Country Report: China (October 2021)
In mid-2021, Chinese analysts continued to focus particular attention on India. They assessed the Modi administration’s economic diplomacy and its implications for regional relations. They also carefully evaluated Indian attitudes toward the United States’ Indo–Pacific strategy and the implications for Chinese strategic interests. In addition, they analyzed the impact of the recently concluded RCEP negotiations on regional economic integration in the Asia–Pacific. Chinese analysts kept a close eye on China’s relations with its East Asian neighbors, describing with concern the expansion of the US–South Korean alliance to non-security matters and predicting deteriorating relations with Japan in the short term.
India’s Economic Diplomacy
In Nanya Yanjiu, no. 2, 2021, Li Tao and Yuan Xiaojiao assess the theory and practice of the Modi administration’s economic diplomacy. Economic diplomacy can refer to the use of economic policies to achieve foreign policy objectives or to the use of diplomatic measures to achieve economic objectives. While the goal of economic diplomacy is to benefit the country, it sometimes comes with a cost: countries may adopt economic sanctions or trade barriers to retaliate against a country that adopts policies it opposes. Under the Modi administration, India’s economic diplomacy seeks to attract FDI, build relationships with the global Indian diaspora, and elevate India’s status in regional and multilateral forums.
Li and Yuan argue that India’s economic diplomacy is grounded at a theoretical level in a mixture of neoliberal institutionalism and nationalism. On the one hand, Modi has pursued a pragmatic strategy of cooperation via bilateral and multilateral agreements. Through “selective multilateralism,” India can participate in global multilateral forums while placing some limitations on the impact of globalization and India’s integration into a free and open global economy. At the same time, Modi’s economic diplomacy reflects Hindu nationalism, urging citizens to limit their material consumption and protect the domestic economy. In this view, India’s economic development is a “duty” of both the Indian individual and the Indian government.
According to Li and Yuan, this mixture of neoliberal institutionalism and Hindu nationalism is evident in India’s economic diplomacy. Li and Yuan imagine India’s economic diplomacy as a series of concentric circles. At the core are India’s interests. India’s relations with its South Asian neighbors reflect “defensive economic nationalism,” as India uses its influence to protect its national economic interests, and its economic diplomacy is characterized by asymmetric interdependence. As the largest economy in South Asia, India seeks to increase its neighbors’ economic dependence on India by encouraging the adoption of a common market and offering commercial aid. In its relations with great powers such as China, the United States, Russia, and Japan, India mixes neoliberal institutionalism with economic nationalism; it balances and free rides in an attempt to maintain strategic autonomy and assert regional leadership. For example, India has accepted the US “Indo-Pacific” strategy as a way to fend off pressure from China’s Belt and Road Initiative. With regard to China, India’s policy has shifted from “soft checks and balancing” to “comprehensive decoupling” in the wake of the 2020–2021 skirmishes in the Galwan valley. At these peripheral and global levels, India adopts liberal economic policies by seeking to expand economic partnerships. Modi has focused on building relations with Asian countries to attract foreign capital and provide employment opportunities for India’s vast working-age population. Farther afield, Modi has pursued military, energy, and trade deals with Australia and countries in Western Europe and promised credit lines and aid to much of the African continent. Modi has also affirmed India’s commitment to multilateral economic institutions by pursing leadership roles and seeking to reshape global economic governance to reflect a multipolar world order.
Based on Modi’s religious identity, philosophy of governance, and sources of political support, Li and Yuan argue, the Modi administration has adopted a unique practice of economic diplomacy. It is semi-open, reflecting a strategy of “selective cooperation.” India’s willingness to cooperate reflects its assessment of the power balance with its counterparts, its assessment of domestic and external political considerations, and the degree of threat it perceives. For example, India seeks to limit intervention by foreign powers in its South Asian “backyard,” adopts protectionist trade policies to support domestic infant industries and its agricultural sector, and promotes open cooperation in trade in commodities and services, high-tech research, and infrastructure. At the same time, India reviews Chinese direct investment proposals carefully and rejects foreign investment for infrastructure and industrial construction projects in its northeast from all countries besides Japan. Modi’s economic diplomacy is also characterized by contradictions. Despite proclaiming its support for an open, global approach, India attempts to exclude other countries from investing in its South Asia “backyard” and the Indian Ocean region, and adopts targeted policies toward countries like China that it views with suspicion. These contradictions reflect India’s struggle to reconcile its economic development objectives with its view of national security imperatives. A third characteristic is interactivity. One aspect of interactivity is the relationship between domestic affairs and diplomacy. Global pressures have encouraged domestic economic reforms, while the development of the domestic economy drives increased foreign investment and economic cooperation. A second aspect is the interaction between cultural and economic diplomacy. The Modi administration has emphasized its shared cultural identity with various countries in South Asia, Southeast Asia, and the Indian Ocean and its connection to the Indian diaspora to strengthen economic cooperation and encourage foreign investment. Fourth, Modi’s economic diplomacy is pragmatic. India adopts foreign policies that advance its economic development goals because the Modi administration views economic development as the key to resolving domestic challenges and asserting India’s global influence. Finally, Modi’s economic diplomacy is characterized by religious authority, and consciously refers to “Indian values” and Hindu culture. Modi’s assertion of religious authority helps him to build domestic support and to build relations with international partners with a shared religious or cultural background.
Li and Yuan contend that Modi’s economic diplomacy currently faces a variety of pressing challenges. First, the Modi administration must negotiate the conflict between its open investment policies and its tendency toward trade protectionism. This is most evident in India’s decision to withdraw from RCEP negotiations, after initially participating, and in its ongoing struggle to maintain its autonomy from China and the United States. Second, like all countries, Modi must navigate the impact of the COVID-19 pandemic, which has amplified social grievances and particularly harmed the industrial and agricultural sectors. Third, Modi must translate India’s global economic integration into domestic economic growth; particular challenges include concerns about people’s livelihoods (such as high youth unemployment and a growing gap between rich and poor), ensuring the government’s continued ability to govern (threatened by a series of unpopular economic policies), and addressing ethnic and religious divisions that threaten to undermine the social stability necessary for economic development. Fourth, Modi must reconcile India’s longstanding opposition to relations between South Asian countries in its “backyard” and other countries with the increased connections these countries have to the broader world as economic globalization advances. Some of these countries may no longer be content to limit themselves to their relationship with India. Finally, Modi must decide the future of India’s non-alignment policy. These challenges raise questions about the future success of India’s economic diplomacy.
Indian Views of the US Indo-Pacific Strategy
In Guoji Luntan, no. 5, 2021, Li Qingyan explores US efforts to incorporate India into its Indo-Pacific strategy (which Li views as motivated by a desire to contain China), Indian motivations for pursuing closer ties with the United States, and the inherent limits to US–Indian relations. Since the end of the Cold War, both Democratic and Republican administrations have sought to upgrade US–Indian relations for geopolitical strategic relations. Under Modi, India has shifted from its traditional “non-alignment” policy to a “multi-alignment” approach that emphasizes building strategic relations with multiple great powers. Politically, the United States, operating under what Li criticizes as flawed zero-sum Cold War thinking, views India as a key pillar of its Indo-Pacific strategy. India is happy to acquiesce to the Indo-Pacific strategy because it views cooperation with the United States as a way to achieve its great power ambitions. Consequently, India has increased its dialogues and cooperation with the members of the Quad. In the security field, the United States regards India as a “defense partner” and treats it much as it would treat a formal ally. The two countries share technology and some intelligence, have worked to integrate military operations, and participate in joint military exercises. Furthermore, India has supported US military cooperation with Indian Ocean nations, such as the Maldives and Sri Lanka, in contrast to its longstanding rejection of involvement by countries from outside the region in its “backyard.” Furthermore, Li contends that India and the United States have teamed up to oppose the Belt and Road Initiative, painting its projects as “debt traps” and “neocolonialism,” and promoting their own initiatives as an alternative. Li charges that India has acquiesced to a US strategy of using technology and economic aid to persuade small- and medium-sized South Asian countries to choose cooperation with the United States over cooperation with China.
Despite the strengthening of US–Indian relations, however, Li asserts that geopolitical, security, and economic differences will hinder the development of formal alliance relations. From a strategic perspective, US–Indian relations are limited by conflicting objectives and a lack of mutual trust. India participates in the Indo-Pacific strategy not because it wants to take the United States’ side in the US–China strategic competition, but because India views cooperation with the strategy as the best way to achieve its great power ambitions and establish its regional significance as the world transitions to multipolarity. Furthermore, India continues to pursue weapons deals with Russia, even as its military cooperation with the United States increases. Finally, trade frictions have undermined Indian–US relations. Under the Trump administration, the two countries clashed over trade barriers and US restrictions on H1-B work visas. Trade protectionism has only grown under the economic pressures of the COVID-19 pandemic. Efforts to move production from China to India notwithstanding, Li anticipates continued tension between US policies first developed under Trump’s “America First” approach and those promoted by Modi’s “Made in India” strategy of domestic protectionism.
Although cooperation with the United States serves India’s strategic interests, Li argues, the “China factor” is not enough to push the United States and India toward alliance relations. India’s embrace of a “multi-alignment” approach is merely a shift in tactics; India remains unwilling to sacrifice its strategic autonomy for US interests. On the one hand, the United States uses its dominant position in the Indo-Pacific strategy and in the US–India relationship to try to bind India to policies that advance US objectives of maintaining global hegemony and strengthening its position vis-à-vis China. At the same time, however, India identifies as a “great power” and prioritizes strategic autonomy. India’s willingness to cooperate with the United States is motivated by India’s perception that China poses a threat to India’s regional dominance and its global influence. However, Li argues, this analysis is completely flawed; if India “abandons ‘strategic autonomy’” and aligns with anti-Chinese elements in the West, it will lose its opportunity to become a great power. India’s best bet, Li contends, is to maintain a flexible foreign policy that balances among great powers, though Li recognizes that this is an immense challenge for Indian foreign policy. Unfortunately, from Li’s perspective, Indian mistrust of China has grown, pushing it closer to the United States and accelerating Indian defense cooperation with the United States, as well as with Australia.
Meanwhile, as emerging markets with enormous populations, China and India have many common interests and face similar development challenges, which might push the two countries closer together. The two countries have extensive trade relations. They also share the view that the Global South should have a far greater say in global economic governance than it currently does and anticipate that their countries will play increasingly significant roles as the world transitions toward a multipolar order. Furthermore, Li expects India’s decision to pursue closer relations with the United States for geopolitical reasons to shift over the longer term. Taking a long view, Li expects the United States and China to eventually learn to coexist in a multipolar world, decreasing India’s opportunity to advance its own interests by playing off China and the United States against each other, and strengthening the value of strategic autonomy. Li concludes that the current close relations between India and the United States conceal underlying structural differences in the two countries’ interests and objectives, and predicts that the Indo-Pacific strategy ultimately will fall away as China and India rise together.
RCEP and Regional Economic Integration in the Asia–Pacific
In Guoji Wenti Yanjiu, no. 5, 2021, Pan Xiaoming praises the November 2020 RCEP agreement as a bright spot in regional trade relations, but is clear-eyed about the challenges that still exist for regional economic integration. Pan argues that the most important contribution of RCEP is to promote structural changes that support deeper regional cooperation. RCEP is the first regional trade agreement between Japan and either South Korea or China, and simplifies a variety of bilateral and smaller multilateral agreements between its various members by bringing them all together under the umbrella of RCEP. It also establishes a robust set of governance structures and a dispute settlement mechanism to ensure implementation. Furthermore, Pan argues, RCEP provides a model for developing countries of how to formulate regional economic rules and promote inclusive development by promoting opening for investment and economic integration while also recognizing the different development levels and interests of its members. Unlike other FTAs dominated by developed countries, RCEP is based around ASEAN and the priorities of developing countries. As a result, it is inclusive, open, and balanced. In addition, Pan contends, RCEP will accelerate the integration of regional economic interests by, for example, reducing tariffs, increasing access to investment, and introducing unified rules of origin. Given the deadlock over the WTO’s Doha Round, RCEP offers its member states an opportunity to promote free trade and combat protectionism through a legally binding regional trade agreement.
Despite the promise of RCEP, Pan is well aware that it faces a number of challenges. One major concern is the trend toward protectionism and opposition to globalization. Pan argues that developed countries adopted protectionist policies in the wake of the 2008 Global Financial Crisis, but chose not to eliminate them once the economy improved. Countries such as Canada, Australia, Japan, and the United States, as well as the European Union, have intensified their scrutiny of foreign investments on “security” grounds. The economic struggles produced by the COVID-19 pandemic have only further encouraged countries to promote their own goods as part of an attempt to support domestic workers. These protectionist trends threaten the traditional model of “European and American design, East Asian production and assembly, and European and American consumption.” While East Asia—and the greater Asia Pacific—has long profited from this model, protectionist measures imperil its model of export-oriented growth. Some of the countries in the Asia-Pacific have responded by adopting their own protectionist measures, which imperils the possibility of a post-pandemic recovery in trade and stalls regional economic integration.
Another key challenge arises from great power competition in the Asia–Pacific. Pan contends that the United States is actively limiting technology exports to China and imposing trade barriers in an attempt to contain China’s rise, while seeking to build stronger trade relations with its democratic allies. In the wake of the pandemic, the United States and Japan have reconfigured their supply chains to reduce their dependence on China and promote their domestic industries, all in the name of “national security.” Pan argues that restrictions imposed on high-tech exports by the United States and Japan undermine the division of labor that has been foundational to regional value chains in the Asia–Pacific, and therefore threaten the continued economic integration of countries in the region.
A third challenge relates to disagreements over rules and standards. Pan charges that the United States and other countries in the West have long used their ability to create global and regional trade rules to counter their competitors and argues that they are now using rules to promote their interests in the digital economy and limit China’s economic rise. These efforts, Pan contends, will hamper Asia–Pacific economic integration by giving rise to multiple digital technology standards and fragmenting the regional market. Increasingly, technical standards have become a way for countries to impose non-tariff barriers that protect their own industries and technologies.
To overcome these challenges, Pan argues, countries in the Asia–Pacific should promote the implementation of RCEP in the member states. Efforts to accelerate regional economic integration are particularly important as countries strive to recover from the disruptions of the pandemic and the disruptions to global supply chains. Consequently, Pan urges countries that have not yet ratified RCEP to do so promptly so that the agreement will come into effect. Pan also encourages other developing countries to gradually increase their participation in RCEP, arguing that it can help these countries to promote their interests in an environment too often dominated by great power competition. Pan particularly encourages developing countries in Latin America to seize RCEP as an opportunity to expand their integration with countries in the Asia–Pacific. Furthermore, Pan encourages members of RCEP to continue to upgrade and improve their regional economic and trade rules, recognizing that many of RCEP’s members have already demonstrated their willingness to sign onto the higher standards of the CPTPP. Continued efforts to coordinate various members’ laws and regulations will facilitate the development of a regional common market. Pan concludes that the successful negotiation of RCEP is a major milestone for Asia–Pacific regional economic integration that will benefit China and the other member states.
Implications of the US–Korea Alliance for China
In Xiandai Guoji Guanxi, no. 8, 2021, Sun Ru and Wang Fudong argue that the Biden administration is increasingly targeting the US–South Korea alliance against China, but that differences in US and South Korean strategic interests and perceptions of China create a strategic opening for China. For many years, Sun and Wang assert, the US–South Korea alliance was focused on the threat from North Korea. However, more recently, it has become increasingly apparent that the bilateral alliance is targeting China, both directly and indirectly, and has expanded from a focus on security to include economics, science and technology, regional governance, and the global order.
Sun and Wang contend that the US–South Korea alliance directly impacts Chinese sovereignty and security, arguing that the decision to deploy THAAD threatens Chinese national security. Joint statements, which rarely mentioned China in the past, now increasingly discuss China. The joint statement at the May 2021 US–South Korea summit was the first to publicly express the two countries’ shared commitment to “preserving peace and stability in the Taiwan Strait” and made indirect references to China in its statements supporting freedom of navigation in the South China Sea and a commitment to a “Free and Open Indo–Pacific.” Sun and Wang also argue that Biden’s support for the South Korean missile program poses a serious threat to Chinese security. In addition, Sun and Wang fear that the US–South Korea alliance has become tied up in Sino–US competition over the economy and technology. They argue the alliance has supported US efforts to “decouple” from China, particularly evident in technological competition and efforts to increase supply chain security. Sun and Wang further contend that the US–South Korea alliance has become implicated in Sino–US strategic competition in the Asia–Pacific. South Korea supported both Obama’s “Asia–Pacific rebalance” and the Trump administration’s “Indo–Pacific strategy” and has participated in dialogues connected to the Quad. The Biden administration has sought to shore up trilateral relations between the United States, South Korea, and Japan in an effort to contain China. Finally, Sun and Wang argue that the US–South Korea alliance has been drawn into Sino–US competition over the future of the world order. The alliance illustrates the values-based alliance approach, promotes a “rules-based world order,” and has expanded into cooperation over global governance. Far from its early focus on the Korean Peninsula, the US–South Korea alliance now touches on a multitude of issues of major concern to China.
Sun and Wang contend that these shifts in the focus of the US–South Korea alliance reflect changes in the two countries’ strategies. The Biden administration prioritizes multilateralism, emphasizes values-based diplomacy and international rules, and views alliances as a useful tool in its competition with China. The focus of the alliance has broadened to reflect the United States’ great power strategy. Meanwhile, South Korea has shifted from balancing between China and the United States to leaning toward the United States. South Korean efforts to seek support from the United States on issues relating to China have become particularly pronounced since South Korean–Japanese relations deteriorated. Cooperation with the United States also serves South Korea’s interests regarding the regional and global order. South Korea anticipates substantial benefits from cooperation with the United States in terms of its economic and security interests, its status, and US support regarding the North Korean nuclear crisis.
Given the backdrop of Sino–US competition, Sun and Wang anticipate that the US–South Korea alliance will continue to touch on multiple issue areas that impact Chinese interests. They also predict that the two countries will continue to emphasize their values-based alliance. Cooperation on sensitive issues like Taiwan will become routine. In technology and economic fields like 5G, semiconductors, blockchain, and vaccine development, the two countries will increase industrial integration and efforts to pull out of China. With regard to geopolitics in the Asia–Pacific, Sun and Wang predict that South Korea will become increasingly involved in Quad dialogues. Furthermore, they expect US–South Korea cooperation on the world order, values, and human rights to intensify.
Despite these expectations, however, Sun and Wang argue that there are areas of divergence between the two countries. South Korea wants to avoid being drawn into tensions between China and the United States and will still try to balance between the two countries. The joint statement issued at the US–South Korea summit was more restrained than that released at the US–Japan summit. Similarly, South Korea’s involvement in US efforts to encircle China is more subdued than that of Japan. South Korea and the United States also have very different strategic interests and threat perceptions regarding China, which lead to different priorities. The United States regards China as its biggest competitor and seeks to encircle it, while South Korea prioritizes its own development and peninsular relations and recognizes the role China plays in its ability to achieve these objectives. One limit to South Korea’s willingness to follow the lead of the United States is economic: the United States cannot replace the economic role China plays for South Korea. In addition, South Korea is cognizant of China’s impact on peninsular relations and stability in Northeast Asia and will therefore be hesitant to lean too far toward the United States.
China opposes alliances directed at third parties as outdated Cold War thinking. Sun and Wang believe that the focus of the US–South Korea alliance on China will not only harm Chinese national security interests, but will also negatively impact the situation on the Korean peninsula. They argue that China seeks to improve its relations with South Korea. They are particularly concerned about situations in which the US–South Korea relationship might infringe on Chinese sovereignty and national security and argue that China must be prepared to firmly push back and exact a cost if the bilateral alliance oversteps China’s red lines. However, they are more optimistic about the prospects for cooperation on technology and economic issues. They argue that there is room for cooperation between China, South Korea, and the United States in areas like energy, 5G, and climate change. Although the United States and South Korea have more advanced technologies than China, they cannot afford to completely decouple from the massive Chinese market, and trade between China and South Korea will remain quite substantial. Finally, Sun and Wang argue that China must expose US efforts to negatively depict China as completely distinct from South Korea in terms of values and ideology. They contend that although China and the West have different values, grounded in their different histories and traditions, one is not superior to the other, and each should respect the other. The United States and South Korea should avoid issues that are sensitive to China, temper nationalist sentiments, and work to reduce negative perceptions of China.
In Guoji Guanxi Yuce, no. 3, 2021, Huang Bei argues that Sino–Japanese relations are deteriorating, and that Japan’s China policy will be characterized by competition. After 2017, Sino–Japanese relations had been improving and the two countries initially faced the COVID-19 pandemic together. However, since April 2020, the relationship has become increasingly volatile. Worsening Sino–US strategic competition has drawn in Japan. Other points of tension include some local governments’ support of Trump’s attempt to ban TikTok and Japanese statements on Hong Kong and Xinjiang, areas of great sensitivity to China. Meanwhile, the territorial dispute over the Senkaku/Diaoyu Islands has reignited. Huang criticizes Japan for raising its maritime disputes with China with security partners such as the United Kingdom, Germany, and Indonesia, as well as with the United States and the Quad.
Huang Bei and his forecast team at Qinghua University anticipate that Sino–Japanese relations will further deteriorate in the near term for three main reasons. First, after some difficulties during the Trump administration, US–Japan relations are back on track, and Japan no longer needs to increase its cooperation with China to manage Trump’s unpredictability. The Biden administration has taken concrete steps to support Japan on important domestic issues, such as its management of the COVID-19 pandemic and the summer 2021 Olympics. Second, the United States has reaffirmed its security commitment to the US–Japan alliance as part of the Biden administration’s broader focus on alliance relations. The Biden administration has assured Japan that US defense obligations extend to the Senkaku/Diaoyu Islands and the United States holds regular joint trainings with the SDF. This support has encouraged Japan to take a firmer position on the island dispute. Meanwhile, the Biden administration has also persuaded Japan to support its Indo–Pacific strategy, which targets China. In terms of technology and supply chain security, Japan has sought to become less dependent on China by increasing its cooperation with the United States. Furthermore, Japan has identified itself ideologically with Europe and the United States as members of a “liberal, democratic camp.” Finally, domestic Japanese sentiment continues to embrace “China threat theory,” particularly as tensions over the Senkaku/Diaoyu Islands have increased, pressuring the Japanese government to take a harsher line against China.
Although Huang’s team predicts that Sino–Japanese relations will continue to worsen in the near term, they do not believe full-scale confrontation will occur. Economically, China still plays a major role as Japan’s largest trading power, and, given the economic turmoil caused by the pandemic, both the Japanese government and the Japanese population are acutely concerned about improving Japan’s economic position. Japan is also committed to regional economic integration, including the new RCEP deal, which will drive further Sino–Japanese economic cooperation. Consequently, economic decoupling is very unlikely to occur in the near term because it is not in Japan’s economic interests. Furthermore, China and Japan share common interests in important areas of global governance, such as the environment and public health. Huang concludes that although bilateral relations will deteriorate in the short term, the degree to which they falter will be limited by these shared interests.