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Remarks by Mikael Mattlin

Published onJul 11, 2022
Remarks by Mikael Mattlin

States compete with each other on the global stage — and, post-Cold War, that competition is increasingly achieved by economic means. These realities are the foundation of “geoeconomics”, a concept which is riven with internal contradictions. The economic rationale for the international competition is in fact inherently domestic rather than global. It is concerned with the maximisation of domestic benefits. These internal contradictions have created some definitional confusion. Among the clearest definitions are Wigell’s, who defines geoeconomics as ‘the geostrategic use of economic power’, while Chatham House’s definition focusses on the use of economic tools to advance geopolitical objectives. Yet, these definitions set a high bar; what are genuinely geopolitical or geostrategic objectives, and when can we say that a state is actively in pursuit of such objectives through economic means?

To borrow a term from psychology, there has been a massive gestalt shift not only in how we view Chinese investments in Europe but also, more broadly, how we see China in general. The change in perceptions of China over the last 5 years has been extraordinary. For example, just a few years ago in Finland, we broadly welcomed Chinese investments, rather than seeing them as part of a geopolitical strategy that we ought to be wary of.

These themes have spawned an academic cottage industry of books on China’s grand strategy and supposed coming dominance. Yet many of them fail to recognise the messiness of politics and the business of governing, as opposed to (arm-chair) political strategy. Future planning is immensely difficult. But we too often fail to apply these known characteristics of planning and governing to China.

If you really want to understand China's geoeconomics, you need also to understand how China's political system functions, and what kinds of motivations drive its leaders in their use of power. Concerns related to regime security and the legitimacy of the Party's rule are key to understanding the objectives and use of power in China today. Protecting the regime and maintaining national unity are primary goals. Other goals can be depicted as concentric circles that become progressively less important, the further out they are. So, for example, concerns with the ‘near abroad’ and its stability are more important than the state of the global economy, which in turn is more important for China's leadership than challenges related to global governance, such as mass migration and climate change.

To take the current war in Ukraine as an example, one major question is how China will react to Russia’s invasion. And to understand the likely response, we must return to the core concerns: the balance of power between China, Russia, and the United States; the Taiwan issue; China’s interests in the South China Sea; the upcoming Party Congress and securing Xi Jinping’s third term as president; and more generally heavy rhetorical baggage about the roles of the United States and NATO. All of these, I believe, would make it difficult for China to align with the West on Ukraine.

In the academic discussion on China’s use of economic means for political objectives, one can identify at least four distinct, although partly overlapping, debates. The first is the issue of dollar diplomacy, very much related to the Taiwan issue and the One China policy (or principle); this has been ongoing for decades. The second is bilateral lending, another major element of PRC foreign economic policy. Most of the world has received Chinese loans in one form or another. The ‘debt trap diplomacy’ issue became hugely politicised during the Trump administration. We have earlier suggested the concept ‘emergent conditionality’ to describe a situation whereby voluminous lending and other economic interactions between Chinese organisations and small economies may over time come to restrict the space for autonomous economic policy (as seen across Africa and Southeast Asia). Superficially, this may seem similar to ‘debt trap diplonacy’. However, there is a major difference, as our argument is more akin to unintended outcomes, rather than a hidden objective that would be part of a concerted grand strategy. Recent empirical research has borne this out. There is ample evidence of poor planning and implementation from both the PRC and its debtors, which is not suggestive of a cohesive long-term strategy. Thirdly, there is China's increasingly active use of various forms of economic coercion. Finally, there is an attempt to create shared regional goals in economic policy, through initiatives such as the BRI.

Apart from these four debates, which China has used to advance various kinds of political objectives, we must also note the sheer size of China’s economy as being a fundamental challenge and driver in these changes. Just by virtue of being such a major economy that does things differently, China has indirectly shifted the discussion on a lot of issues. These are not necessarily intentional shifts. Nevertheless all of this is changing the way we see things that we had previously seen as settled norms.

On development, for example, the thinking started to shift 10 to 15 years ago, very much prompted by the fact that China was doing things differently (and seemingly successfully). The Chinese have been using aid as an integral part of their broader investment and trade relations with few upfront aid conditionalities. The West has now begun to adopt similar ways of thinking. On the question of whether free capital account convertibility should be a precondition for inclusion in the IMF's Special Drawing Rights basket, where China has argued that certain capital controls are appropriate, and that partial capital account convertibility should be sufficient for inclusion in the SDR basket. Here too, the Chinese view won ground, although not solely because of China. Then there is the question of the open trade regime. China has arguably been protecting some of its strategic industries and key domestic markets. Although the Chinese themselves dispute the extent to which this is true, the fact is that we are now seeing the same kinds of things happening also in the West. On upholding market competition, again, we have had decades of active industrial policies favouring Chinese national state-owned champions. The whole distinction between state and private sector was also a great deal clearer before China entered the WTO.

So, are we descending into a kind of geoeconomic vortex? This is, of course, a reference to Henry Kissinger's famous book, Diplomacy, published in 1994. He talked about the military Doomsday machine and about how the technicalities of mobilising forces from Russia or Germany to the front began to drive the thinking of diplomats and political decision-makers, imposing their own sense of urgency. This question of the effects of action and reaction is where some of my concerns lie.

Has China been engaged in geoeconomics? Yes, if we take the limited original understanding of that term as the pursuit of international economic policies aimed at improving domestic circumstances and securing core interests. But if we want to make a broader claim to overarching geostrategic or geopolitical objectives, I think we need to be much more discerning and really delve deeply into each issue and case individually. Many of the examples discussed above have effectively been responses to what China perceives as Western dominance of the global economic and financial system or are in response to Western policy actions that go against the core interests of the Chinese regime. To my mind, China has primarily been reactive in many areas.

Looking at Chinese economic diplomacy from China's point of view, one can see that — in most cases — it is just reacting to something that the Chinese regime perceives as an attack on its core interests. The irony is that the increasing tendency of the Chinese leadership to regard economic policy as something intrinsically related to security is itself a reaction to pressure that it feels coming from the West, especially since the Trump administration. Therefore, if you look at China's economic policies today and the way that Chinese leaders and diplomats talk about these things, the thinking has become a lot more security-oriented as compared to a decade ago. In other words, China is taking a cue from the kinds of actions and discussions that are taking place in the West; the nature of the debate in China is shifting, as it reacts to shifts in the West. This is worryingly reminiscent of Kissinger’s thesis of technical means and logistics, as well as classical action-and-reaction cycles gradually driving us into outcomes that are net-negative for everyone. We could all too easily end up in a Hobbesian world, composed of the economic security dilemmas described by Beverly Crawford in 1994 — a world in which states inherit global production exchange networks that are mismatched with their ambitions to achieve security through military means.

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