’s stance toward China, the more Xi has emphasized ideological purity and national security. This ideological shift under Xi Jinping has prompted a focus on garnering support from the poor and lower working class, a strategy that risks alienating the wealthier and more cosmopolitan upper-middle class. This evolving dynamic poses a challenge to the Marxist-Developmentalist compromise that has been a cornerstone of Chinese leadership over the past four decades. To sustain a developmentalist economic policy, it is essential to preserve key elements of the market economy. Additionally, allowing a degree of economic liberalism is crucial for maintaining public confidence in both the economy and the broader society. The fundamental challenge for Xi in governing China remains economic. The effectiveness of policies such as the Supply-side Structural Reform, initiated with Premier Li Keqiang, has been limited. The question of what new economic policies or ways of thinking are necessary remains open. Perhaps a reconsideration of Deng Xiaoping’s economic liberal pragmatism is needed.
90 China’s Modern Economic Statecraft However, the context has significantly changed since Deng’s era, and under Xi’s leadership, China is navigating uncharted waters. China’s economic and social experiment continues, with its great power economic statecraft under Xi’s tenure being a critical and impactful experiment in governance and statecraft, both for China and the global community. It is still too early to predict the failures of China’s economic statecraft. Perhaps it would be wiser to consider the global implications should China’s great power statecraft fail. China is simply too big to fail, and the world cannot afford its failure. Reference List Kennedy, P. (1987) The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500–2000. New York, NY: Random House. Liu, X. Z. (2022) Two Answers: Stepping Outside the Historical Cyclical Rate [People] 27 January. Available at: http://dangjian.people.com.cn/n1/2022/0127/c11709232340904.html. Qiushi (2021) Xi Jinping: Grasp the New Stage of Development, Implement the New Development Concept and Build a New Development Pattern [The State Council of The People’s Republic of China] 30 April. Available at: https://www.gov.cn/ xinwen/2021-04/30/content_5604164.htm. Xi, J. P. (2022) The Governance of China. IV. Beijing, China: Foreign Languages Press. Xinhuanet (2021) Xi Jinping: Speech at the National Poverty Eradication Summary and Commendation Ceremony [Xinhuanet] 25 February. Available at: http://www. xinhuanet.com/politics/leaders/2021-02/25/c_1127140240.htm Zhang, X. T. (2024) New Economic Statecraft: China, the United States and the European Union. London and New York, NY: Routledge.
Africa 4 agricultural collectivization 32 Almunia, Joaquín 51 anti-corruption campaign 67 Anti-Economic Coercion Instrument (ACI) 79 Anti-Subsidy Regulation 79 Asian Infrastructure Investment Bank (AIIB) 1, 55, 89 Bangladesh-China-India-Myanmar (BCIM) Economic Corridor 5 Battle of Yalu River 20 Belt and Road Initiative (BRI) 1, 55, 58, 76, 84 Biden, Joe 80 Bilateral Investment Treaties (BITs) 1, 55, 76 Bretton Woods Conference 50 Britain 3 Buzan, Barry 3 Central Economic Work Conference 75 ChatGPT 25, 43 Chen Deming 48 Chen Yun 30, 31 Chiang Kai-shek 31 China: Australia relation 78; Canada relation 78; China-Kazakhstan oil pipeline 52; China-Russia crude oil pipeline 51–52; China-US trade war 73; and Covid 9; developmentalism 27; economic policy objectives 40; economic realities 32; economic slowdown 9; economy 45–46; foreign policy 11; GDP 11; global influence 2; Japan relation 78; major country economic diplomacy 2–4; modernization construction and economic growth 35; national economic strength 35; policy and academic community 1; political life 36; tax-sharing system 40 China National Nuclear Corporation 69 China-Pakistan Economic Corridor (CPEC) 5 Chinese Academy of Governance 59 Chinese Communist Party 31 Chinese tea 21 Chips Act 2022 79 civilizational identity and heritage 7 civil society 7 commercial culture 6 communism 29, 61 Communist Party of China (CPC) 6, 26, 46, 61, 87 comprehensive development 41 Confucian ethics 11 Confucius 8 Confucius-Mencius Philosophy 11, 14–15 coordinated development 41 COVID-19 75, 77 cultural exchange 18, 62 cultural power 9 Cultural Revolution 34 demand management 74 Deng Xiaoping 8, 9, 27, 37, 40–42, 58, 59, 87 developmentalism 42–43 diplomatic strategies 18 Doctrine of the Mean 15 Doha Round 49 Doha Round of negotiations 49, 50 Donghak Peasant Revolution 20 Due Diligence Directive 79 Index