Handbooks of Research on Contemporary China series
Edited by David S.G. Goodman
Chapter 22: Economic statecraft
Since 1978, China has repeatedly used foreign policy tools to advance its economic interests. Beijing is now beginning to reverse this equation, deploying its vast economic wealth to support foreign policy goals. China is flexing its economic muscle more frequently and on a wider range of issues, often backed up by nationalist sentiments at home. The strategic use of China’s financial resources causes anxiety in Asia and around the world, and with good reason. Never in world history has one government had so much control over so much wealth. China’s leaders govern a country that has the world’s largest capital surplus and its second-largest economy, a highly coveted domestic market, and a currency with growing regional appeal. The temptation to deploy China’s economic might for strategic benefit has proven irresistible. China today is using economic statecraft more frequently, more assertively, and in more diverse fashion than ever before. Economic statecraft is the use of economic resources by political leaders to exert influence in pursuit of foreign policy objectives. There are three main strategies: providing capital through foreign aid or direct investment; expanding trade via preferential trade agreements or state procurements; and altering monetary policies such as purchasing foreign bonds or intervening in currency markets. These tools can be deployed either as incentives or as punitive measures.
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