Economic statecraft with Chinese characteristics : the use of commercial actors in China's grand strategy

Abstract

This study is about Chinese economic statecraft: what it is, how it works and why it is more or less effective. The study builds a theory of economic statecraft that provides an explanation of how states use firms to pursue their strategic goals. This theoretical construct begins with an understanding of economic statecraft that has its roots in the concept of security externalities. These externalities are the security consequences that result from the commercial activity of firms or other entities that conduct international economic transactions. When states seek to deliberately generate such strategic effects by manipulating the activities of commercial actors, they are engaging in economic statecraft. Such manipulation rests on the state being able to direct and control the commercial actors. Five factors account for when the state will be able to control commercial actors. These factors reflect the business-government conditions under which economic statecraft will be likely to succeed. Given the centrality of state-business relations in this account of economic statecraft, China provides a useful empirical context in which to explore this theory. Chinese economic statecraft provides useful variation across a number of cases to illustrate the dynamics of the theory. Specifically, the study examines three important areas of China's grand strategy that feature economic statecraft prominently: Mainland relations toward Taiwan, China's efforts to secure access to strategic raw materials, and China's sovereign wealth funds. The study compares cases of both successful and unsuccessful economic statecraft across each of these empirical contexts. This study finds that economic statecraft is not an easy lever of national power for states to wield but when they master it, economic statecraft can have powerful strategic effects. These effects are reflected in a typology of security externalities. Control of commercial actors is a critical element enabling states to be able to generate such effects. Alignment of goals between the state and the commercial actors, unity of the state, a limited number of commercial actors, bureaucratic resources, and direct reporting relationships all facilitate effective economic statecraft.